Wood v. CantwellWood v. Cantwell
Below is a Memorandum Decision of the Court.
MEMORANDUM DECISION ON CROSS-MOTIONS FOR SUMMARY JUDGMENT
Below is a Memorandum Decision of the Court.
INTRODUCTION
These matters came before me on the cross-motions for summary judgment of Defendants Joseph Cantwell and Mary Cantwell (hereafter, together the “Cantwells“) and Plaintiff Edmund J. Wood, Chapter 7 Trustee (hereafter, the “Trustee“). Adv. Dkts. 31 and 47.1 I am asked to determine whether a statutory lien arose upon the filing of the Cantwells’ bankruptcy case and whether the Trustee may avoid and preserve the lien for the benefit of the Cantwells’ bankruptcy estate. The short answer is that the Cantwells were not “engaging in business” as defined by state statute at or near the date of their bankruptcy petition and therefore, no lien arose to avoid or preserve.
The Trustee asserts that the Cantwells are personally liable for tax debts arising from Mr. Cantwell‘s prior business engagements and that upon the Cantwells’ filing оf their Chapter 7 bankruptcy petition a statutory lien (hereafter, the “Asserted Lien“) arose in favor of the Washington State Department of Revenue (hereafter, the “DOR“) and attached to the Cantwells’ property.2 The Trustee further asserts that the Alleged Lien may be avoided and preserved for the benefit of the bankruptcy estate pursuant to
Below is a Memorandum Decision of the Court.
PROCEDURAL BACKGROUND
On June 27, 2023 the Trustee filed a complaint initiating this adversary proceeding. Adv. Dkt. 1. On September 25, 2023, the Trustee filed a motion for default against defendants Mortgage Electronic Registration Systems, Inc., Flagstar Bank FSB, and Best Mortgage Inc. Adv. Dkt. 21. On October 23, 2023, I granted that motiоn but have not entered a default judgment. Adv. Dkt. 30. On October 23, 2023, the Trustee filed his Motion for Summary Judgment and the DOR filed a Memorandum Regarding Summary Judgment stating its position on the Cantwells’ personal liability for tax obligations of a business formerly associated with Mr. Cantwell. Adv. Dkt. 35. On November 20, 2023,
JURISDICTION
I have jurisdiction over the parties and subject matter of these motions pursuant to
UNCONTESTED FACTS
The following facts are uncontested. Emeral Construction, LLC (hereafter, “Emeral“) was formed in Washington State on October 19, 2021 by individuals other than the Cantwells.
Below is a Memorandum Decision of the Court.
DOR Decl., Adv. Dkt. 35. “In July of 2020, Joe Cantwell amended Emeral‘s formation documents, indicating he was the registered agent for Emeral. Thereafter, the Secretary of State‘s office has designated Joe Cantwell as a governor of Emeral.” Id. Soon after formation, Emeral fell delinquent on its payment of business and occupation taxes (hereafter, “B&O tax“) and failed to remit collected sales tax due to the DOR for all four tax quarters of 2020. Id. By December 31, 2020, Emeral had ceased business. Id. The Trustee indicates that the last date for which he can establish that Mr. Cantwell was “engaging in business” was July 19, 2021, when Mr. Cantwell filed an annual reрort (hereafter, the “Emeral Annual Report“) with the Secretary of State‘s office. Trustee Decl., Adv. Dkt. 50. No evidence has been presented that either of the Cantwells engaged in any other business, whether personally or on behalf of another business entity, after the filing of the Emeral Annual Repоrt.
On February 9, 2022, pursuant to
Below is a Memorandum Decision of the Court.
SUMMARY JUDGMENT STANDARD
Federal Rule of Civil Procedure 56(a), applicable to bankruptcy adversary proceedings pursuant to Federal Rule of Bankruptcy Procedure 7056, provides that “[t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact аnd the movant is entitled to judgment as a matter of law.” The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323(1986). “As to materiality, the substantive law will identify which facts are material. Only disputes over facts that might affect the outcome of the suit under the governing law will properly
“[A] party opposing a properly supported motion for summary judgment may not rest upon the mere allegations or denials of his pleading, but ... must set forth specific facts showing that there is a genuine issue for trial.” Id. While all justifiable inferences are to be drawn in favor of the non-moving party, when the record, taken as a whole, could not lead a rational trier of fact to find for the non-moving party, summary judgment is warranted. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (internal citations omitted).
ARGUMENT AND ANALYSIS
“The trustee may avoid the fixing of a statutory lien on property of the debtor to the extent that such lien ... first becomes effective against the debtor ... when a case under this title concerning the debtor is commenced.”
Below is a Memorandum Decision of the Court.
The Trustee argues that because the Cantwells are personally liable for the Emeral tax obligations, the Asserted Lien attached to the Residence as of the Petition Date, and therefore he may avoid and preserve the Asserted Lien for the benefit of the bankruptcy estate. The Trustee argues that the Asserted Lien arises under Washington State‘s excise tax scheme, which states in relevant part:
In all cases of probate, insolvency, assignment for the benefit of creditors, or bankruptcy, involving any taxpayer who is, or decedent who was, engaging in business, the claim of the state for said taxes and all increases and penalties thereon shall be a lien upon all real and pеrsonal property of the taxpayer...
The lien provided for by this section shall attach as of the date of the assignment for the benefit of creditors or of the initiation of the probate, insolvency, or bankruptcy proceedings: PROVIDED, That this sentence shall not be construed as affecting the validity or priority of any earlier lien that may have attached previously in favor of the state under any other section of this title.
Under the statute, a tax lien against property “shall attach” (1) as of the date of an assignment for the benefit of creditors, or at the initiation of insolvenсy or bankruptcy proceedings (2) involving a “taxpayer” (3) “who is ... engaging in business.” (emphasis added). A tax lien may also attach at the initiation of a probate proceeding for property of a decedent who was engaging in business. The Washington State Legislature has broadly defined “engaging in business” undеr Title 82 to include “the exercise of corporate or franchise powers as well as liquidating a business.”
The parties do not dispute that the Cantwells’ bankruptcy filing is a proceeding of the kind referenced by the statute, or that Mr. Cantwell is a “taxpayer” personally liable for Emeral‘s tax obligations because of Mr. Cantwell‘s status as a “responsible individual” for Emeral under
Below is a Memorandum Decision of the Court.
“taxpayer who is, or decedent who was, engaging in business” and its applicability to the facts in the present case.3
Courts are to employ the “plain meaning” rule when interpreting Washington statutes:
To dеtermine legislative intent, this court looks first to the language of the statute. If the statute is unambiguous, its meaning is to be derived from the plain language of the statute alone. Legislative definitions provided in a statute are controlling, but in the absence of a statutory definition, courts may give a term its plain and ordinary meaning by reference to a standard dictionary.
Fraternal Order of Eagles, Tenino Aerie No. 564 v. Grand Aerie of Fraternal Order of Eagles, 148 Wn. 2d 224, 239–40 (2002) (cleaned up).
Although the Trustee appears to agree that the statutory language is plain on its face, he argues that its plain meaning leads to absurd results because a taxpayer could arguably preclude the statutory lien from arising and attaching simply by closing a business on the eve of initiating an insolvency proceeding. Based on the Washington Supreme Court‘s “absurd results” doctrine, the Trustee proposes an alternative interpretation of thе statute:
Below is a Memorandum Decision of the Court.
A taxpayer such as Cantwell should be seen as “engaging in business,” that is, the business that gave rise to the tax liability and for which the taxpayer is a “responsible” individual under
RCW 82.32.145 , if the taxpayer files an individual bankruptcy within four years of the tax year, consistent with the four-year limitations period for the collеction of tax underRCW 82.32.045(4) andWAC 458-20-230(2) .
(Adv. Dkt. 48, p. 8).
In Five Corners Family Farmers v. State, 173 Wn. 2d 296, 311 (2011), the Washington Supreme Court discussed the “absurd results” doctrine at length. In Five Corners, the parties disputed the legislative intent behind permit exemptions for the extraction of public ground water. Id. at 300. The respondents asserted that groundwater extraction for the purpose of livestock watering was exempt from the statute‘s permit requirement for extractions of over five-thousand gallons per day. Id. at 311. The appellants asserted that a plain meaning statutory interpretation allowing for what amounted to “unlimited” extraction of ground water for livestock watering purposes was unreasonable and produced absurd results. Id. at 310. Regarding the “absurd results” doctrine, the Washington State Supreme Court stated the following:
Appellants assert that interpreting the exemption clause to allow withdrawal of “unlimited” groundwater for stock-watering purposes is an “absurd result.” It is true that we will avoid [a] literal reading of a statute which would result in unlikely, absurd, or strained consequences.
However, this canon of construction must be applied sparingly. Application of the absurd results canon, by its terms, refuses to give effect to the words the legislature has written; it necessarily results in a court disregarding an otherwise plain meaning and inserting or removing statutory language, a task that is decidedly the province of the legislature. This raises separation of powers concerns. Thus, in State v. Ervin, 169 Wn. 2d 815, 824, 239 P.3d 354 (2010), we held that if a result “is conceivable, the result is not absurd.”
Id. at 311 (cleaned up). The Supreme Court determined thаt it was conceivable that the legislature placed sufficient importance on the availability of water for livestock watering such
Below is a Memorandum Decision of the Court.
that it intended to allow for permit-exempt extraction of groundwater without a specified gallon-per-day quantity. The Court determined that because the legislature‘s intent was conceivable, the result of the exemption was not absurd, and ruled in favor of the respondents. Id. at 311-12.
Here, the Trustee‘s proposed interpretation of
Below is a Memorandum Decision of the Court.
CONCLUSION
As the Cantwells were not engaging in business at or even near the Petition Date of their Bankruptcy Case, no lien arose under
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