The opinion of the court was delivered by: William J. Martini, U.S.D.J.
Pazzo Pazzo-a restaurant operating under a Chapter 11 reorganization plan-seeks to enjoin the State of New Jersey from holding Pazzo Pazzo's president liable for taxes as a responsible person in the corporation. Pazzo Pazzo argues that a provision in its reorganization plan released its president from any such liability. This Court AFFIRMS the bankruptcy court's holding that the Tax Injunction Act deprived it of jurisdiction to issue the injunction.
In 2002, Pazzo Pazzo, Inc. petitioned for bankruptcy under Chapter 11 of the Bankruptcy Code. (Bankruptcy Case 02-35976, Docket No. 1.) In response, the State of New Jersey filed proofs of tax claims with the bankruptcy court to secure its status as a creditor. (Bankruptcy Case 06-1022, No. 6, Exs. A1--4.)
Eventually, the bankruptcy court confirmed a plan of reorganization for Pazzo Pazzo. (02-35976, Nos. 89, 110.) The plan provided that its confirmation would release "all insiders from any causes of action by the Debtor, its creditors and other parties in interest." (02-35976, No. 39.) Despite this provision, the State then filed tax liens against Pazzo Pazzo's president, Larry Berger, as a responsible person in the Pazzo Pazzo corporation. (06-1022, No. 6, Ex. B.)
To prevent the State from pursuing these liens, Pazzo Pazzo filed a complaint in bankruptcy court. (06-1022, No. 1.) Pazzo Pazzo sought an injunction compelling the State to comply with the terms of the confirmed bankruptcy plan and to release its liens against Berger. (06-1022, No. 1 ¶ 3.) Pazzo Pazzo also filed a motion for an order to show cause why such an injunction should not issue. (06-1022, No. 2.)
After a hearing on this motion, the bankruptcy court dismissed Pazzo Pazzo's complaint in its entirety. (06-1022, No. 7.) The court held it lacked jurisdiction to grant Pazzo Pazzo's requested injunction, citing the Tax Injunction Act. (06-1022, No. 7.)
Pazzo Pazzo filed a motion for reconsideration. (06-1022, No. 9.) It disputed the bankruptcy court's determination that the Tax Injunction Act prohibited an injunction against the State. (06-1022, No. 9 ¶ 12.) Pazzo Pazzo also argued, under the doctrine of equitable mootness, that the State should be barred from challenging the validity of a bankruptcy plan upon which Pazzo Pazzo and Berger had relied. (06-1022, No. 9 ¶ 28.)
The bankruptcy court denied Pazzo Pazzo's motion for reconsideration. (06-1022, No. 15.) With respect to the Tax Injunction Act argument, the court reaffirmed its determination that the Act prohibited it from issuing an injunction. (06-1022, No. 16 at 10--17.) With respect to the equitable mootness argument, the court declined to consider it, holding that Pazzo Pazzo had failed to previously raise it. (06-1022, No. 16 at 9.)
Pazzo Pazzo now appeals. It generally argues that the State must abide by all terms of the bankruptcy plan-which Pazzo Pazzo argues is now res judicata. (Appellant's Br. 12.) Pazzo Pazzo also renews its equitable mootness argument. (Appellant's Br. 19--20.) Finally, Pazzo Pazzo argues that the Tax Injunction Act contains an exception that allowed the bankruptcy court to issue the injunction. (Appellant's Br. 21.)
The State responds that the release provision was invalid and thus unenforceable. (Appellee's Br. 21--24.) The State generally reasons that the Tax Injunction Act precluded the bankruptcy court from not only enjoining the State's filing of tax liens against Berger but also from even approving the provision in Pazzo Pazzo's plan releasing Berger from tax liability. (Appellee's Br. 9--26.)
The bankruptcy court correctly held that the Tax Injunction Act precluded it from enjoining New Jersey's filing of tax liens against Berger. Pazzo Pazzo's initial arguments to the contrary-that the doctrines of res judicata and equitable mootness bar the State from now relitigating the plan's validity-are perhaps correct, but such propositions do not alter this Court's ultimate conclusion. Pazzo Pazzo's final argument to the contrary-that a bankruptcy ...