City Lacked Standing to Object to Plan’s Tax Redemption Provision

Posted by NCBRC - January 18, 2017

The City of Philadelphia lacked standing to object to the debtor’s plan provision under which he proposed to redeem over the life of the plan property sold in a tax sale. In re Wilson, No. 15-6385 (E.D. Pa. Dec. 28, 2016)

Earl Wilson failed to pay his city property tax. As a result, the property was sold at auction and sold again to a “subsequent purchaser” in accordance with Pennsylvania’s Municipal Claims and Tax Lien Act (“MCTLA”). That law permits a tax debtor to redeem property within nine months of sale. Mr. Wilson filed for chapter 13 bankruptcy in which his revised Fifth Amended Plan proposed to pay the redemption amount over the course of the plan. The bankruptcy court confirmed the plan over the City’s objection specifically finding that the City lacked standing to object to that portion of the plan providing for redemption of the property.

On appeal the district court looked first to the City’s standing to appeal the bankruptcy court’s confirmation order. It began with bankruptcy’s “person aggrieved” standard for appellant standing. Finding this standard more stringent than general Article III appellate standing, the court stated that the standard “is met only by persons whose rights or interests are directly and adversely affected pecuniarily by an order of the bankruptcy court.” Standing cannot be based on speculative or collateral injury.

The City argued that by permitting Mr. Wilson to redeem the property over the course of his plan instead of within the nine month redemption period proscribed by the MCTLA, the bankruptcy court’s confirmation order injured it in three ways. It 1) diminished the City’s ability to use tax sales as a means of generating revenue and keeping properties on productive tax rolls, 2) increased uncertainty of ownership upon Sheriff’s sale, and 3) put the property back into the hands of a debtor who has proven himself unable or unwilling to pay his tax obligations.

The court found these injuries to be “speculative” in part because they relied on assumptions that might never come to pass: that fewer investors would be inclined to purchase tax-indebted property and that the sale prices would therefore be reduced. The court found the assumption that Mr. Wilson would not pay future taxes and that the subsequent purchaser would pay them, was likewise a matter of speculation. The court, therefore, found that the City lacked standing to appeal the bankruptcy court’s confirmation order.

The court found, however, that the City had standing to appeal the bankruptcy court’s finding that it lacked standing to object to the plan. This inquiry required the district court to examine whether the City met the standard for objecting to a plan under section 1324(a) which gives standing to a “party in interest.” Unlike appellate standing, standing under section 1324(a) is coextensive with Article III standing. The party seeking standing must show injury in fact, which is traceable to an action of the debtor, and which is redressable by a favorable decision.

Even under the less stringent standing analysis, the City’s challenge to the bankruptcy court’s order failed for the same reasons its argument relating to appellate standing failed. Its alleged injury was too speculative to confer standing under section 1324(a). The City could not establish with any degree of certainty that Mr. Wilson would fail to pay future property taxes or that the City would be harmed by such failure. Increased “risk” of injury based on hypothetical future conduct by Mr. Wilson was not the concrete injury in fact required for standing to object to confirmation.

The court affirmed the bankruptcy court’s finding that the City lacked standing to challenge plan confirmation.

Wilson ED Pa opinion Dec 2016


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