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In Re: Michael Calabrese

September 13, 2011

IN RE: MICHAEL CALABRESE, APPELLANT.


The opinion of the court was delivered by: Hillman, District Judge

OPINION

Appeal from Bankruptcy

I. INTRODUCTION

Before the Court is an appeal from an Order Denying Debtor's Motion to Expunge or in the Alternative to Reclassify ("Order") entered on November 17, 2010, by the United States Bankruptcy Court for the District of New Jersey ("Bankruptcy Court"). For the reasons expressed below, the Order entered by the Bankruptcy Court will be affirmed.

II. BACKGROUND

Appellant had conducted business under the trade name "Don's What a Bagel, Inc." which business filed for bankruptcy under Chapter 11 on February 9, 2009. Unable to confirm a Chapter 11 plan of reorganization, the Bankruptcy Court ordered Chapter 7 liquidation on April 19, 2010. Appellant was unable to derive any funds from the business and sought relief by filing for individual Chapter 13 Bankruptcy protection on January 18, 2010. The State of New Jersey filed a secured proof of claim that was subsequently amended on August 12, 2010.

Central to this appeal is the amended proof of claim filed by the State of New Jersey which states that Appellant owes sales taxes for the time period of 2003 to 2009. The sales taxes are monies collected from Appellant's customers at the time of sale and owed to the State as required by state law. Appellant argues that the sales taxes are "excise taxes" and, therefore, dischargeable under the Bankruptcy Code after three years. The State argues that the taxes are "trust fund" taxes and, therefore, not dischargeable under Bankruptcy.

The Bankruptcy Court held a hearing on September 27, 2010, and subsequently instructed the parties to file supplemental briefing. The Bankruptcy Court held a telephonic hearing on November 1, 2010, at which time the Court found that the sales and usage taxes owed by Appellant are trust fund taxes pursuant to 11 U.S.C. § 507(a)(8)(c) rather than excise taxes under 11 U.S.C. § 507(a)(8)(e). The Bankruptcy Court entered an order on November 17, 2010 stating that the sales tax liability owed by Appellant on behalf of Don's What a Bagel, Inc., in the amount of $56,679.78, is non-dischargeable.

Appellant filed a timely appeal of the Order entered by the Bankruptcy Court.

III. JURISDICTION

The Order entered on November 17, 2010 is a final, appealable order. This Court exercises mandatory jurisdiction to hear appeals from final orders of bankruptcy judges pursuant to 28 U.S.C. § 158(a)(1).

IV. STANDARD

On appeal from Bankruptcy Court, factual disputes are governed by the clearly erroneous standard. See In re Continental Airlines, 203 F.3d 203, 208 (3d Cir. 2000); In re Sharon Steel Corp., 871 F.2d 1217, 1222 (3d Cir. 1989). Legal conclusions are given plenary review. Id.; see also In re McKeesport Steel Castings Co., 799 F.2d 91, 93 (3d Cir. 1986). The parties do not dispute the underlying facts. The issue turns on a question of law and, therefore, we apply plenary review regarding the appeal.

V. DISCUSSION

This appeal requires interpretation of Section 507(a) of the Bankruptcy Code which prioritizes creditors' claims, particularly, item number eight, which permits allowed unsecured claims of governmental units ...


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