EL PASO CITY v AMERICA WEST, 9816918
U.S. 9th Circuit Court of Appeals
EL PASO CITY v AMERICA WEST
9816918
In re: AMERICA WEST AIRLINES,
INC.,
Debtor.
No. 98-16918
EL PASO CITY OF TEXAS, D.C. No.
CV 97-01333-PGR
Appellant,
OPINION
v.
AMERICA WEST AIRLINES, INC.,
Appellee.
Appeal from the United States District Court
for the District of Arizona
Paul G. Rosenblatt, District Judge, Presiding
Argued and Submitted
February 16, 2000--San Francisco, California
Filed July 11, 2000
Before: Mary M. Schroeder, John T. Noonan, and
A. Wallace Tashima, Circuit Judges.
Opinion by Judge Tashima
_________________________________________________________________
COUNSEL
Kent M. Rider, Linebarager, Heard, Goggan, Blair, Graham,
Pena & Sampson, El Paso, Texas, for the appellant.
Annette W. Jarvis, LeBoeuf, Lamb, Greene & MaCrae, Salt
Lake City, Utah, for the appellee.
_________________________________________________________________
OPINION
TASHIMA, Circuit Judge:
The City of El Paso ("City" or "El Paso") appeals the dis-
trict court's order affirming the bankruptcy court's decision
granting summary judgment in favor of the debtor, America
West Airlines, Inc. ("America West"), and denying El Paso's
motion for summary judgment. El Paso contends that the
courts below erred in disallowing its tax claim pursuant to 11
U.S.C. S 502(d). We have jurisdiction under 28 U.S.C.
SS 158(d) and 1291, and we affirm.
Background
On June 27, 1991, America West filed a petition for relief
under chapter 11 of the Bankruptcy Code. On February 1,
1992, El Paso filed a proof of claim in America West's bank-
ruptcy case for personal property taxes for the 1991 tax year.
On August 31, 1994, America West filed an objection to sev-
eral claims, including the City's. The bankruptcy court subse-
quently entered an order designating an adversary proceeding
to resolve all disputes between El Paso and America West.
See America West Airlines, Inc. v. City of El Paso (In re
America West Airlines, Inc.), 208 B.R. 476, 477-78 (Bankr.
D. Ariz. 1997) ("America West I").
The parties filed motions for summary judgment, and, in a
published opinion, the bankruptcy court concluded that El
Paso's claim was disallowed in its entirety under 11 U.S.C.
S 502(d), which provides for the disallowance of claims that
are based on avoidable transfers. See id. at 481. El Paso's tax
lien was a statutory lien not enforceable against a bona fide
purchaser at the time America West's bankruptcy case began
and, thus, was an avoidable transfer under S 545(2). See id. at
480. Because the lien was avoidable under S 545, America
West was entitled to invoke S 502(d) to object to the claim,
and the bankruptcy court therefore disallowed the claim. See
id. at 479-81.
On appeal to the district court, the sole issue raised by the
City, an issue raised for the first time on appeal, was whether
the bankruptcy court misapplied S 502(d) by failing to find
that the City refused to turn over property belonging to Amer-
ica West. The district court concluded that, even if the argu-
ments were properly raised for the first time on appeal, the
City's interpretation of S 502(d) was contrary to the plain
meaning of the statute. The court therefore rejected the City's
contention and affirmed the bankruptcy court's decision.
Standard of Review
The district court's decision on appeal from a bankruptcy
court is subject to de novo review. See Preblich v. Battley,
181 F.3d 1048, 1051 (9th Cir. 1999). We review the bank-
ruptcy court's decision independently of the district court's
decision, applying a clearly erroneous standard to the bank-
ruptcy court's findings of fact and reviewing its conclusions
of law de novo. See id.; Law Offices of Nicholas A. Franke
v. Tiffany (In re Lewis), 113 F.3d 1040, 1043 (9th Cir. 1997).
Discussion
Section 502 of the Bankruptcy Code deals with the allow-
ance of claims in a bankruptcy case. In general, if a proof of
claim is filed, the claim is allowed, unless a party in interest
objects. See 11 U.S.C. S 502(a). However, S 502(d) disallows
the claims of creditors who have received avoidable transfers,
unless the creditor relinquishes the transfer.1 See United States
Lines, Inc. v. United States (In re McLean Indus.) , 184 B.R.
10, 14 (Bankr. S.D.N.Y. 1995), aff'd, 196 B.R. 670 (S.D.N.Y.
1996).
[1] Relevant to this appeal, S 502(d) states that the bank-
ruptcy court shall disallow a claim based on a transfer avoid-
able under S 545. See 11 U.S.C. S 502(d). Section 545
provides in part:
The trustee may avoid the fixing of a statutory lien
on property of the debtor to the extent that such lien
. . . is not perfected or enforceable at the time of the
commencement of the case against a bona fide pur-
chaser that purchases such property at the time of the
commencement of the case, whether or not such a
purchaser exists . . . .
11 U.S.C. S 545(2). Construing S 545 in conjunction with
S 502, then, a claim based on a statutory lien that is not per-
fected or enforceable against a bona fide purchaser at the time
the bankruptcy case is commenced shall be disallowed by the
court, unless the claimant pays the amount or turns over any
property for which it is liable.
The City contends that the courts below erred in permitting
America West to invoke S 502(d) to disallow its claim. The
City further contends that America West was barred from
relying on S 545 by the limitations period inS 546.
I. Avoidability Under S 545
In order for the City's claim to be disallowed under
S 502(d), the initial question is whether the City is a transferee
of a transfer avoidable under S 545. Section 545 states that the
trustee may avoid a statutory lien to the extent that the lien is
not perfected or enforceable against a bona fide purchaser at
the time the bankruptcy case is commenced.
[2] The City's tax lien on America West's personal prop-
erty arose under Tex. Tax Code Ann. S 32.01, which, on the
date America West filed bankruptcy, provided in part, "On
January 1 of each year, a tax lien attaches to property to
secure the payment of all taxes . . . ultimately imposed for the
year on that property." The Texas Tax Code further provided
that "[a] tax lien may not be enforced against personal prop-
erty transferred to a bona fide purchaser for value who does
not have actual notice of the existence of the lien. " Tex. Tax
Code Ann. S 32.03 (West 1988) (amended 1991). The City
states that its lien was perfected at the time America West
filed its petition, but concedes that it would not have been
enforceable against a bona fide purchaser, citing City of
Boerne v. Boerne Hills Leasing Corp. (In re Boerne Hills
Leasing Corp.), 15 F.3d 57 (5th Cir. 1994).
[3] In Boerne Hills, the Fifth Circuit concluded that tax
liens held by various taxing units in Texas were avoidable
under S 545(2), relying on the same version of the Texas Tax
Code in effect at the time America West's bankruptcy case
began.2 See id. at 59. Construing SS 32.01 and 32.03 of the
Texas Tax Code, the court concluded that the tax liens at issue
would be avoidable under S 545 because they were unen-
forceable against a bona fide purchaser under Texas law. See
Boerne Hills, 15 F.3d at 59 (citing County of Humboldt v.
Grover (In re Cummins), 656 F.2d 1262, 1265 (9th Cir. 1981)
("the lien on personal property . . . is ineffective against a
BFP, and therefore against the trustee in bankruptcy.")). El
Paso's tax lien arose under the same statute as that at issue in
Boerne Hills, and we see no reason why its lien should be
treated any differently. We therefore agree with the Fifth Cir-
cuit and conclude that El Paso's lien was not enforceable
against a bona fide purchaser at the time America West's
bankruptcy case began; therefore, we hold that it was avoid-
able under S 545(2).
The City challenges this conclusion, arguing that a tax lien
is not property under Texas law and that the City was there-
fore not the transferee of property belonging to America. Sec-
tion 101(54) defines a transfer as "every mode, direct or
indirect, absolute or conditional, voluntary or involuntary, of
disposing of or parting with property or with an interest in
property, including retention of title as a security interest and
foreclosure of the debtor's equity of redemption. " See also
City of Farmers Branch v. Pointer (In re Pointer) , 952 F.2d
82, 87 (5th Cir. 1992) (stating that the attachment of a tax lien
under S 32.01 of the Texas Tax Code is a transfer of property
for bankruptcy purposes). Because a tax lien is an involuntary
parting of an interest in property, it qualifies as a transfer
within the meaning of the Bankruptcy Code; El Paso's lien is
therefore avoidable as a lien unenforceable against a bona fide
purchaser.3
II. Disallowance of Claim Under S 502(d)
As the transferee of a transfer avoidable underS 545, El
Paso's claim is to be disallowed under S 502(d). The City
contends, however, that there is another requirement that must
be met in order for its claim to be disallowed. The statute
states in relevant part that the court shall disallow the claim
of a transferee of a transfer avoidable under S 545, unless the
transferee "has paid the amount, or turned over any such
property, for which such . . . transferee is liable under section
522(i), 542, 543, 550, or 553 of this title." 11 U.S.C. S 502(d).
The City construes this phrase as meaning that the court must
find, first, that the City was liable to turn over property to
America West and, second, that the City failed to do so.
Although the district court stated that this issue was waived
because the City raised it for the first time on appeal, it none-
theless rejected the argument on the merits as well.
A. Waiver of Issue
El Paso contends that it did not waive this issue, pointing
to several pages in its brief submitted to the bankruptcy court.
Nowhere in its brief, however, did the City raise this argu-
ment.
Absent exceptional circumstances, we generally will not
consider arguments raised for the first time on appeal,
although we have discretion to do so. See Los Angeles News
Serv. v. Reuters Television Int'l, 149 F.3d 987, 996 (9th Cir.
1998), cert. denied, 525 U.S. 1141 (1999); Marx v. Loral
Corp., 87 F.3d 1049, 1055 (9th Cir. 1996); Woods v. Saturn
Distrib. Corp., 78 F.3d 424, 430 (9th Cir. 1996). One "excep-
tional circumstance" is when the issue is one of law and either
does not depend on the factual record, or the record has been
fully developed. See Marx, 87 F.3d at 1055. Because El
Paso's argument is a matter of statutory construction, and the
record has been fully developed, we exercise our discretion to
address it.
B. Liability to Turn Over Property
El Paso argues that S 502(d) requires that the court find that
the transferee of the avoidable transfer be liable to turn over
property of the debtor and failed to do so. This argument mis-
construes the plain meaning of the statute.
[4] Setting forth the statute again,S 502(d) states that
the court shall disallow any claim of any entity from
which property is recoverable under section 542,
543, 550, or 553 of this title or that is a transferee of
a transfer avoidable under section 522(f), 522(h),
544, 545, 547, 548, 549, or 724(a) of this title, unless
such entity or transferee has paid the amount or
turned over any such property, for which such entity
or transferee is liable under section 522(i), 542, 543,
550, or 553 of this title.
11 U.S.C. S 502(d). The use of the word "unless" indicates
that the phrase is not an additional requirement for disallow-
ance, but an exception to the general rule that a claim based
on an avoidable transfer must be disallowed. The exception to
the general rule of disallowance exists because, if the trans-
feree has already relinquished the avoidable transfer, there is
no need to disallow the claim. El Paso clearly has not relin-
quished its tax lien, so the exception does not apply, and
S 502(d) acts to disallow its claim. See America West I, 208
B.R. at 480-81 ("El Paso has refused to relinquish its assertion
of the purported validity of its statutory lien; therefore, El
Paso's Claim shall be disallowed in its entirety by operation
of section 502(d) . . . .").
El Paso discusses each of the sections enumerated in
S 502(d) and concludes that it is not liable to turn over prop-
erty under any of them. The only relevant section, however,
is S 550, which provides, in part:
[T]o the extent that a transfer is avoided under sec-
tion 544, 545, 547, 548, 549, 553(b), or 724(a) of
this title, the trustee may recover, for the benefit of
the estate, the property transferred, or, if the court so
orders, the value of such property, from--(1) the ini-
tial transferee of such transfer or the entity for whose
benefit such transfer was made . . . .
11 U.S.C. S 550(a)(1). Once a transfer has been avoided under
a section such as S 545, S 550 authorizes the trustee to recover
the property to the extent that the transfer is avoided. See 5
Myron M. Sheinfeld et al., Collier on Bankruptcy P 550.02 &
n.1 (Lawrence P. King ed., 15th ed. 1999); see also Acequia,
Inc. v. Clinton (In re Acequia, Inc.), 34 F.3d 800, 809 (9th
Cir. 1994) ("[S]ection 550 specifies the conditions under
which, once a transfer is avoided under section 544 or other
provisions, a trustee can recover from various transferees.")
(quoting Lippi v. City Bank, 955 F.2d 599, 605 (9th Cir. 1992)
(alteration in original)). Section 550, therefore, merely
enables a trustee to recover property after a transfer has been
avoided under any of the sections dealing with the trustee's
avoiding powers. See Sheinfeld, supra , at P 550.01[1]
("Section 550 permits a trustee (or debtor in possession), after
avoidance of a transfer under the trustee's avoiding powers,
to recover the property transferred or the value of the property
transferred.") (footnote omitted); see also H.R. Rep. No. 95-
595, at 375 (1978), reprinted in 1978 U.S.C.C.A.N. 5963,
6331 ("Section 550 prescribes the liability of a transferee of
an avoided transfer, and enunciates the separation between the
concepts of avoiding a transfer and recovering from the trans-
feree.").
Thus, S 550 does not provide a basis for liability apart from
the avoiding powers sections. In fact, none of the enumerated
sections that El Paso discusses provides a basis for liability to
turn over property separate from the sections already listed in
S 502(d). Section 502(d) first sets forth the sections under
which property could be recoverable from a claimant (S 542,
543, 550, or 553) and sections under which a transfer could
be avoidable (S 522(f), 522(h), 544, 545, 547, 548, 549, or
724(a)). Then, in the "unless" phrase, the statute does not list
new sections of the Bankruptcy Code under which an entity
or transferee may be liable to turn over property. Rather, the
exception to the general rule of disallowance is if the entity
or transferee relinquishes the property for which it is already
liable under the sections designated in S 502(d). El Paso's
argument that it is not liable to turn over property under any
of the sections enumerated in S 502(d) twists the meaning of
the statute. The City is a transferee of an avoidable transfer,
and it has not relinquished its transfer; therefore, the excep-
tion in S 502(d) does not apply.
El Paso asserts that it is necessary for the debtor to show
that recovery of the property would benefit the estate in order
for S 550 to apply. It is true that the recovery of property must
accrue for the benefit of the estate. See Acequia, 34 F.3d at
811; Wellman v. Wellman, 933 F.2d 215, 217-19 (4th Cir.
1991). The applicability of S 550, however, is irrelevant
because America West is not attempting to recover property
affirmatively under S 550. Only the applicability of S 502(d)
is at issue. Cf. Glanz v. RJF Int'l Corp. (In re Glanz), 205
B.R. 750, 757 (Bankr. D. Md. 1997) (in a proceeding to avoid
a transfer, the court noted "the critical distinction between the
avoidance of a transfer and the recovery of a transfer," point-
ing out that the avoidance section, S 548,"imposes no
requirement that an avoidance action be brought only under
circumstances where the avoidance will result in a benefit to
the bankruptcy estate").
C. Time Bar
[5] El Paso contends that America West is precluded from
relying on S 502(d) to object to the City's tax lien because,
under S 546, an action to avoid the lien underS 545 would be
time-barred.4 This argument is met by Committee of Unse-
cured Creditors v. Commodity Credit Corp. (In re KF Dair-
ies, Inc.), 143 B.R. 734, 737 (B.A.P. 9th Cir. 1992), which
held that S 502(d) "operates to disallow claims of transferees
who do not surrender their avoidable transfer," even if the
underlying avoidance action would be barred by the statute of
limitations. In KF Dairies, the appellees received payments
from the debtor that were avoidable transfers underS 549, but
the debtor did not bring an avoidance action. The appellant,
unsecured creditors of the debtor, later relied onS 502(d) to
object to other claims filed by the appellees. The court drew
a distinction between an avoidance action, which seeks affir-
mative relief from the transferee, and a claim objection. See
id. at 735-37 ("statutory limitations periods generally have no
application to offsetting counterclaims and other matters of
defense, as opposed to actions seeking affirmative relief").
The court further reasoned that there would be no purpose for
S 502(d), if it applied only when the transfer could be avoided
in an independent avoidance action, and therefore concluded
that S 502(d) may be used to disallow a claim even if the
underlying avoidance action would be time barred. 5 See id. at
736-37.
Although KF Dairies dealt with the time bar provided in
S 549, the analysis is equally applicable toS 546's bar of an
avoidance action. Similar to S 545, S 549 provides for the
avoidance of a transfer, but S 549 provides its own statute of
limitations, whereas the limitations period forS 545 is found
in S 546. We therefore adopt the reasoning of KF Dairies to
conclude that the limitations period in S 546 does not apply
to S 502(d). Accord In re Mid Atlantic Fund, Inc., 60 B.R.
604, 609-11 (Bankr. S.D.N.Y. 1986) (holding that the limita-
tions period in S 546 does not apply to S 502(d)).
El Paso cites Keppel v. Tiffin Savs. Bank, 197 U.S. 356
(1905), to argue that it is unfair to disallow its claim merely
because it chose to "assert its status as a secured creditor
rather than meekly surrendering it[s] tax lien." The issue in
Keppel, however, was whether a claim could be disallowed
under the predecessor to S 502(d), S 57(g) of the Bankruptcy
Act, on the basis that the creditor had been forced by a judg-
ment to surrender a voidable preference, rather than voluntar-
ily surrendering the preference. See 197 U.S. at 359. The
situation in Keppel, therefore, is different from the instant
case, in which El Paso has neither voluntarily surrendered nor
been forced to surrender its tax lien. The City still holds its
tax lien.
Conclusion
El Paso's tax lien was avoidable under S 545, and it has not
relinquished its lien. Section 502(d) therefore operates to dis-
allow its claim, and the disallowance is not barred by the limi-
tations period of S 546. The order of the district court
affirming the bankruptcy court is AFFIRMED.
_______________________________________________________________
FOOTNOTES
1 The statute provides:
Notwithstanding subsections (a) and (b) of this section, the court shall disallow any claim of any entity from which property
is recoverable under section 542, 543, 550, or 553 of this title or
that is a transferee of a transfer avoidable under section 522(f),
522(h), 544, 545, 547, 548, 549, or 724(a) of this title, unless
such entity or transferee has paid the amount or turned over any
such property, for which such entity or transferee is liable under
section 522(i), 542, 543, 550, or 553 of this title.
11 U.S.C. S 502(d) (West 1999).
2 The enforceability of the lien against a bona fide purchaser is deter-
mined by state law. See Saslow v. Andrew (In re Loretto Winery Ltd.), 898
F.2d 715, 718 (9th Cir. 1990); Ward v. Communications Data Servs., Inc.
(In re Kachina Publications, Inc.), 171 B.R. 671, 672 (Bankr. D. Ariz.
1994).
3 The City's reliance on Phoenix Bond & Indem. Co. v. Shamblin (In re
Shamblin), 890 F.2d 123 (9th Cir. 1989), is unavailing. In Shamblin, the
court stated that a tax sale under Illinois law was not a "transfer of prop-
erty of the estate" for purposes of S 549 because it created only a lien on
the property. See id. at 127. Whether a tax sale constitutes a transfer of
property under S 549 is irrelevant to the issue of whether a tax lien consti-
tutes a "transfer" under S 502(d). Moreover, the court in Shamblin noted
that "[t]his court has consistently treated the creation of liens on the debt-
or's property as a transfer." Id. at 127 n.7.
4 Section 546 provides, in part:
(a) An action or proceeding under section 544, 545, 547, 548, or 553 of this title may not be commenced after the earlier of--
(1) the later of--
(A) 2 years after the entry of the order for relief; or
(B) 1 year after the appointment or election of the first
trustee . . . if such appointment or such election occurs
before the expiration of the period specified in subparagraph
(A); or
(2) the time the case is closed or dismissed.
11 U.S.C. S 546(a). America West does not challenge the bankruptcy
court's conclusion that it did not bring an action to avoid El Paso's lien
under S 545 within the limitations period ofS 546.
5 El Paso argues that In re Cushman Bakery, 526 F.2d 23 (1st Cir. 1975),
on which the court relied in KF Dairies, was wrongly decided, citing a law
journal article critical of Cushman. Both Cushman and KF Dairies, how-
ever, are still good law. In fact, the conclusion of KF Dairies that S 502(d)is not subject to the time bar provided in the avoiding powers sections is
the majority view. See 4 Michael H. Goldstein et al., Collier on Bank-
ruptcy P 502.05[2][a] (Lawrence P. King ed., 15th ed. 1999) ("Most courts
find that there is no prohibition against the trustee asserting section 502(d)
as an affirmative defense to a claim of a creditor even if the trustee's claim
is time-barred or otherwise nonrecoverable.") (footnote omitted).