II.   Evolution of Tax Claims in the Courts

B.   Post-2005 Court

I.   Greenwood

In Greenwood Point, while evaluating a plan for reorganization that included seven classes,[1]the court determined that a secured tax claim could constitute a class for purposes of § 1123.[2]Of the seven classes, two classes were not impaired and the court deemed both classes as accepting.[3]One class would receive nothing under the plan, and the court deemed it to reject the plan.[4]According to the plan, the remaining classes were impaired and entitled to vote.[5]The primary creditor objected to multiple aspects of the plan, including allowing the class comprised of the tax claim having a vote.[6]The creditor reasoned that the tax claim class was not impaired because it received all that was required by the statute, or alternatively, it is only artificially impaired.[7]Before the court could determine if the class was impaired, however, it had to determine if it was actually a class.[8]

      While the court looked to prior cases, including the Perdido Motel case, it recognized that the two situations were not exactly the same.[9]In Perdido, the tax claims were unsecured, and consequently, governed by § 507.[10]In Greenwood, the tax claims were secured, removing them from the protection of § 507.[11]Using the same analysis the Perdido court did, the Greenwood court determined that if a claim was secured, and not protected by § 507, then § 1123 did not bar it from being included as a class.[12]The court would go on to find that despite the plan conforming to the statutory requirements, the tax claim class was still impaired and could vote on the plan.[13]

      The Greenwood court attempted to solidify the test originally established in Perdido—if the tax claim was unsecured, it was governed by § 507, and not § 1123; if the tax claim was secured, it was not governed by § 507, and instead, by § 1123, allowing a class to exist.[14]

II.   Mangia Pizza

Mangia Pizza was a chain of pizza restaurants that had fallen on hard times, and wanted to go through a reorganization.[15]During the process, a creditor proposed a second plan for consideration.[16]This second plan required that the court consider IRS’s claims not only a voting class, but also impaired.[17]

      The creditor relied exclusively on In re Greenwood Point[18]and the language of § 1129(a)(9)(D).[19]Section 1129 allows a claim to be impaired even if it impaired due to an agreement made by the creditor.[20]According to the creditor, Greenwood Point stands for the proposition that § 1123(a)(1) does not prohibit classification of secured tax claims, and such claims may be an impaired accepting class.[21]

      In contrast, the debtor argued against both the class and impaired status of the IRS’s claim.[22]To support its claim opposing class status, the debtor turns to In re Bridgeview Plaza, Inc.[23]In that case, the court proposed that a secured claim could be treated as impaired, if the treatment offered was worse than what the claim was entitled to under § 1129(a)(9)(c).[24]According to the debtor, the IRS accepted the proposed treatment, and therefore, it was not offered. Since it was not offered, it could not be a class under the logic of Bridgeview.[25]

      The court walked through the reasoning in both Greenwoodand Perdido.[26]In Greenwood, the court found support for the secured tax claims having class status, because § 507(a)(8) only deals with unsecured claims.[27]In contrast, the court recognized Perdidoas denying class status because a secured tax claim would already receive preferential treatment under § 1129(a)(9)(C).[28]While the court conceded that this was far from a settled issue, it ultimately sided with the Perdido court, and stated that the better reasoning resulted in a denial of class status.[29]The preferential treatment already allowed under § 1129 was too great to justify additional class treatment.[30]Allowing a secured tax claim the ability to vote would also work to unjustly dilute the votes of other classes.[31]

[1]           In re Greenwood Point, LP, 445 B.R. 885, 891 (S.D. Ind. 2011). The seven classes included: (1) Allowed secured claims of CWCapital; (2) Administrative Claims; (3) Administrative operating expenses; (4) Secured tax claims; (5) Non-priority unsecured claims of CWCapital; (6) Other non-priority unsecured claims; and (7) equity interests. *Id.*

[2]           Id. at 906–07.

[3]           The plan called for both administrative claim classes to be paid in full. Id. at 891.

[4]           The plan allowed for no distribution to the equity class. *Id.*

[5]           *Id.*

[6]           Greenwood Point, 445 B.R. at 892.

[7]           Id.

[8]           Id. at 905.

[9]           Id. at 906.

[10]          *Id.*

[11]          Id. at 906–07.

[12]          Greenwood Point, 445 B.R. at 906–07.

[13]          Id. at 907.

[14]          In re Perdido Motel Group, Inc., 101 B.R. 289, 294 (N.D. Ala. 1989).

[15]          Mangia Pizza, 480 B.R. at 675.

[16]          Id. The creditor, Cloud Cap, purchased a claim, and then presented an alternate plan to the remaining creditor. *Id.*

[17]          *Id.*

[18]          In re Greenwood Point is analyzed in greater detail infra Part I.B.1.

[19]          11 U.S.C. 1129(a)(9)(D) (2012).

[20]          Mangia Pizza, 480 B.R. at 677. Section 1129(a)(9)(D) reads:

[W]ith respect to a secured claim which would otherwise meet the description of an unsecured claim of a governmental unit under section 507(a)(8), but for the secured status of that claim, the holder of that claim will receive on account of that claim, cash payments, in the same manner and over the same period, as prescribed in subparagraph (C).

11 U.S.C. 1129(a)(9)(D).

[21]          Mangia Pizza, 480 B.R. at 676–77.

[22]          Id. at 667.

[23]          *Id.*

[24]          *Id.*

[25]          *Id.*

[26]          Id. at 677–79.

[27]          Mangia Pizza, 480 B.R. at 678. See also 11 U.S.C 507(a)(8) (2012).

[28]          Mangia Pizza, 480 B.R. at 678.

[29]          Id. at 678–79.

[30]          *Id.*

[31]          Id. at 679.