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United States Court of Appeals for the Third Circuit
February 19, 2013, Argued; May 21, 2013, Filed
[*741] OPINION OF THE COURT
JORDAN, Circuit Judge.
This case arises from a corporate reorganization under Chapter 11 of the Bankruptcy Code, 11 U.S.C. § 101 et seq. (the "Code"), [**2] and puts at issue whether a non-debtor company's decision to abandon its classification as an "S" corporation for federal tax purposes, thus forfeiting the pass-through tax benefits that it and its debtor subsidiary had enjoyed, is void as a postpetition transfer of "property of the bankruptcy estate," or is avoidable, under §§ 362, 549, and 550 of the Code. This appears to be a question of first impression in the federal Courts of Appeals.
Barden Development, Inc. ("BDI"), John M. Chase, as the personal representative of the estate of Don H. Barden1 (together with BDI, the "Barden Appellants"), and the Internal Revenue Service (the "IRS") appeal an order of the United States Bankruptcy Court for the District of Delaware granting summary judgment to The Majestic Star Casino, LLC and certain of its subsidiaries and affiliates (collectively "Majestic" or the "Debtors") on their motion to avoid BDI's termination of its status as an "S" corporation (or "S-corp"), an entity type that is not subject to federal taxation. In November 2009, the Debtors, which had been controlled by Barden, filed petitions for relief under Chapter 11 of the Code. After the bankruptcy filing, Barden, as sole shareholder [**3] of BDI, successfully petitioned the IRS to revoke BDI's S-corp status. Under the Internal Revenue Code ("I.R.C."), that revocation also caused Majestic Star Casino II, Inc. ("MSC II"), an indirect and wholly-owned BDI subsidiary and one of the Debtors, to lose its status as a qualified subchapter S subsidiary (or "QSub"), which meant that it, like BDI, became subject to federal taxation.
The Debtors were by then effectively controlled by their creditors and, naturally, did not agree with shouldering a new tax burden. They filed an adversary complaint asserting that the revocation of BDI's S-corp status caused an unlawful postpetition transfer of property of the MSC II bankruptcy estate. The Bankruptcy Court agreed and ordered the Barden Appellants and the IRS to reinstate both BDI's status as an S-corp and MSC II's status as a QSub. The case was certified to us for direct appeal. For the reasons that follow, we will vacate the Bankruptcy Court's January 24, 2012 order and [*742] remand this [**4] matter to the Court with directions to dismiss the complaint.
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716 F.3d 736 *; 2013 U.S. App. LEXIS 10186 **; 2013-1 U.S. Tax Cas. (CCH) P50,338; 111 A.F.T.R.2d (RIA) 2013-2028; 57 Bankr. Ct. Dec. 276; 2013 WL 2162781
In Re: The Majestic Star Casino, LLC, et al, Debtors;The Majestic Star Casino, LLC, et al. v. Barden Development, Inc; United States of America on behalf of the Internal Revenue Service; State of Indiana Department of Revenue; John M. Chase, Jr., as Personal Representative of Don H. Barden; United States of America on behalf of the Internal Revenue Service, Appellant No. 12-3200; Barden Development, Inc and John M. Chase, Jr., as Personal Representative of Don H. Barden, Appellants No. 12-3201
Prior History: [**1] On Appeal from the United States Bankruptcy Court for the District of Delaware. (B.C. No. 10-56238). Bankruptcy Judge: Hon. Kevin Gross.
Majestic Star Casino, LLC v. Barden Dev., Inc. (In re In re Majestic Star Casino, LLC), 466 B.R. 666, 2012 Bankr. LEXIS 167 (Bankr. D. Del., 2012)
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Business & Corporate Compliance, S Corporations, Election of S Status, Requirements for S Election, Evidence, Inferences & Presumptions, Presumptions, Creation, Tax Law, Federal Taxpayer Groups, C Corporations, General Overview, Exceptions, Statutory Presumptions, Effects of S Election, Income Taxes, Corporations & Unincorporated Associations, Termination of S Election, Limited Liability Companies & Partnerships, Income of Partners & Partnerships, Bankruptcy Law, Taxation, Postpetition Liability & Reporting, Federal Income Tax Computation, Gross Income, Effects of Bankruptcy, Discharge of Indebtedness, Bankruptcy, Case Administration, Bankruptcy Court Powers, Procedural Matters, Jurisdiction, Tax Amounts & Legality, Judicial Review, Standards of Review, Clear Error Review, Civil Procedure, Summary Judgment, Entitlement as Matter of Law, Appropriateness, De Novo Standard of Review, Judgments, Evidentiary Considerations, Legal Entitlement, Appeals, De Novo Review, Responses, Defenses, Demurrers & Objections, Motions to Dismiss, Pretrial Judgments, Judgment on Pleadings, Justiciability, Standing, Personal Stake, Constitutional Law, Case or Controversy, Elements, Examiners, Officers & Trustees, Duties & Functions, Capacities & Roles, Debtor Benefits & Duties, Estate Property, Contents of Estate, Third Party Standing, Avoidance, Postpetition Transactions, Automatic Stay, Scope of Stay, Violations of Stay, Damages, Adversary Proceedings, Causes of Action, Void & Voidable Actions, Governments, Legislation, Interpretation, Preliminary Considerations, Federal & State Interrelationships, Erie Doctrine, Federal Common Law, Applicability, Federal Tax Administration & Procedures, Interpretation of Federal Tax Statutes, Losses, Net Operating Losses, Carryforwards, Changes in Corporate Ownership, Prepetition Transfers, Voidable Transfers, Plans, Plan Confirmation