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IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF
PENNSYLVANIA
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CIVIL ACTION, No. 98-4780, CIVIL ACTION, NO. 98-4913
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E.D. Pa. - Bankruptcy, Taxes
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August 23, 2000
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IN RE LABRUM & DOAK
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The opinion of the court was delivered by: Jay C. Waldman, J.
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MEMORANDUM
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WALDMAN, J.
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August 22, 2000
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I. Introduction
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Labrum & Doak ("the Debtor"), a dissolved partnership,
instituted an adversary proceeding in bankruptcy court to obtain
a declaratory judgment approving its proposed allocation of tax
recapture liability under 26 U.S.C. § 467 to all of its partners and
former partners who received the benefit of the recapture, as opposed to
only the partners who remained with the Debtor at the time of its
dissolution. Defendants/Appellants Daniel J. Ryan and Perry S. Bechtle,
former partners of the Debtor, appeal from the Opinion and Order entered
by the Bankruptcy Court on July 30, 1998 which allocated to them
shares of the Debtor's taxable income for tax years 1996 and 1997 (Civil
Action No. #98-4780). Appellant the Official Committee of Former
Partners ("Former Partners") appeals from the same Opinion and
Order of the Bankruptcy Court (Civil Action No. #98-4913).
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II. Jurisdiction and Standard of Review
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This court has appellate jurisdiction over final orders of the bankruptcy
court pursuant to 28 U.S.C. § 158(a)(1). The district court reviews de
novo the bankruptcy court's conclusions of law and applies a
clearly erroneous standard of review to the bankruptcy court's
findings of fact. See Meridian Bank v. Alten, 958 F.2d 1226, 1229 (3d.
Cir 1992); In re Equipment Leassors of Pennsylvania, 235 B.R. 361, 363
(E.D. Pa. 1999).
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III. Factual Background
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Labrum & Doak is a Pennsylvania general partnership which, prior
to its dissolution on July 31, 1997, engaged in the practice of law. On
January 6, 1998, six of the Debtor's former partners filed an
involuntary bankruptcy petition under Chapter 7 of the Bankruptcy
Code, which, in response to the Debtor's motion, the Bankruptcy
Court converted to Chapter 11.
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On April 20, 1998, the Debtor filed an adversary proceeding seeking a
declaratory judgment approving its proposed allocation of tax recapture
liability among its existing and former partners. The tax recapture
liability issue stems from a ten-year lease the Debtor entered into in
1992 for office space with 1818 Market Partnership
("Landlord"). The terms of the lease commenced September 1,
1992 and extended through August 31, 2002. As an incentive to the Debtor
to enter the lease, the Landlord abated the rent during the first year
and for portions of the subsequent three years.
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In order to take advantage of the tax benefits offered by the lease,
the Debtor adopted in 1994 the constant rental accrual method of
accounting provided in the tax code at 26 U.S.C. § 467. This method
allowed the Debtor to prorate for tax purposes the total rents due under
the lease over the entire length of the lease, resulting in increased
tax deductions for rental expenses for the first four years of the lease
and thus permitting the partners to declare taxable income significantly
less than actual income earned. Beginning in 1996, however, the Debtor
was required to pay its rent in full, even though its rent expense
deductions were limited to the constant rate previously established.
This effectively increased the taxable income of the Debtor's partners
during that second period.
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Through 1995, the Debtor's partners had received a cumulative tax
benefit of $2,056,458, with Mr. Ryan receiving deductions of $110,407
and Mr. Bechtle receiving deductions of $64,721. *fn1
Over the entire lease term, the tax benefit experienced in the beginning
of the lease offsets the tax liability experienced at the end of the
lease. Therefore, from 1996 to 2002, the tax liability would increase to
offset the received benefit.
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To help provide for the tax liabilities upon recapture, the Debtor
withheld significant sums from the partners' cash distributions of
profits and established a reserve fund as part of each partner's capital
account. The intention was to create a risk management device which
would assist a departing or retiring partner to pay the accelerated tax
liability upon his or her departure. When the firm experienced financial
difficulty, however, the partners' capital accounts were depleted.
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In 1995-1996, nine of the Debtor's partners left the firm, either by
withdrawal or retirement. Appellants Bechtle and Ryan, the only partners
who retired from the firm, did so effective December 31, 1996. They
entered into agreements with the partnership providing for
post-retirement payouts beginning in January 1997 and extending for five
years thereafter.
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The firm then operated under a 1989 Amended and Restated Partnership
Agreement (the "Partnership Agreement"). That Agreement
contained several provisions concerning liabilities of former partners
for defined losses and pending claims.
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Article 19.7(a) defines "Losses" as "any and all
actions, causes of action, litigation, claims, debts, dues, accounts,
demands, losses, deficiencies, damages, liabilities, obligations, and
expenses of any nature whatsoever, including court costs and legal fees,
arising from or in connection with or in any manner relating to the
partnership" and "Excepted Losses" as those arising from
a partner's "willful misconduct or fraud or breach of this
Agreement or other written Agreement with or relating to the
partnership" or willful breach of applicable rules of professional
conduct. "Pending Claims" are defined as "any Losses
pending against or known to the partnership or a partner at the time of
such partner's voluntary withdrawal or expulsion from the
partnership."
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Article 19.7(b) provides that "(u)pon the termination of the
interest of a partner in the partnership by reason of death, disability,
or retirement, then the partnership and the remaining partners shall
assume and satisfy as they become due and shall defend, indemnify and
hold harmless such deceased, disabled or retired from, any and all
Losses with the sole exception of such partner's Excepted Losses."
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Article 19.7(c) provides for indemnification to withdrawn and expelled
partners for "ordinary business expenses, ordinary obligations, and
ordinary liabilities of the partnership incurred in the normal course of
partnership business with the following exceptions:
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(i) The Executive Committee shall have the right in its sole
discretion to determine the portion or amount of any loans, lease
obligations, Pending Claims, and Excepted Losses to be assessed against
and borne by such expelled or withdrawing partner. It is the intention
of the parties that any expelled or withdrawing partner shall remain
liable for the share of Pending Claims and Excepted Losses which could
have been assessed against and borne by such partner had such partner
remained a partner after the date of withdrawal or expulsion; and
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(ii) The partnership shall have no obligation to defend, indemnify,
and hold harmless any such expelled or withdrawing partner from any
Pending Claim or Excepted Losses, except to the extent of insurance
coverage provided by the partnership's applicable insurance policies,
and such withdrawal or expulsion shall not exonerate or release any such
partner from liability to the partnership or to any third party with
respect to any Pending Claims or Excepted Losses."
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In January 1997, the remaining partners voted to adopt an amendment
("the First Amendment") to the Partnership Agreement, which
purported to apply retroactively to January 1, 1996. *fn2
The First Amendment expressly allocated to each present and former
partner whose equity in the firm had not yet been completely liquidated
a share of the tax recapture income that was to be recognized in the tax
years 1996-2002. For those partners who had retired or otherwise
terminated their interest in the partnership, however, the total amount
of the tax recapture income that would be allocated to them throughout
the 1996-2002 period would be accelerated and allocated to them in the
years that they received returns of capital from the Debtor. The
percentage of their tax recapture income for each year would be the same
as the percentage of their capital account which was distributed in that
year.
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In April 1997, the remaining partners voted to approve a second
amendment to the Partnership Agreement ("Second Amendment"),
also purportedly retroactive to January 1, 1996. It clarified that the
allocations of additional income were for tax purposes only. *fn3
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On June 5, 1997, Labrum & Doak's remaining partners voted to
dissolve the firm effective July 31, 1997. The Debtor then negotiated
with its Landlord to vacate most of the space and reduce its rent.
Consequently, all of the tax deductions which were meant to be
recaptured through 2002 became due in 1997, resulting in an outstanding
tax liability of $1,684,289. The Debtor allocated the tax liability to
the present partners and those former partners who had left the firm but
were partners at the time of inception of the lease and had received a
tax benefit while partners, apparently proportional to the tax benefits
received by the partners in 1992-1995.
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A number of the Debtor's former partners challenged the validity of
the Debtor's allocations of the tax recapture liability to them. The
Debtor initiated the underlying proceeding seeking a declaratory
judgment approving its proposed allocation of tax recapture liability
among its existing and former partners who received the benefit of the
recapture.
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Following a trial, the Bankruptcy Court issued an opinion
holding that it had jurisdiction over the proceeding, that the
proceeding was "core," that the amendments to the Partnership
Agreement were not valid or enforceable against partners who had
previously withdrawn and that an implied contract existed under which
partners were individually liable for recapture of the tax benefits
which they received.
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Messrs. Bechtle and Ryan and the Former Partners filed Notices of
Appeal. They assert that the Bankruptcy Court lacked jurisdiction
over the adversary proceeding underlying the appeal and erred in finding
an implied in fact contract. Messrs. Bechtle and Ryan also claim that
the Bankruptcy Court erred by failing to recognize as a defense a
right of retiring partners to indemnification pursuant to Article 19(b),
although they admittedly did not assert this defense before that Court.
As the two appeals raise overlapping issues and as the appellee filed
one brief in response to both, the two appeals are treated together in
this memorandum.
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IV. Discussion
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A. Bankruptcy Court Jurisdiction and Authority
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Appellants argue that a proceeding to determine the allocation of tax
liabilities among the present and former partners of the Debtor does not
affect the administration of the estate and is not related to the bankruptcy
for purposes of 28 U.S.C. § 1334(b) because the parties ultimately
liable for the taxes at issue are the individual partners. *fn4
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In its Order and Opinion, the Bankruptcy Court reaffirmed its
earlier decision that it had jurisdiction and held "that the
Debtor's obligation to allocate the tax liability of its partners and
former partners on its returns, albeit that the ultimate payment
responsibility lies with the partners, renders the matters at issue
'related to' the Debtor's bankruptcy for purposes of 28 U.S.C. §
1334(b), since it is not only conceivable but quite apparent that
resolution of this issue is critical to the administration of the
case." In its initial opinion, the Bankruptcy Court reasoned
that the Debtor has positive duties, subject to penalties for failure to
perform them, to allocate responsibility for the taxes among its
partners and to report an appropriate allocation in its tax returns and
Schedule K-1 statements. As the positive obligations of the Debtor under
the Internal Revenue Code ("IRC") may be affected by the
proceeding, the Bankruptcy Court held that it had jurisdiction.
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Whether the Bankruptcy Court has jurisdiction must be
determined solely by reference to 28 U.S.C. § 1334. See Quattrone
Accountants, Inc. v. Internal Revenue Service, 895 F.2d 921, 926 (3d
Cir. 1990). *fn5 That statute provides
in pertinent part that "(n)otwithstanding any Act of Congress that
confers exclusive jurisdiction on a court or courts other than the
district courts, the district courts shall have original but not
exclusive jurisdiction of all civil proceedings arising under title 11,
or arising in or related to cases under title 11." 28 U.S.C. §
1334(b). Therefore, a proceeding must at least meet the threshold
"related to" test for jurisdiction to exist.
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Under § 1334, the reach of "related to" jurisdiction is
very broad, extending to any proceeding whose outcome "could
conceivably have any effect on the administration of the estate being
administered in bankruptcy." Quattrone, 895 F.2d at 926
(quoting Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984)). See
also Belcufine v. Aloe, 112 F.3d 633, 636 (3d Cir. 1997)(recognizing the
broad reach of "related to" jurisdiction); In re Titan Energy
Inc., 837 F.2d 325, 330 (8th Cir. 1988)("even a proceeding which
portends a mere contingent or tangential effect on a debtor's estate
meets the broad jurisdictional test articulated in Pacor"). A
proceeding is thus "related to bankruptcy if the outcome
could alter the debtor's rights, liabilities, options, or freedom of
action (either positively or negatively) and which in any way impacts
upon the handling and administration of the bankruptcy
estate." Halper v. Halper, 164 F.3d 830, 837 (3d Cir. 1999); Pacor,
743 F.2d at 994. A proceeding may be "related to" the bankruptcy
even if the particular dispute ultimately has no effect on the debtor,
so long as the court cannot conclude that it will have no conceivable
effect. In Re Wolverine Radio Co., 930 F.2d at 1143.
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The action brought by the debtor involves its allocation of § 467 tax
recapture liability among the partners. The IRC places positive
obligations on the Debtor to file tax returns, to issue Schedule K-1
statements reflecting the proper allocation of tax liability and, as
appropriate, to supply corrective information. See 26 U.S.C. § 6031.
The Debtor's failure to comply with the IRC could result in the
assessment of penalties against it. See 26 U.S.C. § 6698. Although the
Debtor is not ultimately responsible for payment of the taxes, the
action is at least "related to" the bankruptcy and the
District Court has jurisdiction over the proceeding. As the District
Court may refer bankruptcy matters within their jurisdiction to
the Bankruptcy Court, that Court had jurisdiction in this case.
See 28 U.S.C. § 157(a); Halper, 164 F.3d at 836.
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If a proceeding is core, the Bankruptcy Court may hear and
determine the case, and may enter appropriate orders and judgments. See
28 U.S.C. § 157(b)(1); Halper, 164 F.3d at 836. In such a case, the
District Court reviews de novo the Bankruptcy Court's conclusions
of law and applies a clearly erroneous standard of review to its
findings of fact. See Meridian Bank, 958 F.2d at 1229; In re Equipment
Leassors of Pennsylvania, 235 B.R. at 363.
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If a proceeding is non-core but otherwise related to a case under
Title 11, the Bankruptcy Court may hear the proceeding, however,
its power is limited to submitting proposed findings of fact and
conclusions of law. See 28 U.S.C. § 157(c)(1); Halper, 164 F.3d at 836.
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The District Court must then enter any final order or judgment after
consideration of the proposed findings and conclusions, and after de
novo review of those matters to which any party has objected. See 28
U.S.C. § 157(c)(1); Halper, 164 F.3d at 836.
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To determine whether a proceeding is core, the court first looks to §
157(b) which provides a non-inclusive list of proceedings that may be
considered core. See 28 U.S.C. § 157(b)(2)(A)-(O). The Bankruptcy
Court determined that the proceeding was core under § 157(b)(2)(A). *fn6
Section 157(b)(2)(A) provides that core proceedings include matters that
concern the administration of the estate.
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The Debtor contends that the proceeding is core because of its
obligation to file tax returns, to issue Schedule K-1 statements
reflecting a proper allocation of recapture liability and to file any
appropriate corrective information with the IRS, and because a
determination of the distribution of tax recapture liability was deemed
essential to allow the Debtor to prepare a confirmable Chapter 11 plan
for an orderly liquidation of assets of the estate under §
157(b)(2)(O). The Bankruptcy Court held that it was a core
proceeding under § 157(b)(2)(A) as the Debtor's proper filing of its
tax returns is important to the administration of the estate. The court
agrees with the Debtor and the Bankruptcy Court. The proceeding involved
a matter significant to the administration of the bankruptcy
estate and is core.
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B. Determination of Implied in Fact Contract
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Appellants contend that the Bankruptcy Court erred in holding
that they were parties to an implied in fact contract by which they
agreed to accept the deferred tax liability. The Bankruptcy Court
determined that all of the partners who received a tax benefit agreed to
accept the corresponding deferred tax liability.
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A contract implied in fact is an enforceable contract which arises
where an agreement, although not expressed in words, is inferred from
the conduct of the parties in light of the surrounding circumstances.
See In re Penn Cent. Transp. Co., 831 F.2d 1221, 1228 (3d Cir. 1987);
Halstead v. Motorcycle Safety Found. Inc., 71 F. Supp. 2d 455, 459 (E.D.
Pa. 1999); Healthcare Servs. Group, Inc. v. Integrated Health Servs. of
Lester, Inc., 1998 WL 231265, *3 (D. Del. April 23, 1998)(construing
Pennsylvania law); Ingrassia Constr. Co., Inc. v. Walsh, 486 A.2d 478,
483 (Pa. Super. 1984)(contract implied in fact can be found by looking
to the surrounding facts of the parties' dealings). Neither the offer
and acceptance nor the moment of formation need be identifiable. Id.
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The findings of the Bankruptcy Court, which are supported by
the record and not clearly erroneous, establish an implied in fact
contract.
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In 1994, the Debtor adopted the § 467 constant rental accrual method
of accounting for the 1992 Lease, after discussion by the partners at
several partnership meetings. The partners specifically discussed the
effects of utilizing this method including the tax effect on each
partner. The partners understood that each partner who obtained the tax
benefit during the first four years of the lease would be responsible
for the corresponding tax burden. The adoption of the accrual method
occurred prior to the departure of any of the appellants.
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After adoption, the Debtor filed amended tax returns for tax years
1992 and 1993 which resulted in tax refunds for the partners. The
partners accepted these tax benefits, totaling $2,056,458. The partners
allowed the Debtor to withhold sums from their cash distributions of
profits for retention in their capital accounts for the purpose of
satisfying the eventual tax recapture liability.
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Appellants' argument that the Bankruptcy Court's conclusion
regarding lack of consideration for the First Amendment is inconsistent
with the existence of consideration for an implied in fact contract is
rejected. The reason the Bankruptcy Court found no consideration
for this amendment is that the partners had a pre-existing duty to pay
their share of the tax recapture liability by virtue of an implied in
fact contract. The receipt of tax benefits for the first four years of
the lease is ample consideration for the obligation proportionately to
absorb the offsetting tax liability in the later years.
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Appellants contend that the Bankruptcy Court should have
applied a clear and convincing evidence standard in determining the
existence of an implied in fact contract. They analogize an implied in
fact contract to an oral agreement and argue that "any oral
modification" had to be established by clear and convincing
evidence because "¶19.10 [of the Partnership Agreement] stated it
was the complete agreement among the parties."
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A written contract may be modified by subsequent agreement through
words, written or oral, or by conduct of the parties. A. Valey
Engineers, Inc. v. Rouse Co., 1989 WL 89984, *5 (E.D. Pa. Aug. 9, 1989);
Cedrone v. Unity Sav. Ass'n., 609 F. Supp. 250, 254 (E.D. Pa. 1985);
Dora v. Dora, 141 A.2d 587, 590-91 (Pa. 1958); Bonczek v. Pasco Equip.
Co., 450 A.2d 75, 77 (Pa. Super. 1982). Proof of a subsequent oral
modification of a written contract does not require clear and convincing
evidence. See Sferra v. Urling, 188 A. 185, 186 (Pa. 1936) (evidence
required to prove oral agreement modifying terms of prior written one is
no greater than that necessary to prove any oral agreement); Bentz v.
Barclay, 144 A. 280, 282 (Pa. 1928) (rejecting jury instruction
requiring heightened standard of proof to show subsequent oral
modification of written contract); Koeune v. State Bank of Schuylkill
Haven, 4 A.2d 234, 237 (Pa. Super. 1939).
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Proof of an oral modification of a written contract by clear and
convincing evidence is required only where there is an express provision
specifically prohibiting non-written modifications. See First Nat. Bank
of Pa. v. Lincoln Nat. Life Ins. Co., 824 F.2d 277, 280 (3d Cir. 1987);
Nicolella v. Palmer, 248 A.2d 20, 23 (Pa. 1968). Article 19.10 merely
provides that "This Agreement constitutes the entire agreement
among the parties and supersedes all prior arrangements and writings
with respect to the partnership." The Agreement does not expressly
require that any subsequent modification must or may only be in writing.
*fn7
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The parties conduct, in light of the surrounding circumstances, amply
demonstrates the partners understood that they were individually liable
for the recapture of the tax benefit which they had received, without
regard to whether they left the partnership. *fn8
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The Bankruptcy Court's determination that an implied in fact
contract exists under which partners who accepted the tax benefit agreed
to accept the corresponding tax liability is sound.
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As it found an implied in fact contract, the Bankruptcy Court
chose not to rely on the Debtor's equitable theories including unjust
enrichment and the tax benefit rule. The Bankruptcy court
nevertheless expressly noted that the Debtor's equitable arguments
support its claims and specifically discussed the applicability of the
tax benefit rule. The Court agrees and believes that on the record, in
the absence of an agreement, the Bankruptcy Court's decision is
also supportable under the equitable theory of unjust enrichment. *fn9
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Appellants received a benefit, they reasonably should have expected to
pay the cost associated with that benefit and their retention of the
benefit without such payment would be unjust. See Martz v. Kurtz, 907 F.
Supp. 848, 855 (M.D. Pa. 1995); Styer v. Hugo, 619 A.2d 347, 340 (Pa.
Super. 1993).
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Substantial tax benefits flowed to the former partners for four years.
The expectation of all partners was that those who benefitted would be
responsible for their share of the corresponding liability through the
end of the lease term. It would be inequitable to allow a partner to
retain such benefit and then escape the corresponding cost or offsetting
liability by forcing others to absorb it. Requiring partners to be
responsible for liabilities proportional to the benefit each obtained is
clearly just and equitable.
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C. Indemnification
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Appellants Bechtle and Ryan now argue that they are entitled to
indemnification pursuant to Article 19.7(b). They did not present this
defense or legal theory in the Bankruptcy Court.
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It is generally inappropriate to entertain an issue or new legal
theory first raised by a party on appeal. See Gardiner v. Virgin islands
Water & Power Auth., 145 F.3d 635, 646-47 (3d Cir. 1998); United
Parcel Serv. v. International Bhd. of Teamsters, 55 F.3d 138, 140 n.5
(3d Cir. 1995). In any event, the argument is not persuasive.
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While the definition of losses in Article 19.7(a) is quite broad, they
are obligations for which one is liable simply by being a member of the
partnership. They do not include personal tax obligations merely because
these result from income earned or deductions claimed as a lawyer
practicing with the firm. *fn10 To
read the language "arising from," "in connection
with" and "relating to the partnership" as appellants
suggest would entitle retired partners to indemnification for personal
tax liability resulting from the disallowance by the IRS of a business
expense or loss reported by the firm's accountant, and even from
negligent underpayment of taxes on income earned as a partner. Even
putting aside the requirement that indemnification provisions are to be
construed narrowly, *fn11
appellants' suggested reading could not be sustained. Moreover, as the Bankruptcy
Court concluded, appellants Bechtle and Ryan were parties' to a valid
subsequent implied in fact agreement to pay their fair share of the
liability occasioned by their acceptance of tax benefits.
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V. Conclusion
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The court has carefully considered the respective positions of the
parties. Consistent with the foregoing discussion, the court concludes
that the ultimate decision of the Bankruptcy Court is correct.
Accordingly, the order of the Bankruptcy Court herein will be
affirmed. Appropriate orders will be entered.
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ORDER
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AND NOW, this 23rd day of August, 2000, upon consideration of the
Appeal of the Official Committee of Former Partners, the submissions of
the parties and the record herein, consistent with the accompanying
memorandum, IT IS HEREBY ORDERED that the Order of the Bankruptcy
Court of July 30, 1998 is AFFIRMED and the above action accordingly is
closed.
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JAY C. WALDMAN, J.
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ORDER
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AND NOW, this 23rd day of August, 2000, upon consideration of the
Appeal of Daniel J. Ryan and Perry S. Bechtle, the submissions of the
parties and the record herein, consistent with the accompanying
memorandum, IT IS HEREBY ORDERED that the Order of the Bankruptcy
Court of July 30, 1998 is AFFIRMED and the above action accordingly is
closed.
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Opinion Footnotes |
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| [71] |
*fn1 Upon the adoption of the
constant rental accrual method, the firm filed amended partnership
returns and issued amended Schedule K-1 forms to its partners for tax
years 1992 and 1993, allowing the partners to file amended returns and
to obtain tax refunds for those years.
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| [72] |
*fn2 It appears that Defendants
Bechtle and McDonald were the only former partners who retired or
withdrew prior to June 1997 to sign the First Amendment. The Bankruptcy
Court held that this amendment, along with the Second Amendment
discussed infra, was not valid for lack of consideration. None of the
parties challenge this decision on appeal.
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| [73] |
*fn3 None of the former partners
signed the Second Amendment.
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*fn4 The Former Partners, and one
individual partner, raised this issue in a motion to dismiss the
underlying proceeding. The Bankruptcy Court denied the motion,
holding that the Debtor's responsibility to file and defend the § 467
tax allocation made in its returns rendered the matter "related
to" the Debtor's bankruptcy under §1334(b) and
"core" under §§ 157(b)(2)(A) and (b)(2)(O).
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| [75] |
*fn5 11 U.S.C. § 505 neither
authorizes nor prohibits the bankruptcy court to determine the
tax liability of non-debtors. It merely clarifies the bankruptcy
court's jurisdiction over tax claims. Quattrone Accountants, 895 F.2d at
924-26; In Re Wolverine Radio Co., 930 F.2d 1132, 1140 (6th Cir.
1991)(agreeing with the Third Circuit's analysis of § 505(a) in
Quattrone in holding that bankruptcy court's jurisdiction over a
case involving nondebtors is to be determined solely by 28 U.S.C. §
1334(b)).
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| [76] |
*fn6 None of the parties raised the
issue of whether the proceeding was core or non-core at trial and only
the Debtor, arguing that the proceeding was core, raised the issue in
briefs. None of the appellants argued that the proceeding was non-core
and although they argue on appeal that the proceeding is not related to
the bankruptcy for jurisdictional purposes, they do not
specifically address the core/non-core issue.
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*fn7 The Bankruptcy Court
thus may have used an overly stringent standard in assessing the
existence of an oral contract. In any event, an absence of an express
oral agreement is not inconsistent with the existence of an implied in
fact contract evidenced by conduct. Also, the agreement in question
addresses a discrete tax issue not literally encompassed by the 1989
Partnership Agreement. No one has suggested that the adoption of the
constant rental accrued accounting method required to secure the tax
advantage was, or had to be, in writing.
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| [78] |
*fn8 Appellants' suggestion that the
implied in fact contract violates the statute of frauds because it is an
unwritten promise to answer for the debt of another and IRC restrictions
on the allocation of partnership income is unpersuasive. The agreement
in question is one to answer for one's own debt. The IRC provisions
relied on by appellants do not prohibit or conflict with the implied in
fact agreement and indeed essentially provide for allocation of income
or loss as agreed to by the partnership. See U.S.C. §§ 704(a) &
704(b); 26 CFR §§ 1.704-1(b)(1)(i) & (b)(v). See also 26 CFR §
1.73601(a)(ii) (retired partner treated for tax purposes as partner
until complete liquidation of partnership interest). The IRC does not
preclude the making and enforcement of an agreement by persons then
partners regarding their personal responsibility effectively to pay for
a benefit derived while a partner.
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*fn9 The court may affirm a correct
decision on a ground or theory different from that relied upon by the Bankruptcy
Court. See In re Anes, 195 F.3d 177, 180 (3d Cir. 1999); University of
Maryland v. Peat Warwick Main & Co., 923 F.2d 265, 275 (3d Cir.
1991).
|
| [80] |
*fn10 It also seems most unlikely
that an experienced and accomplished attorney such as appellant Bechtle
would have signed the First Amendment, albeit invalid for lack of
additional consideration, if he did not believe he had undertaken an
obligation to pay a proportionate share of the tax recapture liability
or believed that he was entitled to indemnification.
|
| [81] |
*fn11 See Fox Park Corp. v. James
Leasing Corp., 641 A.2d 315, 318 (Pa. Super. 1994).
|