In Re Super Van, Inc.
*186 DECISION ON MOTION OF STATE OF TEXAS TO ABSTAIN FROM HEARING DEBTOR’S MOTION FOR DETERMINATION OF AMOUNT OR LEGALITY OF TAX, FINE AND PENALTY RELATING TO TAX
CAME ON for hearing the motion of the Texas Employment Commission to abstain from hearing debtor’s motion, brought under § 505, for redetermination of amount or legality of tax, fine and penalty relating to tax. Upon consideration thereof, the court has entered its order denying the motion. This decision is entered, incident to the entry of a final judgment in this cause, to set out the rationale for the court’s ruling.
BACKGROUND
Super Van, Inc. operates a shuttle service in San Antonio, Texas, and has done so since 1987 or 1988. Super Van filed for bankruptcy September 30, 1992, under chapter 11. During the course. of this bаnkruptcy, the debtor filed an action under § 505 of the Bankruptcy Code, for determination of the amount or legality of certain taxes owed the Internal Revenue Service and the Texas Employment Commission. The TEC has moved this court to abstain from hearing the debt- or’s motion.
The gravamen of the debtor’s § 505 motion requires the court to determine whether, for the applicable period, the debtor’s drivers were employees or independent contractors, for purposes of the Texas Unemployment Compensation Act. See Texas Unemployment Compensation Act, Section 19(g)(1), codified at Tex.Rev.Civ.Stat.Ann., art. 5221b-17(g)(1) (Vernon Supp.1998). The motion also seeks a determination of federal unemployment tax liability, and the same factual issue must be resolved there. All parties agree that the law regarding whether a worker is an employee or an independent contractor is essentially the- same for both Texas and federal unemployment tax liability. It is for this reason that the debtor joined both taxing entities in this single action. Only the State of Texas has sought abstention. The United States has not.
The TEC argues that the debtor has already contested this very issue before in TEC administrative hearings.
1
Furthermore, the. TEC argues that abstention is appropriate in order to preserve the state’s interest in uniformity of assessment.
See In re Fairchild Aircraft Corp.,
ANALYSIS
The main thrust of the TEC’s argument is that
Burford
abstention applies to this case.
Burford v. Sun Oil Co.,
I. Abstention is not compelled by Thompson v. Magnolia Petroleum.
The thrust of the TEC’s argument was dictated at least in part by this court, which had indicated to the parties that the
*187
discretionary abstention provisions found in
A court of bankruptcy has an exclusive and nondelegable control over the administration of an estate in its possession. But the proper exercise of that control may, where the interests of the estate and the parties will best be served, lead the bankruptcy court to consent to submission to State courts of particular controversies involving unsettled questions of State property law and arising in the course of bankruptcy administration.
Id.,
Bankruptcy abstention seems to have-followed its own track, separated from more traditional abstention case law. This is so at least partly because, under the Bankruptcy Act, the bankruptcy court’s summary powers extended only to property in the estate’s possession. Its plenary jurisdiction was severely circumscribed. When the Bankruptcy Code replaced the Act, it also expanded substantially the bankruptcy court’s jurisdiction. The 1984 Amendments again contracted that jurisdiction, but only to the extent necessary to avoid further Article III challenges. The scope of jurisdiction under the Code today is still substantially broader than it was when Justice Black wrote Thompson. See generally 1 King, CollieR on BANKRUPTCY, ¶ 1.01 et seq. (15th ed. 1993).
Justice Black was also the author of
Bur-ford,
which was issued three years after
Thompson. Burford v. Sun Oil Co.,
Thompson
does not compel abstention here. First of all, the case has limited utility today, given the substantial changes in bankruptcy law and jurisdiction since 1940. Second, the touchstone of the decision to abstain in the bankruptсy context, according to Justice Black, is “where the interests of the estate and the parties will best be served,” when the particular controversy involves “unsettled questions of State property law and arising in the course of bankruptcy administration.”
Id. Thompson
abstention is difficult to justify here, for the interests of the estate would
not
be served by abstention. The underlying facts to be determined will in turn determine the result for both the TEC and the IRS tax liability, as both taxing entities employ the common law test for whether an employer-employee relationship is present.
See Breaux and Daigle, Inc. v. United States,
Nor are there any particular unsettled questions of state property law at issue. Obviously, we need not read Thompson to be restricted to state property law issues, though that is the precise wording found in that ease, but this case presents no other state law issues in the sort of disarray that the Supreme Court found in Thompson. In *188 deed, all parties have acknowledged that the state law issues involved here are fairly well settled. The State’s primary fear seems to be that a body of case law will develop in the bankruptcy courts that may “skew” the body of law already being developed in state courts. That alone, even if it were true, 2 would not be enough to satisfy the Thompson standard. Thus, Thompson does not support the position of TEC urged in this ease.
II. Abstention is not compelled by Burford.
TEC’s
Burford
abstention argument is premised on the notion that the TEC administrative scheme involved here has the same intricacy and importance as did the Railroad Commission’s oil and gas regulаtory scheme at issue in
Burford,
and that the State of Texas has instituted a centralized system of judicial review of commission orders which permit state courts (particularly the courts of Travis County, Texas) to acquire a specialized knowledge of the regulations.
Burford v. Sun Oil Co.,
The argument misses the mark because it fails to appreciatе the true target of Burford abstention. In Burford, the plaintiff sought equitable intervention (by way of a federal injunction) to prevent or undo the issuance of a state oil drilling permit, premising subject matter jurisdiction on diversity of citizenship. Since that time, the Supreme Court has actually pared down the breadth of Burford abstention, in recognition of the principles first voiced by Justice Frankfurter in his dissent. 3 The Supreme Court recently summarized its current understanding of the Burford abstention doctrine this way:
Where timely and adequate state court review is available, a
federal court sitting in equity must decline to interfere with the proceedings or orders of state administrative agencies: (1) when there are “difficult questions of state law bearing on policy problems of substantial public import whose importance transcends the result in the case then at bar”; or (2) where the “exercise of federal review of the question in a case and in similar cases would be disruptive of state efforts *189 to establish a coherent policy with respect to a matter of substantial public concern.” Colorado River Water Conservation Dist. v. United States, supra, 424 U.S. [800], at 814, 96 S.Ct. [1236], at 1245,47 L.Ed.2d 483 (1976).
New Orleans Public Serv. v. Council of New Orleans,
While Burford is concerned with protecting comрlex state administrative processes from undue federal interference, it does not require abstention whenever there exists such a process, or even in all eases where there is a “potential for conflict” with state regulatory law or policy.
Id. (citing Colorado River Water Conservation Dist.).
We must balance these comments against what the Court says about the “virtually unflagging” obligation of federal courts to adjudicate claims within their jurisdiction.
Id.,
citing
Deakins v. Monaghan,
Our cases have long supported the proposition that federal courts lack the authority to abstain from the exercise of jurisdiction that has been conferred.... “We have no more right to decline the exercise of jurisdiction which is given, than to usurp that which is not given. The one or the other would be treason to the Constitution.” Cohens v. Virginia,6 Wheat. 264 , 404,5 L.Ed. 257 (1821).... Underlying these assertions is the undisputed constitutional principle that Congress, and not the judiciary, defines the scope of federal jurisdiction within the constitutionally permissible bounds. Kline v. Burke Construction Co.,260 U.S. 226 , 234,43 S.Ct. 79 , 83,67 L.Ed. 226 (1922).... We have carefully defined ... the areas in which ... “abstention” is permissible, and it remains ‘“the exception, not the rule.’ ” Hawaii Housing Authority v. Midkiff,467 U.S. 229 , 236,104 S.Ct. 2321 , 2327,81 L.Ed.2d 186 (1984), quoting Colorado River Water Conservation Dist. v. United States, supra,424 U.S. 800 , 813,96 S.Ct. 1236 , 1244,47 L.Ed.2d 483 (1976).
New Orleans,
The invocation of
If this court were to invoke
Burford
abstention to decline hearing this matter, the court would be committing the very crime described in
Cohens v. Virginia
— treason to the Constitution. Congress has already dealt with the TEC’s argument, electing to confer jurisdiction notwithstanding the existence of state administrative schemes, nоtwithstanding their importance to the states, notwithstanding the specialized knowledge that might otherwise have been built up at the state level, notwithstanding even the potential for conflicts between state and federal enactments. Using
Burford
abstention here would mean ignoring what Congress has written; the separation of powers doctrine proscribes federal courts from ignoring what Congress has written.
See Burford, supra
*190
A couple of policy points are important here. First off, the dangers of inconsistency between state and federal tribunals is minimal at best. State law says that decisions made “regarding a claim for benefits under this Act” has no collateral estoppel effect. Tex.Rev.Civ.StatAnn, art. 5221b-9(r) (Vernon Supp.1993). Also, the decisions of this court pursuant to
Secondly, as the Supreme Court obsеrved, “there is ... no doctrine requiring abstention merely because resolution of a federal question may result in the overturning of a state policy.”
Zablocki v. Redhail,
In fact, Congress appears already to have accommodated concerns about potential conflicts within the body of the statute itself.
See
Congress correctly realized that Bur-ford abstention is not at issue in the bankruptcy context because we do not here have the mere resort to a federal court in order to attack or evade a state regulatory sсheme; rather we have the incidental ability to employ the federal forum to do what would otherwise have to be done in the state’s administrative scheme, in service to the larger policies underlying the administration of the bankruptcy case. There is no “interfer *191 ence,” such as in Burford — unless one wants to argue that the sole purpose of filing the bankruptcy itself was to interfere with the state administrative process. No one has made that argument here, and it is not. supported by the facts of this case in any event. 7 In all events, were a debtor to file bankruptcy solely for that reason alone, abstention would not be the proper tool to grаb for; dismissal for bad faith filing would. 8
III. Abstention is not warranted under Younger.
Younger
abstention does not apply here either, both for technical reasons and for policy reasons.
See Younger v. Harris,
[wjhile we have expanded Younger beyond criminal proceedings, and even beyond proceedings in courts, we have never extended it to proceedings that are not “judicial in nature.”
New Orleans,
it has never been suggested that Younger requires abstention in deference to a state judicial proceeding reviewing legislative or executive action. Such a broad abstention requirement would make a mockery of the rule that only exceptional circumstances justify a federal court’s refusal to decide a case in deference to the States.
Id.
at 369,
Once again, too, the express language of
Even if
Younger
applied as a general proposition, the facts of this case are such that it would not apply here. There is no longer an ongoing judicial proceeding which the invocation of this
IV. Abstention is not Warranted under
We come then to the fourth possible basis for “abstention,” to wit, the provisions of
The statute itself gives bankruptcy judges the discretion to decline to hear a tax matter, (“the court may determine ... ”). This discretion is quite broad, permitting a court to evaluate a wide variety of factors in determining whether to proceed. The discretion is not unbridled, however. An abuse of discretion would occur in this context were a court to decline to hear a matter without having balanced the countervailing interests of the estate’s right to invoke the statute in the first place against the interests of the taxing authority, and the interests of the court’s own docket. The following factors weigh in on the side of hearing the matter:
1. The statute was enacted expressly to permit the bankruptcy court to sit as a Tax Court;
2. The statute furthers the centralized and speedy administration of the estate;
3. The statute is designed to avoid duplication of effort and unnecessary costs on the estate;
4. The bankruptcy court, as is any federal court, is presumed competent to аpply state law statutes and principles in a manner consistent with state law precedents.
In the usual case, these factors apply, and the bankruptcy court, to be faithful to its duty to hear matters brought under the Bankruptcy Code, should hear the matter.
New Orleans, supra,
1. There matter in question may represent an abuse ofsection 505 ;
2. Some tax matters are sufficiently complex that deferring to another adjudicator might.result in a fairer and more expeditious resolution of the problem;
3. The court’s docket may not permit entertaining a lengthy and complex tax dispute, while a relatively efficient mechanism for resolving the dispute is already available elsewhere;
4. The cost of pursuing the tax dispute in another forum may not be substantially different than the cost of pursuing in the bankruptcy forum;
5. Pursuing the matter in another forum will not result in multiplicity of litigation or the potential for inconsistent results.
See generally In re Hunt,
The facts of this case are such that the discretion not to hear this matter should not be exercised. The subsidiary facts for determining whether the debtor is an employer under Article 5221b-17(g)(l) are substantially the same as those the court must look at for answering the same question with regard to the debtor’s federal tax liability. Were this court to leave the matter to the state court, the possibility for inconsistent factual determinations is substantial. Obviously, the state court cannot try the federal tax question, for оutside bankruptcy, the jurisdiction to resolve federal tax liability issues is essentially federal.
See
There are therefore more reasons to try the case in this forum than not to. The court declines to exercise its discretion in this case not to try the matter.
CONCLUSION
For all the foregoing reasons, the court will deny the motion of the TEC to abstain, noting along the way that, when it comes to matters brought under
Notes
. This court, on April 8, 1993, ruled that the May 24th decision of the TEC administrative tribunal lacked the requisite finality to deprive this court of the right to itself entertain the dispute.
See
. Even though the State of Texas gives the TEC the authority to promulgate uniform rules, regulations and procedures, and gives that entity the right to conduct hearings in accordance with those rules, there is nothing in Texas law which makes that grant of authority exclusive. TexRev. Civ.Stat.Ann., art. 522 lb-9 (Vernon Supp.1993).
. Said Justice Frankfurter,
To deny a suitor access to a federal district court under the circumstances of this case is to disregard a duty enjoined by Congress and made manifest by the whole history of the jurisdiction of the United States courts based upon diversity of citizenship between parties .... [T]he basic premise of federal jurisdiction based upon diversity of the parties' citizenship is that the federal courts should afford remedies which are coextensive with rights created by state law and enforceable in state courts.
Where the controlling state law is so undefined that a federal court attempting to apply such law would be groping utterly in the dark— where "no mаtter how seasoned the judgment of the district court may be, it cannot escape being a forecast rather than a determination,” [quoting [Railroad Commission v.] Pullman312 U.S. 496 ,61 S.Ct. 643 ,85 L.Ed. 971 (1941)] — a court of equity may "avoid the waste of a tentative decision.” ... Under such circumstances it was an affirmation and not a denial of federal jurisdiction in each those cases [Pullman and City of Chicago v. Fieldcrest Dairies,316 U.S. 168 ,62 S.Ct. 986 ,86 L.Ed. 1355 (1942)] for the district court to hold the bill pending a seasonable determination of the local issues in a proceeding to be brought in the state courts....
... The duty of the judiciary is to exercise the jurisdiction which Congress has conferred. What the Court is doing today I might wholeheartedly approve if it were done by Congress. But I cannot justify translation of the circumstance of my membership on this Court into an opportunity of writing my private view of legislative policy into law ...
Burford v. Sun Oil Co.,
.
.
. The Court in
Arkansas Corp. Commission
had concluded that a trustee in a railroad equity receivership could not go into a federal court sitting in bankruptcy and obtain a second bite at the apple after having lost a contest before the state commission over property taxes which had accrued during the equity receivership. Congress later enacted Sеction 2(a) of the Bankruptcy Act, which expressly permitted a trustee in bankruptcy to do precisely what the Court had prohibited in
Arkansas Corp. Commission.
However, in so doing, Congress inserted a limitation — that tax disputes which had reached the level of finality described in
Arkansas Corp. Commission before
the bankruptcy could not be collaterally attacked under the authority of Section 2(a) of the Act
after
the bankruptcy. This language was essentially re-codified in
. The events which led up to this bankruptcy grew out of Supervan's licensing difficulties with the City of San Antonio, along with the attendant interruptions to Supervan's cash flow.
. Consider: if the case is filed solely so that the debtor can use
. Recall that abstention in the first instance invites a court to disregard a jurisdiction otherwise conferred on the cоurt by Congress, in derogation of the doctrine of separation of powers. Where that jurisdiction is express, as here, the constitutional error in abstaining would be blatant (perhaps, in the words of Cohens v. Virginia, even treason).
. This is the opposite of the situation proscribed by the Court in New Orleans:
[A] party may not procure federal intervention by terminating the state judicial process prematurely — forgoing the state appeal to attack the trial court's judgment in federal court. “A necessary concomitant of Younger is that a party [wishing to contest in federal court the judgment of a state judicial tribunal] must exhaust his state appellate remedies before seeking relief in the District Court.” Huffman v. Pursue, Ltd.,420 U.S. 592 , 608,95 S.Ct. 1200 , 1210,43 L.Ed.2d 482 (1975).
New Orleans,
.These ''built-in” abstention provisions, it turns out, serve several important functions. First of all, they give clear statutory guidance to courts sitting in bankruptcy, rather than leaving abstention up to the current state of the case law. A quick review of
New Orleans
demonstrates the wisdom of this decision, as there are three different statements on the range of
Younger
abstention, and two different views on the scope of
Burford
abstention within the body of that decision alone.
See New Orleans, supra
at 371,
. In addition, the debtor appeared at the TEC hearing without the benefit of counsel, raising some questions regarding whether the determination amounted to a "full and fair opportunity” for the parties to be heard. El Tropicano, supra at 160.
. Any attempt to bring this matter in state court would be met with a prompt removal petition to federal court, followed by a dismissal for failure to follow Title 26 procedures.
. In this regard, the court retreats from its earlier position on this point in
Fairchild Aircraft,
where the court adverted that