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Full title: Response on behalf of Creative Hairdressers, Inc., Ratner Companies, L.C. Filed by Joel I. Sher (related document(s)[788] Objection to Claim filed by Debtor Creative Hairdressers, Inc., [1011] Response filed by Creditor Internal Revenue Service). (Sher, Joel)

Document posted on Nov 29, 2021 in the bankruptcy, 7 pages and 0 tables.

Bankrupt11 Summary (Automatically Generated)

POST-HEARING STATEMENT INSUPPORT OFOBJECTIONTO(I)PRIORITY STATUS OFIRS PROOFOFCLAIMAND(II)DUPLICATIVE IRS PROOFOFCLAIMCreative Hairdressers Inc. and Ratner Companies, L.C., debtors and debtors in possession(the “Debtors”), by and through their undersigned counsel, file this Post-Hearing Statement inSupport of Objection to (I) Priority Status of IRS Proof of Claim and (II) Duplicate IRS Proof ofClaim (the“IRS ClaimsObjection”)2 [Dkt.The FourthCircuit relied exclusively on the analysis of the Supreme Court in National Federation ofIndependent Business v. Sebelius, 567 U.S. 519 (2012), which upheld the constitutionality of theinterrelated ISRP also pursuant to Congress’ taxing authority.3 In essence, Liberty University issimplyarepeatoftheSebeliusconstitutionalanalysis. statute for constitutional muster is a much broader and theoretical exercise than determiningwhether a specific claim in bankruptcy is entitled to be treated as a tax or general unsecuredpenalty.4 Thus, while Sebelius and Liberty University are binding on the constitutionality of theIRSP and ESRP, respectively, the Court should conduct an independent, functional examinationoftheexactionat issuetodeterminewhetherit is a taxforbankruptcypurposes.ApplyingReorganizedCF& I,theCourt canlikewisecharacterizethe$2.1millionESRPin this case as a penalty for bankruptcy purposes: the ACA sets forth a regulatory mandate for anemployer to provide sufficient coverage; the mandate is enforced by a punitive payment foremployers who disobey and is intended to act as a deterrent; the aggregate burden in this case issubstantialanddisproportionatetootherclaims–the$2.1millionESRPisthesecondlargestfiledclaim that asserts priority6; and the ESRP should not be construed as primarily providing forsupport ofthegovernment sinceit is premisedupondisobedience. Finally, for the reasons stated at the hearing, should the Court determine that the ESRP isa tax and not a penalty for bankruptcy purposes, the ESRP is not entitled to priority treatmentbecause it does not satisfythestatutorydefinitionofan“excisetaxon-…a transactionoccurringduring the three years immediately preceding the date of the filing of the petition.”

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INTHE UNITEDSTATES BANKRUPTCYCOURT FORTHE DISTRICTOFMARYLAND (GREENBELT DIVISION) In re: * Chapter11 CREATIVE HAIRDRESSERS,INC., * CaseNos. 20-14583,20-14584-TJCet al., * (JointlyAdministered) Debtors.1 * * * * * * * * * * * * * * POST-HEARING STATEMENT INSUPPORT OFOBJECTIONTO(I)PRIORITY STATUS OFIRS PROOFOFCLAIMAND(II)DUPLICATIVE IRS PROOFOFCLAIMCreative Hairdressers Inc. and Ratner Companies, L.C., debtors and debtors in possession(the “Debtors”), by and through their undersigned counsel, file this Post-Hearing Statement inSupport of Objection to (I) Priority Status of IRS Proof of Claim and (II) Duplicate IRS Proof ofClaim (the“IRS ClaimsObjection”)2 [Dkt.No.788,December16,2020]. ARGUMENT OnNovember2,2021,theCourtconductedahearingontheIRSClaimsObjectionandtheUnited States’ Response to Debtors’ Objection to Proof of Claim [Dkt. No. 881, March 3, 2021]. At the conclusion of argument, the Court invited the Parties to submit supplemental argumentregarding the impact of the Fourth Circuit’s opinion in Liberty University, Inc. v. Lew, 733 F.3d72(4thCir.2013)on the issues beforethe Court inthe IRS Claims Objection. On November16,2021, the United States filed its Supplemental Response to Debtors’ Objection to Proof of Claim1TheDebtorsinthesechapter11casesare:(i)CreativeHairdressers, Inc.(“CHI”)and(ii)RatnerCompanies, L.C (“RC”). 2 Capitalized terms not defined herein shall have the meaning ascribed in the IRS ClaimsObjection.

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[Dkt. No. 1011]. In turn, the Debtors hereby file their supplemental statement. As hereinafterdiscussed,LibertyUniversitydoes not alterthelegal underpinnings ofthe IRS Claims Objection. InLibertyUniversity,theFourthCircuitupheldtheconstitutionalityoftheESRPpursuantto Congress’ taxing authority under U.S. Const. art. I, § 8, cl 1. 733 F.3d at 95-98. The FourthCircuit relied exclusively on the analysis of the Supreme Court in National Federation ofIndependent Business v. Sebelius, 567 U.S. 519 (2012), which upheld the constitutionality of theinterrelated ISRP also pursuant to Congress’ taxing authority.3 In essence, Liberty University issimplyarepeatoftheSebeliusconstitutionalanalysis. Id.at95(“[A]lthoughNFIBdidnotpresentthe Supreme Court with an opportunity to address the constitutionality of the employer mandate,we are convinced that the NFIB taxing power analysis inevitably leads to the conclusion that theemployer mandate exaction, too, is a constitutional tax.”). To reach its result, the Fourth Circuitcited the same factors set forth in Sebelius (i.e., generation of revenue, enforcement by IRS,absenceofscienter,burden,lackof consequences beyondliability). Id.at 96-98. Importantly, in both Sebelius and Liberty University, the respective courts were chargedwithdeterminingwhethertheindividual mandate andemployermandateshouldbeinvalidatedasanunconstitutionalexerciseofCongressionalauthority. Inthatcontext,afederalcourtistomakeevery reasonable construction to save a statute from unconstitutionality. See, e.g., Sebelius, 567U.S. at 537-538, 563, 574 (stating that the Supreme Court’s reading of Congress’ authority “isexplained in part by a general reticence to invalidate the acts of the Nation’s elected leaders” andthat “every reasonable construction must be resorted to, in order to save a save a statute fromunconstitutionality”; concluding based on these principles that the ISRP “may reasonably becharacterized as a tax” for constitutional purposes). These cases demonstrate that scrutinizing a 3 Liberty University also held that the ESRP, like the ISRP, does not constitute a tax for purposesof the Anti-Injunction Act, focusing on the related nature of the exactions and finding no reasonthat thetwomandates shouldbetreateddifferently. 733F.3dat 88-89.

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statute for constitutional muster is a much broader and theoretical exercise than determiningwhether a specific claim in bankruptcy is entitled to be treated as a tax or general unsecuredpenalty.4 Thus, while Sebelius and Liberty University are binding on the constitutionality of theIRSP and ESRP, respectively, the Court should conduct an independent, functional examinationoftheexactionat issuetodeterminewhetherit is a taxforbankruptcypurposes. As discussed at the hearing, the Supreme Court set forth the relevant test for whether anexactionisataxorpenaltyundertheBankruptcyCodeinU.S.v.ReorganizedCF&IFabricatorsof Utah,Inc.,518U.S.213,220-225(1996).5 Ataxis “apecuniaryburden, laiduponindividualsorproperty,forthepurposeofsupportingtheGovernment”,whileapenaltyisanexactionimposedbystatuteas“punishmentforanunlawfulactoromission.” Id.at224. Inthebankruptcycontext,the functional examination of the provision should be geared to determining its character basedupon its operation. Id. at 220, 224-225. In Reorganized CF & I, the Supreme Court had littledifficultyholdingthatatenpercent“tax”(intheamountof$1.2million)onapensionplanfundingdeficiency “must be treated as imposing a penalty, not authorizing a tax” for “bankruptcypurposes”,withoutrequiringscienterandnotwithstandingthattheremedywasonlymonetary.Id. (“punishment for an unlawful omissionis what this exactionis”). Ultimately,theSupreme Courtlooked behind the “tax” label and saw that the exaction was intended to operate in a coercive andpunitivemanner. 4 Even in the constitutional setting, the Supreme Court noted that there comes a point when anexaction becomes so punitive that it loses its character as a tax and becomes a mere penalty withthe characteristics of regulation and punishment. Sebelius, 567 U.S. at 572-573 (“we need notdecideheretheprecisepointatwhichanexactionbecomessopunitivethat thetaxingpowerdoesnot authorizeit”). 5 Reorganized CF&I was cited in the opinion of the court by Chief Justice Roberts in Sebelius assetting forth a relevant definition of “penalty.” Sebelius, 567 U.S. at 567. Thus, it remains goodlaw.

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ApplyingReorganizedCF& I,theCourt canlikewisecharacterizethe$2.1millionESRPin this case as a penalty for bankruptcy purposes: the ACA sets forth a regulatory mandate for anemployer to provide sufficient coverage; the mandate is enforced by a punitive payment foremployers who disobey and is intended to act as a deterrent; the aggregate burden in this case issubstantialanddisproportionatetootherclaims–the$2.1millionESRPisthesecondlargestfiledclaim that asserts priority6; and the ESRP should not be construed as primarily providing forsupport ofthegovernment sinceit is premisedupondisobedience. Finally, for the reasons stated at the hearing, should the Court determine that the ESRP isa tax and not a penalty for bankruptcy purposes, the ESRP is not entitled to priority treatmentbecause it does not satisfythestatutorydefinitionofan“excisetaxon-…a transactionoccurringduring the three years immediately preceding the date of the filing of the petition.” 11 U.S.C. §507(a)(8)(E)(ii). Respectfullysubmitted, Dated: November30,2021 /s/ Joel I.Sher Joel I.Sher,BarNo.00719 Daniel J. Zeller,BarNo. 28107 SHAPIROSHER GUINOT& SANDLER 250W.Pratt Street,Suite2000 Baltimore,Maryland21201 Tel: 410-385-4277 Fax: 410-539-7611 Email: jis@shapirosher.com djz@shapirosher.com Counsel for Debtors and Debtors in Possession 6 A purported priority class action claim has been filed in the amount of $4 million. See OlsenProof of Claim 460-1 [August 11, 2020]. The Debtors have objected to that claim for numerousreasons [Dkt.No.858, February9,2021].

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CERTIFICATE OFSERVICE I HEREBY CERTIFY that on the 30th day of November, 2021, I reviewed the Court’sCM/ECFsystemanditreportsthatanelectroniccopyoftheforegoingwillbeservedelectronicallybytheCourt’s CM/ECFsystem onthefollowing: GWYNNE L BOOTH GLB@GDLLAW.COM Steven MBerman sberman@shumaker.com Alan Betten abetten@sagallaw.com KyleLamarBishop kyle.l.bishop@usdoj.gov, eastern.taxcivil@usdoj.gov;james.j.wilkinson@usdoj.gov PeterDBlumberg heather.williams@fedex.com JoshuaD.Bradley jbradley@rosenbergmartin.com,lfeigh@rosenbergmartin.comElisabeth Bruce elisabeth.m.bruce@usdoj.gov,Eastern.Taxcivil@usdoj.govJodieE.Buchman jbuchman@silvermanthompson.com, efiling@silvermanthompson.com Donald F.Campbell dcampbell@ghclaw.com KatieLaneChaverri kchaverri@tlclawfirm.com,dtayman@tlclawfirm.comRichard L.Costella rcostella@tydings.com,jmurphy@tydings.comKevin Davis kdavis@capdale.com,brigette-wolverton-caplin-drysdale-9897@ecf.pacerpro.com KyleY.Dechant kdechant@wtplaw.com, clano@wtplaw.com;kydechant@gmail.com;Jha@wtplaw.com MoniqueBairDiSabatino monique.disabatino@saul.com,robyn.warren@saul.comRonald JDrescher ecfdrescherlaw@gmail.com, ron@clegolftour.com,ecf2drescherlaw@gmail.com,ecf@drescherlaw.com,myecfdrescher@gmail.com,284@notices.nextchapterbk.com Alan D.Eisler aeisler@e-hlegal.com,mcghamilton@gmail.com John T.Farnum jfarnum@milesstockbridge.com,jfarnumecfnotices@gmail.comAshleyNFellona ashley.fellona@saul.com,janice.mast@saul.com William HenryFisher hank@cccoateslaw.com JeremyS.Friedberg jeremy@friedberg.legal, ecf@friedberg.legalStanford G.Gann sgannjr@levingann.com Richard MarcGoldberg rmg@shapirosher.com, ejd@shapirosher.com;ens@shapirosher.com Alan M.Grochal agrochal@tydingslaw.com, mfink@tydingslaw.com;jmurphy@tydingslaw.com William L.Hallam WHallam@rosenbergmartin.com,kmartin@rosenbergmartin.comRobertHanley rhanley@rmmr.com CatherineBradyDiFazioHarrington charrington@bregmanlaw.com James Philip Head jhead@williamsmullen.com JessicaHepburn-Sadler sadlerjh@ballardspahr.com,andersonn@ballardspahr.comJames M.Hoffman jhoffman@offitkurman.com,mmargulies@offitkurman.comPatriciaB.Jefferson pjefferson@milesstockbridge.com IraT Kasdan kdwbankruptcydepartment@kelleydrye.com; MVicinanza@ecf.inforuptcy.com LawrenceA.Katz lkatz@hirschlerlaw.com,llewis@hirschlerlaw.com

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Patrick J.Kearney pkearney@sgrwlaw.com,jnam@sgrwlaw.com NicoleC.Kenworthy bdept@mrrlaw.net C.Kevin Kobbe kevin.kobbe@dlapiper.com,docketing-baltimore- 0421@ecf.pacerpro.com Lynn A.Kohen lynn.a.kohen@usdoj.gov Leonidas Koutsouftikis lkouts@magruderpc.com,mcook@magruderpc.comJoyceA.Kuhns jkuhns@offitkurman.com JeffreyKurtzman kurtzman@kurtzmansteady.com RobertL.LeHane KDWBankruptcyDepartment@kelleydrye.com Stephen E.Leach sleach@hirschlerlaw.com, ndysart@hirschlerlaw.com;kburgers@hirschlerlaw.com;plaura@hf-law.comRichard Edwin Lear richard.lear@hklaw.com, kimi.odonnell@hklaw.comSteven N.Leitess sleitess@mdattorney.com,efiling@silvermanthompson.comMichael J.Lichtenstein mjl@shulmanrogers.com,tlockwood@shulmanrogers.comMarissaK Lilja mlilja@tydingslaw.com,edondero@tydingslaw.comKeith M.Lusby klusby@gebsmith.com KimberlyA.Manuelides kmanuelides@sagallaw.com MichelleMcGeogh mcgeoghm@ballardspahr.com, stammerk@ballardspahr.com;cromartie@ballardspahr.com;bktdocketeast@ballardspahr. com Stephen A.Metz smetz@offitkurman.com,mmargulies@offitkurman.comBrittanyMitchell Michael brittany.michael@stinson.com, jess.rehbein@stinson.com,jayme.masek@stinson.com Pierce CMurphy pmurphy@mdattorney.com, efiling@silvermanthompson.com;dcaimona@silvermanthompson.comMichael Stephen Myers michaelsmyerslaw@gmail.com Kevin M.Newman knewman@barclaydamon.com,kmnbk@barclaydamon.comTraceyMichelleOhm tracey.ohm@stinson.com,porsche.barnes@stinson.comJeffreyM.Orenstein jorenstein@wolawgroup.com LeoWesleyOttey otteyjr@gmail.com JeffreyRhodes jrhodes@blankrome.com,kbryan@blankrome.com L.JeanetteRice Jeanette.Rice@usdoj.gov,USTPRegion04.GB.ECF@USDOJ.GOVRobertA.Richards robertr@dorseylaw.net BradshawRost brost@tspclaw.com Michael Schlepp mschlepp@s-d.com Joel I. Sher jis@shapirosher.com,ejd@shapirosher.com J.BreckenridgeSmith jsmith@foxrothschild.com David Sommer dsommer@gejlaw.com,ceyler@gejlaw.com;gomara@gejlaw.comDaniel Alan Staeven daniel.staeven@frosttaxlaw.com, dan@ecf.courtdrive.com;daniel.staeven@frosttaxlaw.com;ann.jordan@frosttaxlaw.com;G70021@notify.cincompass.com Aryeh E.Stein astein@meridianlawfirm.com, aryehsteinecf@gmail.com;steinar93219@notify.bestcase.com AshleyElizabeth Strandjord astrandjord@chasenboscolo.com MatthewS.Sturtz matt.sturtz@nelsonmullins.com, gary.freedman@nelsonmullins.com MatthewG.Summers summersm@ballardspahr.com, branchd@ballardspahr.com;heilmanl@ballardspahr.com;mcgeoghm@ballardspahr.com;a

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mbroses@ballardspahr.com;buhrmank@ballardspahr.com;roglenl@ballardspahr.com;zarnighiann@ballardspahr.com;carolod@ballardspahr.com Jonathan HaroldTodt jonathan.todt@faegredrinker.com US Trustee-Greenbelt USTPRegion04.GB.ECF@USDOJ.GOV MauriceBelmontVerStandig mac@mbvesq.com, lisa@mbvesq.com;verstandig.mauricer104982@notify.bestcase.comIrvingEdward Walker iwalker@coleschotz.com, jdonaghy@coleschotz.com;pratkowiak@coleschotz.com Mitchell BruceWeitzman ,statum@jackscamp.com;iluaces@jackscamp.comCraigB.Young craig.young@kutakrock.com, jeremy.williams@kutakrock.com;lynda.wood@kutakrock.com;david.fox@kutakrock.com;pamela.germas@kutakrock.com /s/ Joel I.Sher Joel I.Sher

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