Case No. 98-03041-JKC-11United States Bankruptcy Court, S.D. Indiana, Indianapolis Division.
March 19, 2003
ORDER DENYING PHOENIX BOND INDEMNITY COMPANY’S MOTION PURSUANT TO BANKRUPTCY RULE 9024 TO RECONSIDER ORDERS DISMISSING AND CLOSING CASE TO REOPEN THE ESTATE AND RETROACTIVELY VALIDATE TAX SALE OF APRIL, 1999
JAMES COACHYS, Bankruptcy Judge.
This matter comes before the Court on Phoenix Bond Indemnity Company’s (“Phoenix”) Motion Pursuant to Bankruptcy Rule 9024 to Reconsider Orders Dismissing and Closing Case to Reopen the Estate and Retroactively Validate Tax Sale of April, 1999 (the “Motion”). For the reasons stated below, the Court denies Phoenix’s Motion.
Factual and Procedural History
MCM Enterprises, Inc. (“MCM” or “Debtor”) filed its petition for relief under Chapter 11 of the United States Bankruptcy Code (the “Code”) on March 9, 1998. As of the petition date, MCM was the record owner of a parcel of real estate located at the common address of 4830-56 So. Western Avenue, Chicago, Illinois (the “Western Avenue Property”). The Western Avenue Property consisted of three parcels for indexing purposes, designated by Property Index Numbers (“PIN”) 19-12-209-008, 12-209-009 and 19-12-209-110.
Under Illinois law, the annual property taxes assessed for any given calendar year become a lien on the relevant property on January 1st of that year. MCM did not timely pay the 1997 property taxes due on the Western Avenue Property and, accordingly, the governmental unit responsible for collecting the taxes (the “Cook County Collector”) was named as a creditor in MCM’s bankruptcy schedules and presumably received notice of the case. Nevertheless, on April 4, 1999, and without first obtaining relief from the automatic stay, the Cook County Collector sold the parcel designated as PIN 19-12-209-010 (the “Tax Sale Parcel”) to Phoenix at its annual tax sale (the “Tax Sale”). Pursuant to Illinois law, as the record owner of the property, MCM should have been and presumably was notified of the Tax Sale and, yet, did nothing to alert either the Court or the bankruptcy estate of the sale.
In any event, Phoenix was issued a Certificate of Purchase upon completion of the sale. Phoenix later added the unpaid and delinquent taxes for 1998, 1999, and 2000 to the tax — sale purchase for a total price of $19,209.94. Shortly thereafter, a structure located on the Western Avenue Property was damaged by fire. The City of Chicago (“City”) eventually instituted a demolition action to address the unsafe condition of the property (the “Demolition Case”). Upon being named as a defendant by the City, Phoenix sought and obtained on September 10, 1999, a protective order in the Demolition Case to insulate itself from liability for the property.
MCM’s bankruptcy case was dismissed on August 8, 2000, and administratively closed on September 15, 2000. Following dismissal, MCM’s assets were placed in a state-court receivership. On August 1, 2002, pursuant to court approval, the state-court receiver transferred the Western Avenue Property, including the Tax Sale Parcel, to the Royal Dutch Company (“RDC”) in exchange for $75,000. Meanwhile, in October of 2001, Phoenix filed a petition in the Cook County Circuit Court for the issuance of a tax deed for the Tax Sale Parcel. Thereafter, Phoenix discovered that MCM had been in bankruptcy at the time of the Tax Sale and that the sale had taken place in violation of the automatic stay imposed by 11 U.S.C. § 362.
Phoenix then filed with this Court a Motion to Reopen Estate and Retroactively Validate Tax Sale of April 1999 (the “Motion to Reopen”), to which the City objected, as did the Debtor. The Court conducted a hearing on the Motion to Reopen on November 26, 2002. In support of its Motion to Reopen, Phoenix offered uncontroverted evidence that it did not learn of MCM’s bankruptcy until early 2002, well after the case had been dismissed and closed.[1] The parties also presented various arguments both for and against Phoenix’s request that the case be reopened and the tax sale validated.
In a ruling dated December 11, 2002, the Court denied Phoenix’s Motion to Reopen, concluding that it was procedurally defective. More specifically, the Court found that a case which is dismissed prior to full administration cannot be “reopened” pursuant to 11 U.S.C. § 350(b). Rather, the movant must proceed under Bankruptcy Rule 9024 (substantially incorporating Federal Rule of Civile Procedure 60(b)). Citing In re Garcia, 115 B.R. 169 (Bankr.N.D.Ind. 1990), the Court declined to examine the Motion to Reopen as if it had been brought under Bankruptcy Rule 9024
and, instead, indicated that Phoenix was free to file a motion under that rule if it so chose. Phoenix eventually did move under Bankruptcy Rule 9024, to which the City, the Debtor and the RDC objected.
Discussion and Decision
The threshold, and as explained below, determinative issue presented by Phoenix’s Motion is whether cause exists to administratively reopen this case and set aside the dismissal order pursuant to Bankruptcy Rule 9024. As previously noted, that rule substantially incorporates Rule 60 of the Federal Rules of Civil Procedure, which provides in relevant part:
(b) Mistakes; Inadvertence; Excusable Neglect; Newly Discovered Evidence; Fraud, Etc. On Motion and upon such terms as are just, the court may relieve a party or a party’s legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(b); (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; (4) prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application; (5) the judgment has been satisfied, released, or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application; or (6) any other reason justifying relief from the operation of the judgment.
Fed.R.Civ.Pro. 60(b). Rule 60(b) allows a bankruptcy court to relieve a party from a final judgment or order for a variety of specific grounds and further includes a “catch-all” provision under subsection (b)(6). It is well-settled that relief under Rule 60(b) is “an extraordinary remedy and is granted only in exceptional circumstances.” Mares v. Busby, 34 F.3d 533, 535 (7th Cir. 1994) (quoting Dickerson v. Board of Educ., 32 F.3d 1114
(7th Cir. 1994)). Because a motion under subsections (1) through (3) must be brought within one year of the subject judgment or order, it would appear that Phoenix cannot avail itself of any of the theories articulated in those subsections. In response to the Debtor’s argument to that effect, Phoenix contends that relief should be accorded under Rule 60(b)(6).
Relief under Rule 60(b)(6) is warranted only upon a showing of extraordinary circumstances that create a substantial danger that the underlying judgment was unjust. Margoles v. Johns, 798 F.2d 1069, 1073
(7th Cir. 1986) (citing Ackermann v. United States, 340 U.S. 193, 199-202, 71 S.Ct. 209, 212-214, 95 L.Ed. 207 (1950)); see also Cincinnati Ins. Co. v. Flanders Elec. Motor Serv’c, Inc., 131 F.3d 625, 628 (7th Cir. 1997) (Rule 60(b)(6) may be used to order relief from judgment only in “extraordinary circumstances” or where operation of the judgment or subject court order will cause “extreme and undue hardship.”); DeWeerth v. Baldinger, 38 F.3d 1266, 1272 (2nd Cir. 1994);
At first blush, the Court could readily conclude that relief under Rule 60(b)(6) is warranted in this case. The evidence establishes that the Cook County Collector sold property of the estate at the Tax Sale in violation of the stay, that MCM did nothing to stop the sale or to have it immediately set aside, and that Phoenix was not informed of or discovered the bankruptcy case until early 2002. Certainly, the Court is dismayed that MCM, despite its fiduciary duty to the bankruptcy estate, failed to prevent the Cook County Collector from proceeding with the Tax Sale and yet now objects to Phoenix’s requested relief. This rather “messy” situation could have easily been avoided had MCM taken the steps contemplated by 11 U.S.C. § 362 to enforce the automatic stay.
However, upon closer examination, the Court is not persuaded that this case presents the type of “extraordinary circumstances” or “extreme and undue hardship” required by Rule 60)(b)(6). Section 21-310 of the Illinois Property Tax Code, titled “Sales in error,” provides in relevant part that:
(a) When, upon application of the county collector, the owner of the certificate of purchase, or a municipality which owns or has owned the property ordered sold, it appears to the satisfaction of the court which ordered the property sold that any of the following subsections are applicable, the court shall declare the sale to be a sale in error:
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(6) prior to the tax sale a voluntary or involuntary petition has been filed by or against the legal or beneficial owner of the property requesting relief under the provisions of 11 U.S.C. Chapter 7, 11, 12, or 13.
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(d) If the sale is declared to be a sale in error, the county clerk shall make entry in the tax judgment, sale, redemption and forfeiture record, that the property was erroneously sold, and the county collector shall, on demand of the owner of the certificate of purchase, refund the amount paid, pay any interest and costs as may be ordered under Section 21-315 through 21-335, and cancel the certificate so far as it relates to the property. The county collector shall deduct from the accounts of the appropriate taxing bodies their pro rata amounts paid.
ILL. COMP. STAT. 200/21-310 (2003). As stated previously, Phoenix posted $19,209.94 to the Tax Sale and has subsequently paid additional amounts in property taxes. Its out-of-pocket expenses exceed $124,000.00. Presumably, if Phoenix proceeded under § 21-310, it could recover these amounts, plus interest and costs, and be returned to the status quo. See ILL. COMP. STAT. 200/21-315, 200/21-320 and 200/21-335. The Illinois legislature clearly intended the above procedure as the means by which a tax purchaser could be made whole if a tax sale was conducted in error. In light of this remedy, the Court cannot conclude that adequate grounds exist to set aside the order dismissing MCM’s bankruptcy case simply in an effort to determine whether the automatic stay can or should be retroactively lifted.
Even if the Court granted Phoenix’s Rule 60(b) motion and retroactively lifted the stay, the Court has reason to believe that the Tax Sale would still be considered “erroneous” under applicable Illinois state law and, therefore, subject to being set aside. In In re Application of the County Collector for Delinquent Taxes, 683 N.E.2d 995, 999 (Ill.Ct.App. 1997) (hereinafter “Ballinger”), the Illinois Court of Appeals held that Section 21-310 of the Property Tax Code does not actually require the automatic stay to be in effect for an application for sale in error to be granted. As the court explained in construing the statute:
Section 21-310(a)(6) does not refer to an automatic stay and there is nothing in the section to suggest its condition for granting a sale in error is coextensive with the automatic stay provided in the Bankruptcy Code. The legislature could have declared [that] a county collector [could] apply for a sale in error when the tax sale was held during the period of an automatic stay under the Bankruptcy Code, but it did not do so. It appears that the legislature has determined [that] a county collector need not concern herself with the ins and outs of federal bankruptcy court stays and how they affect different creditors and their claims. The legislature has made it simple. If a bankruptcy petition has been filed, a sale while that action is pending is in error.
Id. at 1000. The Court questions the logic of this decision since it implies that a taxing authority cannot effectively exercise its statutory rights against a debtor’s property — even if it obtains relief from the stay — until after the case is closed or dismissed. Nevertheless, the decision stands until successfully challenged, and as applied in the present matter, would presumably allow Cook County to file an application to set aside the sale. Perhaps more importantly, it further reinforces the argument that the proper and sole remedy for Phoenix is provided by the state’s sale-in-error process.
Based on the foregoing, the Court must deny Phoenix’s Motion Pursuant to Bankruptcy Rule 9024 to Reconsider Orders Dismissing and Closing Case to Reopen the Estate and Retroactively Validate Tax Sale of April, 1999 and sustain the Objections thereto.
IT IS SO ORDERED.