Majestic Star Casino, LLC v. Barden Development, Inc. (In re Majestic Star Casino, LLC)
466 B.R. 666
Bankr. D. Del.2012Background
- Debtors Majestic Star Casino, LLC and affiliates seek to avoid post-petition transfer under 11 U.S.C. §§ 549-550-362; the transfer stems from revocation of MSC II’s QSub status after BDI revoked its S status.
- BDI is Debtors’ non-debtor parent; Barden is BDI’s sole shareholder and MSC II’s CEO.
- BDI revoked its S status effective January 1, 2010, which by regulation terminated MSC II’s QSub status.
- MSC II (the QSub) became a C corporation post-revocation, triggering new tax obligations for the estate.
- Debtors learned of the Revocation in July 2010; they allege the Revocation was unauthorized and caused post-petition tax burdens that diminished estate assets.
- Court grants summary judgment for Debtors on Counts I and II, finding QSub status is property of the estate and the Revocation was an unauthorized post-petition transfer in violation of the automatic stay.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is the QSub status property of the bankruptcy estate? | Debtors: yes, QSub is property of the estate. | BDI/BDarden/IRS: no, QSub has no separate tax property interest. | Yes; QSub status is property of the estate. |
| Was the Revocation an avoidable transfer under §549? | Revocation transferred estate property without authorization. | Revocation affects tax status; not an avoidable transfer. | Yes; Revocation constitutes an avoidable post-petition transfer. |
| Did Revocation violate the automatic stay §362? | Revocation diminished estate property by terminating QSub. | Not directly addressed apart from potential §549 grounds. | Yes; Revocation violated §362 and is void. |
Key Cases Cited
- In re Bakersfield Westar, 226 B.R. 230 (Bankr. D. Mass. 1993) (debtor’s S status property of the estate due to tax benefits and avoidance of tax burden)
- In re Cumberland Farms, Inc., 162 B.R. 66 (Bankr. D. Mass. 1993) (property in tax savings from S status is estate property)
- In re Feiler, 230 B.R. 164 (9th Cir. BAP 1999) (net operating loss and tax benefits pass to estate; avoidance harms estate)
- In re Trans-Lines W., Inc., 203 B.R. 653 (Bankr. E.D. Tenn. 1996) (S status benefits and transfer considerations relevant to estate)
- In re Prudential Lines Inc., 928 F.2d 565 (2d Cir. 1991) (property includes contingent and future interests; estate may hold rights influenced by non-debtor actions)
- In re Fruehauf Trailer Corp., 444 F.3d 203 (3d Cir. 2006) (estate property includes contingent future interests; broad view of property)
- Pension Transfer Corp. v. Beneficiaries Under Third Amendment to Fruehauf Trailer Corp. Ret. Plan (In re Fruehauf Trailer Corp.), 444 F.3d 203 (3d Cir. 2006) (estate interests include contingent and future benefits)
- In re NJ Mobile Dental Practice, P.A., 2008 WL 1373706 (Bankr. D.N.J. 2008) (post-petition transfers under §549)