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The House At Pooh Corner Goes Up For Sale.

Cotchford Farm, the story book setting for the adventures of Winnie the Pooh, has just been put on the market. Author A.A. Milne lived in the real life Pooh corner home for three decades until 1959*. The English estate is where Milne dreamed up several of the stories and poems about the lovable bear. It is also where he raised his son, Christopher Robin.

But Cotchford Farm isn’t all about cuddly bears, honey, and bouncing Tiggers. The home is also the setting of a darker piece of pop culture. Forbes notes that in the late 1960′s, Brian Jones, one of the founding members of the Rolling Stones, purchased the house. Jones was kicked out of the band in 1969 and less than a month later he was found floating dead in his pool at Cotchford Farm.

*And since AAM actually died in 1956 if he was living there until 1959, woooooh, spooky.

But even apart from all that, one gathers that Christopher Robin Milne had possibly less than sanguine memories, or at least felt scarred by his identification with his literary avatar, so perhaps not terribly hummy vibes.

What's the betting that it gets bought up to turn into a theme-park of the Disney version?

Cannot resist linking to this earlier Pooh-related post.

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Tiny hippo and the tiny train. A cautionary tale.

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Monday’s decision in Hall v. United States is emblematic of the Court’s long-standing skepticism of the Bankruptcy Code as an important institution for mitigating the long-term costs of financial distress.  As a jurisprudential matter, the case is a classic conflict of wholly separate worlds:  the world of the IRS and the Internal Revenue Code on the one hand, and the world of financial distress and the Bankruptcy Code on the other.  Each world has its own title of the United States Code (Title 26 for tax and Title 11 for bankruptcy), and each has its own set of institutions, legal experts, and – most importantly – foundational habits of mind and practice.

The case is as simple a fact pattern as you can imagine: a family that owns a farm cannot make ends meet.  In response, they seek relief under Chapter 12 of the Bankruptcy Code (a special set of provisions for family farmers).  To resolve their outstanding debts, they proposed to sell the family farm and use the proceeds to pay their creditors.  The IRS objected, claiming a right to take much of the sales proceeds as a tax on the capital gains from the sale; as is commonly the case, even in a depressed real-estate market, a farm that has been owned for many years will sell for far more than its original price.

The family argued that the IRS claim is a general unsecured claim (paid after all priority creditors, and discharged even if unpaid), relying on a recent amendment of the Bankruptcy Code that treats certain claims “that aris[e] as a result of the sale * * * of any farm” as “an unsecured claim that is not entitled to priority.”  The IRS countered that the provision has no application here, because it applies only to sales that took place before the bankruptcy proceeding began.

The dispute turned specifically on the question whether this particular type of tax claim would have been a priority claim under Section 507 before the amendment, which is true only if the tax claim was “incurred by the [bankrupt’s] estate,” as opposed to the family in its individual capacity.  The family contended that this is obviously true, pointing to the fact that the sale happened after bankruptcy and to the acknowledged regularity that tax claims for post-petition financial activity have always had priority in individual bankruptcy proceedings.  The IRS, weaving a masterful web of tax technicalities, argued that the tax is not actually “incurred by the estate,” because in fact there happens to be no separate taxable estate in Chapter 12 proceedings; the IRS stood firmly on an obscure provision of Title 26 that, it is safe to say, has never received close scrutiny from a bankruptcy lawyer or judge.

The family also pointed, quite persuasively, to the legislative history of the provision.  This is, of course, of no moment to many of the Justices, but it is compelling in its specificity and plausibility.  All agree that the provision was drafted, proposed, and more or less forced through Congress at the instance of Senator Grassley of Iowa, who made numerous speeches during the years it took him to get the proposal adopted in which he highlighted this specific scenario: an effort to sell a farm during bankruptcy scuttled by the IRS’s insistence on the payment of capital gains taxes from the sales proceeds.

Faced with the dueling institutional perspectives, on Monday the Court wholeheartedly embraced the view of the IRS.  Writing for a five-Justice majority, Justice Sotomayor tracks the analysis of the Solicitor General’s brief directly: because there has never been a separate taxable estate in a Chapter 12 proceeding, she explains, the amendment is ineffective to accomplish its stated purpose.  Justice Breyer’s dissent predictably points to the unambiguous intention of the amendment’s drafter and decries the Court’s ready willingness to accept the government’s reading of the complex interplay of Codes.

I have no quarrel with the Court’s statutory analysis.  Indeed, the IRS’s statutory argument is compelling, at least as long as you consider it in a vacuum unimpeded by the Bankruptcy Code.  What I do find interesting, though, is the blithe lack of concern about the systemic effect of the decision.  No decision in this case could have any serious effect on the IRS’s administration or the public fisc.  The amounts at stake are, from the perspective of the IRS, less than trivial.  And if the decision produced administrative difficulty or fiscal inequity, who would doubt the ability of the IRS to obtain prompt rectification from Capitol Hill?

From the perspective of the bankrupts, however, the matter is far different.  The facts of this case underscore precisely why Senator Grassley wanted this amendment, and effectively scuttle the value of Chapter 12 for one of the most salient scenarios of farm distress: high debt burdens coupled with ownership of a farm that is worth far less than it was only a few years ago.  We can be absolutely sure that the decision of the Court produces exactly the opposite of the result intended by the amendment, as expressed by Senator Grassley; the Court is almost explicit in telling Congress that it simply didn’t express its intentions clearly enough to force the Justices to obey them.  Unfortunately for the bankruptcy system, it is most unlikely that Congress will find time to take the Justices up on that invitation any time soon.  It is not a coincidence, I think, that the bankruptcy process has done so little for individual consumers during our seemingly endless recession and that the Court has hewed, so consistently, to such a niggardly interpretation of the Bankruptcy Code.

IN PLAIN ENGLISH: At issue in Hall v. United States was whether farmers who sell their farm while in bankruptcy have to pay capital gains tax to the IRS.  The farmers argued that they could sell the farm and give the proceeds to their other creditors.  However, the Court agreed with the IRS that the IRS must be paid before the other creditors.

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Coverage of Monday’s opinions and orders continued yesterday.  At JURIST, Julia Zebley summarizes Monday’s decision in Hall v. United States, in which the Court held that the federal income tax liability resulting from petitioners’ post-petition farm sale is not incurred by the estate under Section 503(b) of the Bankruptcy Code and thus is neither collectible nor dischargeable in the Chapter 12 plan.  Also at JURIST, Michael Haggerson reports on Monday’s denial of cert. in a case challenging the lack of voting rights for Puerto Ricans in U.S. presidential elections.  And at the Wall Street Journal blog Bankruptcy Beat, Jacqueline Palank reports that the Court “won’t review the conviction of Tom Petters, whose business empire once encompassed Polaroid and Sun County Airlines before his arrest on charges that he ran a massive Ponzi scheme.”

Briefly:

• At this blog, Lyle Denniston analyzes the cert. petition filed in Latif v. Obama, a Guantanamo Bay detainee case that the Justices will consider at their Conference tomorrow.
• Also at this blog, Matt Bush posts our list of “Petitions to watch” for tomorrow’s Conference.
• Following up on Adam Liptak’s Sidebar column for the New York Times (which Nabiha included in yesterday’s round-up), Debra Cassens Weiss at the ABA Journal reports on one of the petitions at next week’s Conference, challenging the use of a Taser by Seattle police on a pregnant woman.
• Duke Law News covers a recent appearance by retired Justice Stevens at Duke Law School.

In association with Bloomberg Law