Florida Department of Revenue v. Piccadilly Cafeterias, Inc. - Oral Argument

Argument of Scott D. Makar

Chief Justice Roberts: We'll hear argument next in Case 07-312, Florida Department of Revenue versus Piccadilly Cafeterias.

Mr. Makar.

Mr. Makar: Mr. Chief Justice, and may it please the Court: The virtues of reading Congress' grant of the stamp tax exemption, 1146(c), to only post-confirmation transfers is threefold.

First, it's faithful to the language of the statute, which requires that there be a plan confirmed, as the courts in NVR and Hechinger have held, and draws a simple bright-line test at the point of confirmation, at which point the bankruptcy judge has the power to grant that tax exemption.

It's also based upon the principle that taxation exemption statutes, which this is a case involving one, must be narrowly construed if they are to stay under principles of federalism.

It also avoids the intrusion into the State's tax system, keeping in mind the important fact that approximately three-quarters of these Chapter 11 cases never get to plan confirmation.

Instead, in three quarters of the cases you have, as in Lamie and in the Hartford case, you may have a case convert to Chapter 7 or have it be dismissed.

So a pre-confirmation tax exemption granted by the bankruptcy judge at any point prior to confirmation--

Justice Breyer: I don't understand that.

If it's never confirmed, then I guess the tax is okay, isn't it?

Mr. Makar: --Well, Justice Breyer, what happens in these situations is that a... for example, a 363 sale order where the property is being sold, in that order there is an exemption granted by the bankruptcy judge.

Justice Breyer: But so what?

Isn't that... I mean, I assume that's totally illegal, that you get... I thought we're talking about this provision where everybody agrees that it has to be under a plan confirmed under section 1129.

So if there's no plan confirmed, I don't know how you would fall within this exemption.

Mr. Makar: Well, that's our point exactly, Your Honor.

Justice Breyer: Fine.

If it's your point exactly, then I guess I must agree with that.

I'll hear from the other side.

Except I thought your point was it makes it difference whether the transfer takes place before the plan is confirmed or after.

So I may be just confused about that.

Mr. Makar: Well, what happens in these situations before confirmation where there is a 363 order that transfers, that the bankruptcy court then says this is entitled to an exemption, at that point in time the State of Florida or whatever State is denied the revenue that would otherwise--

Justice Breyer: Oh, no, I'm asking you this.

You then concede... let me for my own point of view; forget what the... maybe I'm confused about the facts or maybe I'm not.

But let's suppose there is a plan and it is confirmed.

The transfer, however, took place a month earlier where a private group of creditors came together, every creditor, with the debtor and they worked out a sale tomorrow, and they transferred the assets tomorrow.

Four months later, the plan that includes every word of that goes before the bankruptcy judge, the bankruptcy judge thoroughly understands the situation, and he says: I confirm the plan.

Now, under those... in that circumstance, I guess you now are... are you prepared to concede that Florida cannot tax?

Mr. Makar: --No, Your Honor.

Justice Breyer: Of course not.

So then... then the fact that there is no plan seems to me irrelevant, that situation, from the present case.

So now let's look at this case, where there is a plan and it is confirmed.

My question, going back to what I thought the facts are, is this: Imagine the situation I've just described... thorough investigation later by the bankruptcy judge; plan including it is confirmed.

And you say if the transfer took place first you can assert your tax, but if the transfer took place second, after the plan, you can't.

And my question, if I'm right on my assumption, is I'd like you to provide a reason why any human being, a reasonable human being, would want to make that distinction?

Why would anyone want to say we want to give all the money to the creditors and not let Florida get some if it takes place, the transfer, after the confirmation, but would think differently about it and would want Florida to get some if the transfer takes place before the confirmation, which confirmation describes everything in depth, is thoroughly investigated, et cetera?

What reason could there be for such a distinction?

Mr. Makar: Well, two things, Justice Breyer.

First of all, the Bankruptcy Code speak in terms of a... 1146(c) speaks in terms of a "plan confirmed".

Justice Breyer: I'm not speaking of the language for the moment.

I want you to forget about the language and assume the language is ambiguous.

That's a different question.

My question is, assuming that the language is ambiguous, as every lower court has found, assuming that, however, is there any reason why a reasonable human being would make this distinction?

That's my question.

And there may be an answer, but I want to know what answer is.

Mr. Makar: Sure.

In this context--

Justice Scalia: I mean, you could say this was Congress, right?

Mr. Makar: --I'm sorry?

Justice Breyer: That is not an answer.

[Laughter]

I would appreciate an answer to the question.

Mr. Makar: Well, Justice Breyer, I think the practical reason is Congress has created a structured Bankruptcy Code, in which there is a plan confirmation process structure that Congress has provided here.

And in this particular case, and in perhaps the hypothetical, this was done outside the plan confirmation process.

In other words, this sale was done even before a plan was even filed.

Chief Justice Roberts: I suppose one of the reasons would be how far do you go back?

I mean, you go back three years and say, well, you know, the bankruptcy judge can say, part of what I'm confirming is the sale that took place three years ago, so you can file for a refund, I guess.

Mr. Makar: Well, that's the fundamental problem we have.

Justice Breyer: That's the problem?

If that's the problem, I thought that there had to be a filing for bankruptcy before any of this kicks in.

Mr. Makar: Well, there certainly is.

There has to be a filing for--

Justice Breyer: Okay.

Then the answer can't be you could go back 50 years.

The answer would have to be you go back until the filing for bankruptcy.

Chief Justice Roberts: Well, why does there have to be... there has to be a filing for bankruptcy before you get a plan confirmed, but I didn't understand that to be the threshold before... what does that mean, there has to be a filing for bankruptcy?

That the confirmation of the plan can't go back before that?

Mr. Makar: --Well--

Chief Justice Roberts: It goes back before then in a lot of cases to look for preferential transfers and things like that.

Mr. Makar: --Well, sure, but here what we have is the language of the statute, 1146(c), is keyed in to a key event, which is plan confirmation, the plan confirmed.

The authority for the bankruptcy judge to grant the tax--

Chief Justice Roberts: I thought your answer to Justice Breyer was saying there's another key event and that's the filing of the petition for bankruptcy.

Mr. Makar: --Well, that has... I don't see that as having any relevance as to the authority of the bankruptcy judge to grant the tax exemption.

The question I understood was how far back can can you go?

And our position on that is opening this up to pre-confirmation transfers creates all sorts of problems.

Justice Breyer: What?

That's what I want to know.

And I'll add a qualification.

I'd say I would read into this a context, and the context is the whole section that gives the exemption from the State law only kicks in when you file for bankruptcy.

So, I... now, it's my question.

I guess I could make the hypothetical the the way I want to make it, and the way I want to make it is that this section applies once it kicks in, the bankruptcy filing, and it does not distinguish between the pre and the post-confirmation, you know, where the confirmation takes place after the transfer or the transfer after the confirmation.

You're arguing to the contrary.

And what I want to know is what reason there is?

Do I have to repeat the question?

Mr. Makar: No.

No.

Justice Breyer: What is the reason?

That's what I want you to focus on, for making that distinction.

Mr. Makar: Well, as I understand the question, Justice Breyer, you're concerned about the pre-confirmation transfer that ultimately gets wrapped into a plan that's ultimately confirmed and why shouldn't that be occurring?

Our position--

Justice Scalia: That's what the whole case is about.

Mr. Makar: --Right.

And that's the language of the statute in our view provides that the authority flows from the confirmed plan.

Justice Scalia: He wants a reason why that might be.

Do you know many instances in which Congress has set up a system in which you cannot determine whether a State tax is valid or invalid until some future event at an indeterminate time which may be three years later?

Is that customary--

Mr. Makar: No, in fact--

Justice Scalia: --for someone not to know whether the tax is payable or not for sure until three years later?

Mr. Makar: --No, that's exactly our argument.

Justice Scalia: Isn't that a good reason?

Mr. Makar: That's our argument, which is that it is... is not narrowly construing the statute.

It's broadly construing it, as the Eleventh Circuit found--

Justice Ginsburg: There's another assumption then that was in Justice Breyer's question about, well, you have to have the petition, the bankruptcy petition.

But in this very case wasn't the sale... wasn't the basic arrangement made the day before the petition was filed?

Mr. Makar: --Right.

This appears to be one of those so-called pre-packaged plans where it was arranged and was sort of put together outside a formal plan confirmation process.

Under the Bankruptcy Code, typically there's the filing of the petition--

Justice Stevens: Absolutely.

Mr. Makar: --and filing of the plan--

Justice Stevens: You were asked, and I think tried to answer and never got your answer out, and I'd like to hear: What is it you were saying about cases in which pre-confirmation transfers are made and the tax exemption is made?

Did you start to tell us that you might never recover the tax later on?

Or what kind of a problem does it create?

Mr. Makar: --That's precisely my point.

In three-quarters of these cases approximately, these exemptions can be given.

Justice Stevens: Yes, but then the question is, can you nevertheless, in an untimely fashion, eventually get the tax imposed and the tax collected?

Mr. Makar: Possibly.

If it's in escrow, possibly.

It takes a tremendous amount of monitoring in these cases.

There's a problem with notice.

The State doesn't get notice.

Justice Kennedy: Are there also instances... and, again, I'm interested in Justice Breyer's question and Justice Stevens's question, the practical reasons that might have prompted the statute to be drawn in the way that you say it's been drawn.

Are there also instances where a transaction goes through and is later unwound, is later set aside?

So that the tax has to be refunded?

Mr. Makar: Yes.

I mean, that could be a possibility.

That's our position, that this is sort of turning this into a refund statute, perhaps in some instances, by allowing all these pre-confirmation transfers to be eligible for the exemption, keeping in mind that this whole question in this case is: Are preconfirmation transfers ever eligible?

We don't think they... that they are because, as the courts in NVR and Hechinger said, the natural, simple, bright-line test is if you get to plan confirmation, if you've gone through the process that Congress has established, and you get a plan confirmed, then the transfer of the security... this is not a securities case... but the transfer of the property has at that point been exempt from the tax.

So in our view, the purpose of the statute would be thwarted by allowing all these pre-confirmation exemptions.

As I say, in 25 percent of the cases perhaps you will get the plan confirmed, and perhaps--

Chief Justice Roberts: Counsel, I'm not sure I understand the practical consequences of your position.

I assume that if you're right, people who have an interest in buying the bankrupt business will wait or have to wait until after confirmation of the plan, because the tax liability is going to save them a lot of money.

Is it going to work in that case?

Mr. Makar: --Work in the sense that--

Chief Justice Roberts: I mean, will the effect of your plan be that it will discourage people who come along and want to buy a bankrupt business?

Mr. Makar: --No.

I think we have to put this in context.

What we have is a Chapter 11 reorganization.

And then Chapter 7 of course is liquidation, which is typically where the assets of the company would be liquidated and sold off, and you have a trustee.

Here we have a different context.

This reorganization... Congress established this reorganization process.

Justice Ginsburg: But are you not... are you questioning... what I understand to be the case, it's not at all uncommon for a Chapter 11 these days to have the 363(b) sale of property, then have some kind of global settlement, and then distribute all the assets, never have any kind of reorganization.

And I didn't understand that it was necessary to kick the case over into Chapter 7.

Aren't there many cases filed under Chapter 11 that end up with no reorganization?

Mr. Makar: There are a number.

There are a number.

And I'm not sure exactly the number, but it's a small but growing percentage in which the debtors are taking advantage of Chapter 11 to liquidate rather than go through Chapter 7.

And there's reasons for that.

It may be that the debtor in possession of the company has greater control than a trustee would and so forth.

Our point is that this is... in this liquidation context, it's basically trying to hammer a Chapter 7 peg into a Chapter 11 hole, because what is happening here is the tax exemption that Congress has set up here, which should be narrowly construed in favor of the State, is being broadly expanded.

In fact, what the Eleventh Circuit did below--

Justice Scalia: What harm is done?

Could you tell us in just a few words, what's the harm?

That's what Justice Breyer's concerned about.

Mr. Makar: --Well, the harm, Justice Scalia, is that in these instances... as I said, in cases where he exemption is being granted unjustifiably, the State has to expend resources on litigation.

And there is now a new test, and there has... it is going back to court, and there is--

Justice Breyer: And it's not the litigation.

What you've said so far is, at least as I have taken it in, that the practical harm is the following: There will be a certain number of transfers that take place after the filing, but before the actual confirmation; and in respect to those transfers, the State is left in a position of uncertainty.

You don't know if you can assert your tax or not assert your tax until that transfer is later confirmed as part of the confirmed plan or not.

That's what I take it as you're having said.

And then I think I'll hear in a minute somebody say, but that kind of uncertainty is rife in the tax laws.

It often occurs that a taxing authority is not certain about how to characterize a transaction until later events take place which are part of, or related to, the transaction; and the IRS and all the State tax departments survive.

So if I'm right in guessing that, discuss.

[Laughter]

That's all I can say.

Mr. Makar: --The notice provision is one.

The State may not get notice.

For example in NVR, there's 5,000-and-something transfers of property that happened in the State of Florida that we never get notice of to object to them.

If it is in a 363 context, we probably don't get notice because we don't own the property that is being transferred.

All this pre-confirmation effort and expenditure of resources on... the State has to monitor these--

Justice Scalia: What about the solvency of the person who has tentatively been declared exempt from your tax; so, therefore, you can't go get him right away?

This is not the ordinary citizen.

This is somebody who is on the edge of bankruptcy.

You would normally want to get your money out of him as soon as possible before he squanders what is left, right?

Mr. Makar: --Well, I--

Justice Scalia: And would it... would it not happen with some frequency that, even though you could have collected the tax three years earlier, by the time it turns out for sure that there's never going to be a Chapter 11 confirmation--

Justice Stevens: Isn't the tax imposed on the purchaser, not the bankrupt's estate?

Mr. Makar: --I'm sorry, sir?

Justice Stevens: Isn't the tax imposed on the purchaser, rather than the bankrupt's estate?

Mr. Makar: Under... under Florida law it is imposed upon the transaction and is repaid by the buyer or the seller.

But on the question here--

Justice Ginsburg: What I don't understand about the... how the Florida system works, I thought you don't get... you don't get the transfer recorded until you pay the tax.

I thought that's what Florida law was.

Mr. Makar: --That's correct.

But here what is happening is with the pre-confirmation orders that are coming out with regularity, those are being used to prevent the taxes from being paid and the recordation of--

Justice Breyer: Why can't you just say that?

Why can't you say, you want to record this taxation, pay the tax.

And when you come in later, because it was confirmed, show us the paper.

We'll give you the money back.

How does that interfere with... with anything?

Mr. Makar: --Well, it becomes an administrative burden.

Justice Breyer: Why is it an administrative burden?

The burden is entirely on the people who want their money back.

They come in.

They file a piece of paper.

It says Federal bankruptcy judge signed, plan confirmed, and it would take, I guess, a few minutes to read through it to see they're telling the truth, which you always have the problem in a tax, and then you give them their money back.

Mr. Makar: Well, again, what is happening with these orders being granted, sometimes the State doesn't even know about it, and sometimes--

Justice Breyer: Of course, you can't file it if they don't tell the State.

So if they're not going to tell you, they're not going to have their transfer recorded.

I mean, look, we're going into this, and on the other side, of course, there is the following consideration: That there are creditors who are owed a lot of money; and all these creditors are in a room; and they think, if I can sell these assets tomorrow, I'm going to get a lot more money than I will if I have to wait for six months.

That's why we want to go through with this.

Now isn't that an important bankruptcy interest, to make the creditors more whole?

Mr. Makar: --Well, the State of Florida doesn't want to stand in the way of... nor do the other States... in the way of maximizing the value of the estate.

And in the situation here we're talking about a very small tax.

It's only imposed in this limited context as to when a confirmation plan comes out in Chapter 11.

Justice Scalia: --Mr. Makar, you were going to address, I take it, the assumption that Justice Breyer has asked you to make, which is that the language here is ambiguous.

And your position is, I take it, that "confirmed" means "confirmed"?

Mr. Makar: Well, absolutely.

I don't concede away our first argument.

I think it's very powerful, which is that the language of the statute, itself, put in the context of this Chapter 11 confirmation process, read in its context, which is from the post-confirmation section, powerfully supports the position that this is a post-confirmation transfer exemption.

Chief Justice Roberts: I don't understand why this is a big deal.

Assuming that was news to me, that this only arises after the filing of a bankruptcy petition, and you are looking forward to confirmation of the plan, this tax only applies at the transfer of title.

Why don't you just get your deal together and just say, well, the closing is going to be the day after confirmation of the bankruptcy plan?

Mr. Makar: Well... and then--

Chief Justice Roberts: And that's when you transfer title, and that's when you have to pay the stamp tax.

Mr. Makar: --Well, that, in the ordinary course of things, is what the statute envisions.

That's, of course, not what happened here, but that's the ordinary course.

And this exemption--

Justice Scalia: Sometimes don't they want the transfer to be effective whether or not there is a later confirmation?

I thought that that was the assumption here: That some of these transfers they want to be effective whether or not a confirmation occurs later.

Mr. Makar: --Well, and that's what happens in some of these cases that are transferred to Chapter 7 or dismissed, where they get the tax exemption and then get out of the Chapter 11 whirl, having gotten the tax exemption, leaving the State to have to unravel what has been done.

That's the beauty and simplicity of the bright-line rule of Hechinger and NVR, which is that the language of the statute says post... it says confirmed plan.

So it is at that point that the authority of the bankruptcy judge to grant the exemption... the exemption exists and, thereby, makes it self-executing in the sense that the plan is confirmed.

The order of confirmation provides the authority for the exemption; and from that point forward it works with... with simplicity.

It is a very straightforward application of the statute.

And it's the most natural reading of the statute, as well.

So I don't want the Court to at all feel as if I'm conceding ground on the language of the statute or the structure of the code and how it applies here.

What I'm... where I think there may be some confusion is simply that in these three-quarters of the cases these exemptions are being granted, and it is a problem for the States to have to go out there and to track them down and figure out what's going on in these cases and try to unravel the exemption.

So it is in that regard that I... if one of the exemptions--

Justice Stevens: May I just ask this question?

I guess this has been the rule in Florida for awhile.

There's a problem, and has the problem been that you actually don't get the money?

Or is it an administrative problem, keeping track of things and finding out whether or not you are entitled to it?

Mr. Makar: --Justice Stevens, it could be both.

I think it could that be we don't know about it, so we don't get the money.

It gets filed, and then we don't... the order is filed with the clerk of court, and, therefore, the money isn't received--

Justice Stevens: Are there any studies showing how much money you've actually lost by this practice?

Mr. Makar: --No.

We've looked at it to see if there's any data.

There's nothing that I can give to you with any reliability.

I would say, anecdotally, that it is in the low millions rather than the... obviously the stamp tax in the State of Florida has been in the billions of dollars overall; but that's not the issue here.

So... but it is quite a few millions of dollars that we believe is--

Justice Stevens: Did I understand you correctly?

You say you have, in fact, lost millions of dollars from the failure to get access under this rule?

Mr. Makar: --Anecdotally, yes.

As I said, this is in conversations with the Department of Revenue and so forth.

There's just no hard data.

That's one of the problems in this area, since... I did provide the Court with some data about the number of plans that are confirmed versus dismissed, and so forth, and the number of filings.

We have about a thousand--

Justice Stevens: It would seem to me that, normally, because you do require recording, that there would be... it wouldn't be all that difficult to keep track of all these cases in which there had been transferred pre-confirmation transfers.

And if you did you have some filed in the computer that had them all there, as soon as the... if the confirmation did not occur, you could just go ahead and send out the bills.

Mr. Makar: --Well, that system does not exist.

I don't know how difficult it would be.

I would suspect... things sound simple sometimes in theory, and then in practice they become very difficult in a State as populous as--

Justice Kennedy: I guess your point is that, as a whole, the virtue of the stamp tax is that it is virtually automatic on recording, and you don't have to send out notices, and so forth.

Mr. Makar: --Well, absolutely.

And--

Justice Kennedy: The whole point of the stamp tax.

Mr. Makar: --Absolutely, and it makes it at that point in time certain.

And the virtue, again, of this bright-line rule is that it provides certainty, predictability, and... and--

Chief Justice Roberts: How long does it typically take from the filing of the petition to confirmation of the bankruptcy plan?

Mr. Makar: --Mr. Chief Justice, the study I cited to the Court about the number of cases it could be... has data in there.

It looks to be... it was in quartiles, or something along this line.

It looks to be like the average is about... I think it is around 450 to 600 days.

I would have to pull the data and look real closely.

But that's on average.

Some can be very quick; some can take longer, depending on the complexity.

A pre-packaged plan like the one we have before us here, it's not clear here why they couldn't have had the plan confirmed before the transfer.

This wasn't a perishable commodity or things along those lines.

But there is not a whole lot of data.

Justice Stevens: Is it... another question I had: Is it not true that even under your rule there will be a number of cases that, even though it was clear that the transaction was after the confirmation, there's an issue as to whether it was under the plan?

Mr. Makar: That issue could actually arise; and that was the Jacoby case that, in our view, sort of spawned a lot of the problems here.

There may be some issues arising post-confirmation.

We concede that.

That... but that's going to be less often than if we have the range of pre-confirmation.

Because if we have the range of pre-confirmation transfers now being subject to litigation, it's going to be at least multiples of... in terms of the burden on the State.

Justice Kennedy: I had one question as to operation of the tax in Florida.

Suppose a transaction... there's no bankruptcy.

A transaction is completed.

Stamps are paid.

There is then a suit to rescind the transaction on the ground of fraud or mistake.

Do you get your money back from the stamp tax?

Mr. Makar: There is a refund mechanism for certain situations.

I'm not sure if that one would be covered, but I believe it would be.

There are... there are some me mechanisms to get a refund back under the State's systems.

If there are no further questions, I will reserve my time for rebuttal.

Argument of G. Eric Brunstad, Jr.

Chief Justice Roberts: Thank you, counsel.

Mr. Brunstad.

Mr. Brunstad: Mr. Chief Justice, and may it please the Court: The scarcest and most precious commodity in a Chapter 11 case is cash.

Without cash, you cannot even get to confirmation.

The way in which most debtors generate the cash necessary to get to confirmation, to pay all of the things that have to be paid in cash on confirmation is through asset sales.

In fact, this tax exemption is more important for pre-confirmation transfers to the confirmation process than post-confirmation transfers.

Here in this case, if you look at the joint appendix page 127, you can see the things that had to be paid on confirmation of this plan, including administrative expenses.

In section 1129, Congress set forth the rule that certain things have to be paid in cash.

Every dollar that is spent to pay a stamp tax cannot be used to pay employee claims, cannot be used to pay for goods and services the debtor desperately needs to reorganize, and cannot be offered to creditors to get their vote in favor of the plan.

There is no reason, no reasonable reason why Congress would have wanted to allow the exemption for a thousand-dollar transfer that occurs after confirmation, but not to a ten-million-dollar transfer that occurs just prior to confirmation.

Justice Scalia: Because you don't know whether that second one will ever be a sale under a plan, which is what the code requires.

It has to be a transfer under a plan.

And when it occurs, you don't know whether it is going to be an under plan or not.

Mr. Brunstad: Well, Justice Scalia, I think that depends on how you define the term "under".

And, getting back to your prior question--

Justice Scalia: At the time it occurs it doesn't matter how you define the term.

There is no way at the time it occurs to say that this is a transfer under a plan.

There hasn't been a confirmed plan.

Mr. Brunstad: --There has not been a confirmed plan, but there is often--

Justice Scalia: It requires under a plan confirmed.

Mr. Brunstad: --Well, it requires that there be a plan confirmed.

Now, it doesn't say "confirmed plan".

Where Congress intended to foreclose discussion, it says--

Justice Scalia: It says "a plan confirmed".

How do you know at the time the transfer is made whether it is under a plan confirmed?

Mr. Brunstad: --You don't necessarily know, Justice Scalia.

Justice Scalia: You don't at all know.

Justice Souter: In fact, you do know, I presume, on the statistics that the odds are three to one against there being a confirmed plan.

Mr. Brunstad: Yes, Justice Souter, but that underscores how difficult it is to confirm plans in Chapter 7, why Congress wanted to make it easier by providing this tax relief.

You need cash to confirm.

For example, the administrative expenses--

Justice Souter: I am... I don't quite follow the leap you just made.

Mr. Brunstad: --Well, the whole purpose of 1146(a) is tax relief.

It is tax relief to provide more dollars for other Chapter 11 purposes.

You cannot confirm a plan without hard, cold cash.

In the LTD bankruptcy, the administrative expenses that had to be paid in full prior to the effective date of the plan were north of $200 million.

This really makes a difference.

This is a live, flesh-and-blood problem.

Justice Ginsburg: I thought, Mr. Brunstad, that the question was asked: So the State is not going to get its tax at the time of the asset transfer, because the cash is needed to eventually have a plan that works.

So the State doesn't get its tax.

And then it turns out that there is no plan; that the case is dismissed.

What happens then?

Florida has to get back... at that point gets the tax that it wanted up front?

Mr. Brunstad: Justice Ginsburg, the practice is to escrow the funds so they will be available as an administrative expense if it turns out there is no confirmed plan.

In addition, this is no different than any other asset sale in bankruptcy where if the tax exemption is not allowed, they claim it as an administrative expense.

Justice Ginsburg: They are all paid up front, but they are put into escrow.

Is that what you are telling me?

Mr. Brunstad: That is the practice, Justice Ginsburg.

And the reason why Florida is never harmed is because the procedures are the same whether it is a Chapter 11 case or Chapter 7.

They have to come to the bankruptcy court and file a request for payment of this kind of tax anyway.

Justice Breyer: So there is no case, to your knowledge... not millions of dollars, but there is no case, to your knowledge, where, in fact, people transferred the assets; they thought there would be a plan confirmed; there was no plan confirmed; and then the State was not paid?

Mr. Brunstad: None that I'm aware of, Justice Breyer.

And here is why that shouldn't happen.

It is theoretically possible, but here is why that should not happen.

Because when the... a transfer is made under section 360(c)... excuse me, 363... the transfers are made free and clear of all claims in interest.

That's what section 363 provides.

If the State wants to get its tax, in the ordinary course it comes into the bankruptcy court anyway, just as Florida did in this case, to file a request for payment of the tax.

Justice Scalia: You would have no reason to know the answer to that question.

You are not the State.

The State has told us that millions of dollars have been lost in taxes not recovered.

Mr. Brunstad: That's because the exemption applies, Justice Scalia.

The courts apply this exemption in Chapter 11.

It is only applied in Chapter 11, not Chapter 7.

Justice Souter: Isn't it odd that the... isn't it odd that the Congress would have required, we will assume, this escrow procedure when the odds are three to one against the non-taxability?

It seems to me that just as matter of simple efficiency, they would not have required this elaborate procedure when the odds are that the procedure would be to no avail to the bankruptcy State... the State.

Mr. Brunstad: No, Justice Souter, because the purpose of Chapter 11, as we know, is to facilitate reorganization, rehabilitation, saving jobs.

It is very difficult.

Congress understood it would be difficult.

That's why it made Chapter 11 more liberal than former Chapter 10 under the Bankruptcy Act of 1898.

That's why we have this tax relief, to provide more dollars that are available to make that process actually work.

This is a real flesh-and-blood problem.

Chief Justice Roberts: Is it often the case... and I don't know, but is it often the case that the people who are engaged in one these asset purchases are, in fact, the creditors themselves?

In other words, they are owed a lot of money and said, well, let's... basically, let's take over the business and run it ourselves?

Mr. Brunstad: Sometimes, Chief Justice Roberts, but not often.

And the reason why we have these asset sales quickly in bankruptcy, think of the warehouse of the bananas.

If you file bankruptcy, you have got to sell those bananas right away.

You can't wait for months and months and months until the plan is confirmed, because there's nothing left to sell.

Here we have a business which we call the melting ice cube.

It an operating business with employees, but we've got to get it into the hands of somebody with capital quickly.

Otherwise, this business is going to be... shut its doors.

All of those people will be let go.

That's why we had a quick sale here: To preserve value, to preserve jobs.

We couldn't wait until the plan-confirmation process played out.

And, in fact, there could not have been a confirmed plan without the sale because the creditors were fighting too hard about who was going to get what.

We had to have the sale first, and we had to do it quickly to maximize the value, preserve the business, save the jobs.

Chief Justice Roberts: Well, I assume that the creditors have an interest in that as well.

I don't know how... I mean, they are the ones who could move quickly to get the confirmation of the plan, because they are the ones whose interests have to be addressed before the plan can be confirmed.

So wouldn't they have an interest in the melting bananas, or whatever?

[Laughter]

Mr. Brunstad: Chief Justice Roberts, the answer to that question is that the creditors have diverse interests.

Secure creditors often want to liquidate quickly.

They want to get their collateral liquidated because they may be paid in full out of that.

That may leave nothing for the unsecured creditors, the tort victims, the employees who have wage claims, the Pension Benefit Guaranty Corporation.

In order for there to be cash for those entities, a more negotiated sale or a different process might have to be followed.

That's what happened in this case.

There was enough to pay the secured creditors in full and give a 45 to 50 percent distribution to unsecured creditors, including the Pension Benefit Guaranty Corporation.

Justice Alito: You say the test is whether it is instrumental.

A transfer has to be instrumental to the plan, is that correct?

Mr. Brunstad: That is a standard that we offer, Justice Alito.

Justice Alito: That is different from "necessary"?

Mr. Brunstad: Yes, it is.

It is... it is more open.

Justice Alito: Well, what does it mean?

Mr. Brunstad: Well, basically, Justice Alito, it encompasses almost any pre-confirmation transfer.

It's a wide open standard.

I want to be up front about that.

You could say... you could use a dictionary definition of under in accordance with, it's about the same.

It would cover all of pre-petition... I'm sorry... the pre-confirmation transfers where you ultimately have a confirmed plan, because all of them will be generating cash that make confirmation possible.

Chief Justice Roberts: I understand your arguments about the desirability.

How do you squeeze it into the statutory language?

Mr. Brunstad: Well, a couple--

Chief Justice Roberts: Under a plan and you're suggesting that it's under the plan before there is a plan.

Mr. Brunstad: --Well, the standard... the test at 1146(a) requires that there be a plan confirmed under section 1129.

So we have three parts of the statute.

We have an incident of transfer, that's undisputed.

We do in this case have a plan confirmed under section 1129.

And we do, in fact, have a stamp tax.

The question--

Justice Scalia: You missed the crucial... the crucial part.

The transfer has to be under a plan confirmed.

I mean, that's the troublesome language.

The transfer has to be under a plan confirmed.

Mr. Brunstad: --But we know, Justice Scalia, that in... where the same language is used, in section 365(g), it cannot possibly mean post-confirmation events.

It cannot possibly.

Because section 365(g) addresses assumptions or rejections of executory contracts under a plan confirmed under Chapter 11.

That cannot happen post confirmation because, as this Court said properly in Bildisco, assumption or rejection must occur prior to confirmation of a plan.

So the same language used elsewhere in the statute, exactly the same, cannot possibly mean post-confirmation.

It must mean something else.

And we think it means a transfer that occurs either before or after confirmation as long as you have a confirmed plan.

Now, it's also critical that where Congress intended to foreclose the debate to require that there be a plan first, such as in section 1142(b) or section 511(b), Congress said "under a confirmed plan".

You cannot insert a verb between confirmed and plan, where it's confirmed plan.

In this section, Congress... in 1146(a), Congress said plan confirmed under section 1129.

Does that mean plan that has been confirmed, plan that may be confirmed, plan that is confirmed?

It's ambiguous.

It's ambiguous.

Again, in section 1142(b), Congress expressly dealt with transfers under a plan... under a confirmed plan.

And in context, that distinct language means there was a plan first, and then it authorizes parties under the plan to make the transfers that are authorized under the confirmed plan.

Justice Souter: Is it relevant, as your friend on the other side pointed out, that the particular section in question occurs within the statute under the general heading of "Post-Confirmation Matters"?

Mr. Brunstad: No, Justice Souter.

And here's why.

We know, for example, in section 1145(c)(2), which is also part of subchapter 3, that expressly applies to an exemption for sales of securities between the petition date and the confirmation date.

In addition, section 1146(b) itself allows for requests for determination of the tax effects of the plan before the confirmation date.

So we know for a fact that the rules in subpart 3, some of them apply to pre-confirmation periods, requests, and exemptions.

Justice Souter: But isn't the... isn't the normal reading, if we're going to give any weight to the placement in the statute at all... and I think we're entitled to give some, that unless there is the kind of clarity that you've just been describing in these two exceptions, that, in fact, the placement there indicates that it is dealing with a post-confirmation matter?

Mr. Brunstad: I think it is entitled to some weight, Justice Souter, but I think it is completely undercut by some of the very provisions of subchapter 3 by their terms apply to pre-confirmation events.

Similarly, some the provisions of subchapter 2, section 1127(b) applies expressly to post-confirmation matters.

Congress was not consistent in placement... placing things exclusively under one heading or another.

Justice Ginsburg: Mr. Brunstad, there's an aspect of the way this looks that I don't understand, and you're an expert in this area.

Perhaps you can explain it to me.

You have one of these 363(b) sales of property, and then you have a global settlement with the creditors.

What function does the plan serve after you have all that?

The assets have been sold.

The creditors have made a settlement.

There's going to be no reorganization; whatever there is, is going to be distributed.

What is the function of having a plan after all that confirmed?

I know one purpose of it is that you avoid paying the stamp tax.

But is there any other purpose once you have already settled that the sale is made, the creditors agree on how it's going to be divided up?

What is the function that the plan serves?

Mr. Brunstad: That's an excellent question, Justice Ginsburg.

The answer is, I think, important.

And there is an excellent answer, and that is, whereas Chapter 7 liquidations are sort of off-the-rack, Chapter 11 liquidations are custom-made.

The plan is custom-made and tailored to the particular assets and circumstances of the particular case.

The assets that were sold in this case was not all the assets to be sold, Justice Ginsburg.

That often happens.

And this plan provides for the orderly liquidation in a specific way of the assets that weren't, in fact, sold.

There also are all kinds of claims that have to be resolved and dealt with.

This plan, in a customized way, dealt with with the resolution of those claims... the PBGC liabilities, tort liabilities, all different kinds of liabilities and concerns... in a much more efficient and tailor-made way than could have happened if the case had been converted to an off-the-rack Chapter 7 case.

There is a test which the lawyers and the courts apply as to whether we should stay in Chapter 11 when the situation has been that most of the assets have been sold or whether we should convert to Chapter 7, and that is whether it's in the best interests of the creditors and the best interests of the estate to stay in the Chapter 11.

That test was met here.

It was clearly in the best interest to stay in the Chapter 11, because we got that customized procedure: A plan administrator who was appointed subsequently who is continuing to liquidate assets and distribute the proceeds.

We have all kinds of benefits.

Now, it is not possible to confirm a Chapter 11 plan simply to escape tax liabilities.

Section 1129 says you cannot confirm a plan if the primary purpose is to escape tax liabilities.

So there is a protection for the State there as well.

Here, of course, the primary purpose of confirming the plan was not just to he avoid tax liabilities.

It was to do all these other administrative things in a custom-made way.

Justice Scalia: What is the section you mentioned earlier that uses "under" in a sense that clearly applies to pre-confirmation?

Mr. Brunstad: Section 365(g), Justice Scalia.

Justice Scalia: I'm looking for it, and I can't--

Mr. Brunstad: We quote it in part on page 38 of our brief.

And it is quoted in part on page 17 of the Petitioner's brief.

Justice Scalia: --Did you make that argument there?

Mr. Brunstad: Yes.

Yes, Justice Scalia.

On pages 38 and... 37, 38, and 39, we specifically talk about section 365(g)(1), and we cite the Bildisco case and specifically made the point--

Justice Scalia: How does that provision read?

Do you have it quoted here?

Mr. Brunstad: --I do, Justice Scalia.

Let me quote it for you exactly.

Section 365(g) deals with what the effect of a rejection... I'm sorry... effect of breaching an executory contract is.

And there are two subparts, 365(g)(1), which provides:

"If such contract or lease has not been assumed under this section or. "

--here's the language that is the same...

"under a plan confirmed under Chapter 11. "

So, if the contract or lease has not been assumed or... under this section, section 365, or under a plan confirmed under Chapter 11, then the breach is basically deemed to have existed just immediately prior to the filing of the bankruptcy case.

It is exactly the same language.

And it is also in (g)(2), the same language is used yet again.

It cannot be the case that the election to assume or reject an executory contract can occur post-confirmation.

It cannot.

Why?

Because, as this Court explained in Bildisco, the assumption or rejection must occur prior to confirmation, up until the point of confirmation, is the language this Court used.

The lower court decision, the TWA case, et cetera, all say exactly the same thing.

And there's an important reason for that.

The standard for assumption or rejection, even if it is elected in a plan, is you have to satisfy section 365.

And that has to be done through a court order, through a court proceeding that has to occur essentially before the court actually confirms the plan.

So the same language used--

Justice Souter: Why?

Why?

Mr. Brunstad: --Because the debtor has to elect... the debtor has to make a decision before confirmation so we know what's going to happen to the property, and so the creditor can timely final a claim if it is going to be rejection, because the creditor does not file a claim for rejection damages for rejection of the contract until the assumption or rejection is determined.

That particular thing is postponed.

But we must know that prior to confirmation because we have to know how to treat the creditor's claim; if we have to pay that creditor significant money, what's going to happen to the property.

For example, Justice Souter, suppose it is a contract to purchase a Boeing 767 for $600 million.

The debtor might file for bankruptcy, one of the airlines files for bankruptcy and might have to decide whether to honor that obligation or to reject that obligation, assume it or reject.

We need to have that information.

We need to know if the debtor is going to have to pay that $600 million before confirmation.

We can't wait until after because it's too important to the plan.

It's too important in dealing with the asset.

That's why all the courts, including this one, have said you must make the assumption-or-rejection election up until confirmation, never after.

So it can't be the case that the specific language

"under a plan confirmed under Chapter 11. "

as used in section 365 refers to post-confirmation, but that is in fact the same language used in section 1146.

Now, contrast that with the language used in sections 1142(b) or 511(b), which talks about a "confirmed plan".

And, in context, that language clearly means a plan comes first.

Congress could have used that same formulation in section 1146(a); it chose not to.

And under Russello and the other precedents of this Court's canons of construction, we should give that semantic choice its deference.

And, again, there's a reason.

So a statute--

Chief Justice Roberts: Your argument there is that "under a plan confirmed" means something different than "under a confirmed plan"?

Mr. Brunstad: --In context, yes, Chief Justice Roberts.

And if you look at section 1142(b), I think you can... you can actually see in context why that so clearly means... that so clearly means the plan comes first and then is confirmed.

But again, it's different language that is used.

Chief Justice Roberts: Do you... do you agree with the proposition that you only go back so far as the filing of the petition?

Well, what in your argument suggests that that's a logical stopping point?

It seems to me that if you don't take the date of confirmation, I don't know why all of your policy arguments wouldn't cause you to go back further.

Mr. Brunstad: By statute, Chief Justice Roberts, section 103 provides that the provisions of Chapter 11, in Chapter 11, including section 1146, apply only in a Chapter 11 case.

There is no case--

Chief Justice Roberts: Yes, but we've already shown a willingness to abandon that type of limitation with "under a plan confirmed".

So, you know, the consideration of the prior transfer is going to take place in the context of a bankruptcy case.

Mr. Brunstad: --The only sections that apply basically to pre-bankruptcy, pre-petition matters, are the avoidance powers in section, for example, the preference actions in section 547, the fraudulent transfer provisions in section 548.

Those things expressly apply to pre-bankruptcy events, and they say, before the...

"90 days before the commencement of the case. "

those kinds of things.

When Congress wanted to reach back before the petition date, it used very specific terms of the art, very specific authorization.

Nothing like that appears anywhere in section 1146(a), and for good reason.

It's very clear, and every court to have looked at this has so held, that 1146(a) does not apply before the case is commenced.

And that makes sense because the purpose is to give tax relief to facilitate the Chapter 11 process.

You want to have cash available--

Justice Stevens: Let me just ask this.

As a practical matter does the judge, the bankruptcy judge, enter some kind of an order approving the transfer, even though it's pre-confirmation, an order to establish the tax exemption?

Mr. Brunstad: --Yes, Justice Stevens.

In fact, that has to happen.

Justice Stevens: So it would have to be after the filing of the bankruptcy proceeding.

Mr. Brunstad: Yes, Justice Stevens, it must.

And under section 363, the Bankruptcy Court must approve sales like this on notice to creditors, which would include the State.

And here, in fact, what happened is consistent with what happens in almost every bankruptcy case.

Because the State has an interest, a taxing interest, in the transfer, the State will get notice, which Florida gave here.

They have an opportunity to come and object if they wish to, which they did here.

There are actually more protections for the State for pre-confirmation transfers than post-confirmation transfers.

After the confirmation of the plan, the Bankruptcy Court's work is essentially done, and then you're just out in the world under the plan and the debtor is making sales and transfers.

There isn't the opportunity for the State to come in and actually object to things as there is pre-confirmation.

So here the State actually has more protections for the pre-confirmation sale--

Chief Justice Roberts: How do you know whether to pay the tax or not?

I mean, you know that the bankruptcy petition has been filed, but you really don't know whether there's going to be a plan confirmed under Chapter 11.

How do you know whether to pay or not?

Mr. Brunstad: --Well, for example--

Chief Justice Roberts: I assume there are penalties if you don't pay on time.

Mr. Brunstad: --There's a very practical reason for that question, Chief Justice Roberts, and that is in this case the Bankruptcy Court specifically determined in his order, judge in his order, that the exemption would apply.

So that was determined in the order.

Of course--

Chief Justice Roberts: But this doesn't happen for some time down the road, right?

Mr. Brunstad: --Well--

Chief Justice Roberts: Up to, I guess... we were told up to 400 days.

Mr. Brunstad: --Well, you can't have a sale until the Bankruptcy Court approves it.

In the process of approval, the Bankruptcy Court was asked and made the determination that 1146(a) would apply.

Now, what happens then is the State can come in and has the right to file a request for payment of administrative expense and the funds are escrowed, because if in fact there ends up not being a confirmed Chapter 11 plan, then the State is entitled to its tax, and the money is then paid to the State, its request for payment of administrative expenses is allowed, and it gets is money.

But this can make--

Justice Scalia: It's always escrowed?

Is that--

Mr. Brunstad: --It's not always escrowed, Justice Scalia.

Justice Scalia: --Is that a uniform practice?

Mr. Brunstad: That is the practice, but it's not uniform because in some cases there's no need for an escrow.

There are some cases in which we know there's going to be enough cash available that the State will be paid, so we don't need that safety.

But the State can always ask for it, and if the State asks for it I'm almost certain in most cases it will get it.

Justice Alito: Is it relevant that this is a tax-exemption provision?

Mr. Brunstad: Well, I think it's relevant in the sense that Congress was clearly intending here to grant tax relief to Chapter 11 debtors to facilitate the Chapter 11 process.

It's not a tax exemption, Justice Alito, in the sense of, for example, an exemption to a revenue-raising provision.

In other words, you could have a State statute that says: The purpose of the statute is to raise taxes and we'll create exemptions.

That's one context.

And there it might make sense to say: Well, look, while the overall purpose of the statute is to raise revenue, we might construe the exceptions to that purpose narrowly.

Here the purpose of Chapter 11 is to facilitate the Chapter 11 process.

So I think we construe this revenue-raising... I'm sorry... this tax relief measure consistent with that overall purpose.

Justice Ginsburg: Why shouldn't we look to see how it was in the Internal Revenue Code with respect to the Federal State tax exemption?

That I think leaves no room for argument.

This case might be argued either way about does it apply to preconfirmed plan asset transfers?

But as I understand it, this section 4382(b) was limited to post-confirmation transfers, that is transfers made within five years after confirmation of the plan.

Mr. Brunstad: That's the limitation that the United States wanted to add to section 267 of the Bankruptcy Act of 1898.

Congress did not grant the United States' request.

The United States said this is administratively too difficult to administer, and Congress rejected that testimony from the representative of the Treasury and enacted section 267 over the objection of the United States.

Now, the United States after the Excise Tax Reduction Act, I think of 1965, does not really have many excise taxes.

And so the testimony of the Commissioner of the Internal Revenue Code... Revenue Service in 1978, when the Bankruptcy Code was being adopted, was that the United States doesn't really care about stamp taxes.

It really didn't have a position on it.

Justice Ginsburg: Well, what was... what did section... I'm not talking about... you mentioned 267.

42... 4382(b), what did that say?

Mr. Brunstad: I'm sorry, Justice Ginsburg?

Justice Ginsburg: Section... 26 U.S.C. 4382(b).

Mr. Brunstad: 4382(b)?

Justice Ginsburg: Yes.

Mr. Brunstad: Was that the revenue provisions--

Justice Ginsburg: That was in the 1954 Code.

I'm not talking about 1898.

Mr. Brunstad: --That one I'm not certain of, Justice Ginsburg.

Justice Ginsburg: I thought that said that the tax exemption was limited to transfers post-confirmation.

Mr. Brunstad: No, Justice Ginsburg.

There the three... the history of the development of the statute is section 77(b)(F) and then went to section 267 and then went to section 1146.

That's the direct--

Justice Ginsburg: Maybe you can straighten me out, because where I get this from is the brief for the State, and it's at page 17, mentions the now-repealed 4382(b).

Mr. Brunstad: --That may, Justice Ginsburg, have been a mirror provision.

Before 1938, the tax-exemption provisions under the Bankruptcy Code were mirrored.

There was a provision in the Bankruptcy Act in section 77(b)(F).

There were also mirroring provisions under the bankruptcy... under the Internal Revenue Code.

Those were eliminated and instead we just have section 267 under the Bankruptcy Act of 1898, which dealt with the exemption in bankruptcy.

Justice Ginsburg, I think that, going back to your earlier point, I think it's important to underscore that the context of this case is different from other contexts in which the discussion of how we should construe a tax exemption applies.

I think the Court here should apply the analysis that it applied in Dolan, where the Court was considering application of a similar canon of narrow construction, and the Court said: Well, in construing the Federal Tort Claims Act, in juxtaposition to this concept that we construe waivers of sovereign immunity narrowly, we don't apply that because that would basically run afoul of the purpose of the Federal Tort Claims Act provisions.

The same thing here.

The proper rule of resolution where we have an ambiguous statute is to look to the purpose of the statute, and the purpose here is to make Chapter 11 easier by granting tax relief.

And I think that, consistent with that purpose, the Court should construe section 1146(a)--

Justice Scalia: Could I?

Mr. Brunstad: --Yes, Justice Scalia?

Justice Scalia: You know, we've said in other opinions no... no statute pursues its purposes at all costs.

And the limitations contained in a statute are as much a part of its purpose as the broad purpose that you just mentioned.

I mean, if a... if a "plan confirmed" means a plan confirmed, that limitation is part of the purpose no less than the broad purpose that you express.

Mr. Brunstad: Well, that... that's true in general, Justice Scalia, but if Congress had really wanted to narrow the purpose here to post-confirmation, it would have surely used the temporal limitations it used, for example in section 1127, where the Court said before... the Congress said before confirmation you do this; after confirmation you do that.

That is a... that is a standard legislative technique used throughout the Bankruptcy Code that was not used in section 8.

Justice Scalia: Maybe, but "under a plan confirmed" seems under normal interpretation of language to me to mean under a plan that has been confirmed.

Mr. Brunstad: Well, I think, Your Honor, as the Court stated in Ardestani, quote,

"The word "under" has many dictionary definitions, and we must draw its meaning from its context. "

close quote.

And under Robinson, the Court looked to, where there was an ambiguous statute, the purpose as the way to resolve the ambiguity, and I submit that should happen here.

Thank you very much.

Rebuttal of Scott D. Makar

Chief Justice Roberts: Thank you, Mr. Brunstad.

Mr. Makar, you have five minutes remaining, and during those five minutes I hope you'll give an answer if you have one to the 365(g)(1) argument that your friend has made.

Mr. Makar: Sure, I'm be glad to, Mr. Chief Justice.

365(g) here speaks in terms of a rejection of an executory contract--

Justice Scalia: Is that spelled out somewhere in the... is its text somewhere in these materials?

Mr. Makar: --The full text?

I'm sorry; it' not.

Justice Breyer: It's on page 38, the last line, the next to the last line.

Justice Scalia: Not the full, not the full section, though.

Justice Breyer: The red brief.

Justice Scalia: Just little snippets of it.

Justice Breyer: Yes.

Mr. Makar: This provision 365(g) says the rejection of an executory contract constitutes a breach of such contractual relief if the contractual relief is not under a section under a plan.

What that means is that it's deemed rejected if, at the time of plan confirmation... not before, but at the time of plan confirmation.

If it's not in the plan, it's deemed a rejection, rejected.

That's merely a... an instrument to say when the contract is... is deemed rejected.

If it's in the plan it's not rejected.

If it's not in the plan... it doesn't get--

Justice Breyer: No, no.

I'm sorry.

Doesn't the rejection have to take place prior to the plan being confirmed?

Mr. Makar: --It says the rejection--

Justice Breyer: Does it or doesn't it?

Prior to in your opinion or not prior to?

Mr. Makar: --Rejection may occur before that, but the... is referring to... rejection in an executory contract constitutes a breech, the... when it is a breach.

And it's only determined... determined to be a breach--

Justice Breyer: I'm sorry.

I don't understand how that would work.

I have a contract with Boeing for $500 million.

I decide to reject it.

Now if that breach doesn't occur until the plan is confirmed, how does the trust... how does bankruptcy judge know how to treat Boeing as a creditor?

Mr. Makar: --Well, at the point of... the statute speaks in terms of the point of plan confirmation.

Justice Breyer: I understand that.

But I'm sorry... doesn't the plan which its confirmed have a list of the creditors and how they are treated?

Mr. Makar: Sure.

Justice Breyer: All right.

How do we write the plan if, in fact, no breach has occurred and he hasn't become a creditor until the plan is, in fact, confirmed?

Mr. Makar: Well, I'm not sure I am following.

But I think the language of the statute here is in a different context, which is saying that the rejection is... constitutes a breach but gas not been assumed, and at that point it has not been assumed, but at the point of confirmation--

Justice Kennedy: I can understand... just taking a quick look at 365(g), why it serves a different purpose and a different function.

But the Respondent's point was, you have to interpret 365, than under the statute at issue.

Do you agree with that?

Mr. Makar: --No.

No.

Because under a plan confirmed in 365(g) relates to point of confirmation or beyond, and we believe under 1146(c) or under 1146(a, Congress has readopted it.

Chief Justice Roberts: So your argument is that you don't have a rejection of the executory conduct... contract... until the plan is confirmed?

That's what Congress--

Mr. Makar: That's what... I'm sorry yes.

That's... at that point.

That doesn't undermine the argument that under a plan confirmed, 1146(c) means at the point of confirmation or beyond.

The most natural reading of 1146(c) is to provide this post-confirmation transfer exemption.

No one is contesting that.

That's the natural reading of the... of the statute.

And the point here of there being more protection and, for example, is simply not the case.

The State is not on notice ob many of these transfers as an MVR.

Those were transfers that were outside the ordinary course of business.

We would give not notice of that.

And in the ordinary course of 363 practice, parties that have an interest in the property... the State doesn't... do not get notice of that proceeding.

So that... this notion that there's more protection in pre-confirmation than post-confirmation is just unsupportable.

In... in conclusion, Your Honors, this is a tax exemption statute, and under this Court's principles it should be narrowly construed.

It shouldn't be expanded to this pre-confirmation transfers with all the problems it creates, in the three quarters of cases that don't get confirmed, and have all these intrusions upon them, but... local governments in their collection of the stamp tax.

For that reason we ask the Eleventh Circuit be reversed.

Thank you.

Chief Justice Roberts: --Thank you, Counsel.

The case is submitted.