The issue in this case is whether the trial court had jurisdiction to hear a suit filed by the City of Chattanooga ("the City") to enforce a real property tax lien on property acquired by Custom Baking Company through a sale conducted by a bankruptcy court trustee. The previous owner of the real property, which was alleged to have been delinquent in payment of its city property taxes, filed a bankruptcy petition in the United States Bankruptcy Court for the District of Delaware prior to this action. The City was listed as a creditor in the bankruptcy action and was notified of the proposed sale of the debtor's assets by the bankruptcy trustee and filed no objection. After the sale of the property, the Bankruptcy Court approved the sale free and clear of all liens, claims, and encumbrances, and retained jurisdiction "to determine any claims, disputes or causes of action arising out of or relating to the proposed sale." The City brought this action in state Chancery Court several months after the entry of the Bankruptcy Court's order. Upon review, we affirm the trial court's judgment that it lacked jurisdiction to hear and decide this case and that the City is barred by the collateral attack doctrine from bringing this action to circumvent the Bankruptcy Court's prior valid final order.
Opinion may be found at the TBA website:
"The Bankruptcy Court’s order contains the following clear and unambiguous provisions that are dispositive of this case: (1) “all persons and entities holding liens, claims, encumbrances and interests . . . in the Assets prior to Closing, including, but not limited to, all . . . governmental, tax and regulatory authorities . . . hereby are forever barred, estopped and permanently enjoined from asserting such liens, claims, encumbrances and interests against the Buyer, its successors or assigns, or against the Assets,” and (2) “[t]his Court shall retain jurisdiction to determine any claims, disputes or causes of action arising out of or relating to the Proposed Sale.” The City does not assert that the Bankruptcy Court did not properly assume jurisdiction pursuant to 28 U.S.C. §§ 157 and 1334; it recognized the Bankruptcy Court’s jurisdiction by making an appearance and filing a proof of claim as a creditor. Further, the City had notice of every pertinent step in Bankruptcy Court prior to the sale of the debtor’s assets and, therefore, had ample opportunity to object and have its position and arguments heard and considered before the Bankruptcy Court." Id.
"The present case does not involve an exception to the automatic stay in a bankruptcy proceeding, such as the “police or regulatory power” exception addressed in Chao. Nor did the Chao court, which ultimately held the bankruptcy court had exclusive jurisdiction under its facts, address the situation of a subsequent collateral attack in state court upon a final order validly issued by a bankruptcy court that specifically retains jurisdiction over causes of action arising out of or relating to the authorized sale of a debtor’s assets. Thus, the Chao opinion is of no avail to the City under the present circumstances." Id.
