452 B.R. 100
Bankr. S.D.N.Y.2011Background
- Old Carco entered into two Ohio tax exemption agreements (1999 and 2000) with Summit County and the City of Twinsburg for the Twinsburg Plant, providing 50% exemptions on eligible new personal property for ten years.
- Exemptions were first claimed in 2000 (1999 Agreement) and 2001 (2000 Agreement); annual administrative fees were to be paid by Old Carco.
- The Plant was closed in June 2010; Old Carco had previously terminated the workforce and the Plant’s operations as part of the Fiat Transaction and subsequent restructuring.
- Summit County and Twinsburg reviewed compliance via the Tax Incentive Review Council (TIRC); by 2009, Summit County Council resolved Old Carco fully complied with both agreements.
- Fiscal Officer filed two priority claims (1999 Agreement Claim and 2000 Agreement Claim) in October 2009 for the aggregate tax savings abated under the agreements.
- The Court held the 1999 Agreement expired on December 31, 2009, before the June 2010 Plant closing, and the 2000 Agreement expired December 31, 2010.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the 1999 Agreement Claim is valid | Sum Co. asserts 1999 Agreement remained in force and breach occurred in 2010. | Old Carco argues 1999 Agreement expired by term and breach cannot relate to it. | 1999 Agreement Claim disallowed; no in-force contract at breach. |
| Whether the 2000 Agreement breach occurred and timing | Breach occurred in June 2010 due to plant closing. | Breach argued earlier due to failure to maintain employees; later excused by change to economic conditions. | Breach occurred in June 2010; encouraged by plant closing, but challenged as to timing and materiality. |
| Whether the 'change to economic conditions' clause excuses breach under the 2000 Agreement | The clause should excuse performance given financial crisis; events beyond control. | The crisis was within Old Carco’s control; bankruptcy not excused. | Change to economic conditions excused performance; plant closing not a default under 2000 Agreement. |
| Whether the 2000 Agreement Claim is a tax or a contract damage claim for priority purposes | Claim should be treated as a tax, qualifying for priority under 507(a)(8). | Claim is a contract damages recovery, not a tax, and thus not priority. | 2000 Agreement Claim is a contract damage claim, not a tax; not entitled to 507(a)(8) priority. |
Key Cases Cited
- In re Chrysler LLC, 405 B.R. 84 (Bankr.S.D.N.Y. 2009) (court relied on financial crisis context and related events)
- City of Dayton v. Cloud, 30 Ohio St.2d 295 (1972) (contract payments not automatically taxes)
- Suburban Motor Freight, Inc. v. United States, 998 F.2d 338 (6th Cir. 1993) (Lorber/priority tax analysis and Suburban framework)
- Suburban I, 998 F.2d 340 (6th Cir. 1993) (Lorber elements; public purpose critique)
- Suburban II, 36 F.3d 484 (6th Cir. 1994) (priority of taxes under federal bankruptcy law; universality)
- Reorganized CF&I Fabricators of Utah, Inc., 518 U.S. 213 (1996) (functional examination of tax vs. penalty characterization)
- City of St. Marys v. Auglaize Cnty. Bd. of Comm'rs, 2007-Ohio-5026 (Ohio Supreme Court 2007) (contract interpretation under Ohio law)
- United States v. Reorganized CF & I Fabricators of Utah, Inc., 518 U.S. 213 (1996) (functional tax analysis relevant to contract damages vs. taxes)