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In re La Paloma Generating, Co.

United States Bankruptcy Court for the District of Delaware

July 25, 2018, Decided

Chapter 11, Case No.: 16-12700 (CSS) (Jointly Administered), Related Docket No. 1040

Opinion

 [*701]  OPINION1

Dated: July 25, 2018

/s/ Christopher S. Sontchi

Sontchi, C.J.

INTRODUCTION

The crucial background to this motion is that the La Paloma Generating Company, LLC paid all property taxes assessed to the Facility, and thereafter sought a refund of the amounts paid. Now, the La Paloma Liquidating Trust (together with the La Paloma Generating Company, LLC and affiliated debtors, "La Paloma") on the one hand,2 and the California State Board of Equalization ("SBE") and Kern County on the other, are parties to litigation in the Superior Court of the State of California, Los Angeles County concerning the taxable value of the Facility for purposes of computing the Debtors' property tax liability for tax years 2012 to 2016. The Debtors assert [**2]  that the property values used by SBE and Kern County resulted in the Debtors paying approximately $14 million in excess property taxes over the past five years. The Debtors brought a motion pursuant to section 505 of the Bankruptcy Code requesting that the Court determine the value of the Facility and the Debtors' entitlement to related property tax refunds (the "Determination Motion"). The Court subsequently agreed to hear the taxable value issue in an appropriate order (the "Determination Order"), and set the issue for trial on March 6-9, 2018 (the Bankruptcy Court litigation known, collectively, as the "Tax Dispute").

In the meanwhile, SBE filed a motion for summary judgment ("SBE's Motion") asserting that this Court does not have jurisdiction to hear the Tax Dispute as established in the Determination Motion and Order. SBE's Motion is premised on two grounds: (i) that the Court does not have subject matter jurisdiction to hear the Tax Dispute pursuant to section 505 of the Bankruptcy Code; and (ii) that the Court has no jurisdiction to decide the Tax Dispute on state sovereign immunity grounds.

 [*702]  As reasoned further below, the Court narrows the Tax Dispute pursuant to limitations established in section 505 and grants SBE's state sovereign immunity defense as [**3]  to the remainder of the refund claim. The Court will consequently GRANT SBE's Motion.

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588 B.R. 695 *; 2018 Bankr. LEXIS 2170 **; 2018 WL 3584643

In re LA PALOMA GENERATING, COMPANY, et al., Debtors.

Subsequent History: Affirmed by, Clarified by, Request denied by Kravitz v. Board of Equalization (In re La Paloma Generating Co. LLC), 607 B.R. 794, 2019 U.S. Dist. LEXIS 159724 (D. Del., Sept. 19, 2019)

CORE TERMS

sovereign immunity, refund, in rem jurisdiction, unitary, bankruptcy court, tax year, refund claim, taxpayer, taxes, tax refund, Appeals, valuation, proceedings, Taxation, courts, exhaustion, abrogate, reassessment, rem, taxable value, parties, court's jurisdiction, collateral attack, tax assessment, implicates, ancillary, asserts, orders, rights, in rem proceeding

Bankruptcy Law, Procedural Matters, Jurisdiction, Civil Procedure, Preliminary Considerations, Responses, Defenses, Demurrers & Objections, Motions to Dismiss, Taxation, Tax Amounts & Legality, Reorganizations, Debtors in Possession, Powers & Rights, Tax Law, State & Local Taxes, Administration & Procedure, Credits, Overassessments & Refunds, Administrative Law, Judicial Review, Reviewability, Exhaustion of Remedies, Constitutional Law, State Sovereign Immunity, Congressional Duties & Powers, Bankruptcy Clause, State Sovereign Immunity, Waiver, Appeals, Appellate Jurisdiction, Judgments, Preclusion of Judgments, Law of the Case, Jurisdiction, Sovereign Immunity, Abrogation of Immunity, Waiver, Consent, Core Proceedings, Noncore Proceedings