NORTHERN DISTRICT OF CALIFORNIA
FRANK E. PAGANO, No. 98-11035
Memorandum re Claim of UEF
Debtor Frank Pagano filed his Chapter 13 petition on March 25, 1998. His Chapter 13 plan,
calling for relatively nominal payment to unsecured creditors, was confirmed without objection on July
1, 1998. Claimant State of California Uninsured Employers Fund ("UEF") was properly noticed but did
not object to confirmation.
After confirmation, the UEF obtained relief from the automatic stay to pursue its claim against
Pagano resulting from the death of an employee. On January 27, 2000, the California Workers
Compensation Appeals Board affirmed an award against Pagano in the amount of $157,910.00. The
precise issue now before the court (and the only issue addressed by the parties) is whether the UEF is
entitled to priority status for this amount. The real issue, lurking in the background, is the effect
allowance has on the confirmed plan.
The UEF's position is that its claim is treated as a tax under bankruptcy law. As such, it is
entitled to priority under § 507(a)(8) of the Bankruptcy Code. The court is resistant to this conclusion
for three reasons. First, priority taxes are exempt from discharge and, as such, should be narrowly
construed. In re Riso
, 978 F.2d 1151, 1154 (9th Cir.1992). Second, allowance of the claim at this late
date is entirely inconsistent with the confirmed plan. Third, Pagano's schedules reflect a very modest
income and complete inability to pay even a fraction of the award.
Nonetheless, it appears that Pagano's objection to priority status cannot be sustained. In In re
, 94 F.3d 1330 (9th
Cir. 1996), the court held that an award in favor of a state compensation fund
arising out of a failure to have workers compensation insurance is a nondischargeable tax. The court
finds no merit in Pagano's attempt to distinguish that case from this one. Accordingly, Pagano's
objection must be overruled.
was a Chapter 7 case. The ramifications are very different in a Chapter 13
case with a confirmed plan. This is the real issue here.
In a Chapter 7 case, priority taxes are made nondischargeable by § 523(a)(1). In Chapter 13
cases, exceptions to dischargeability are listed in § 1328(a) and do not include priority taxes
. This is
because § 1322(a)(2) requires plans to provide for the payment in full of priority taxes. This statutory
scheme makes it clear that when a Chapter 13 plan does not provide for full payment of priority taxes,
the issue is to be raised by objection to the plan before
the plan is confirmed. The order confirming the
plan is a judgment, with res judicata
effect even if it contains improper provisions. In re Pardee,
F.3d 1083, 1086 (9th
Cir.1999). There is no provision in the Bankruptcy Code for the setting aside of
confirmed plans, except pursuant to § 1330 on grounds not applicable here. (1)
The court notes some cases which, on equitable grounds, have dismissed cases when
undisclosed or unanticipated priority claims have come to light. However, in this case the amount of
the award was known prepetition and the UEF was given proper notice of the Chapter 13 filing. Its
failure to object to confirmation leaves it with a valid priority claim, but the claim will be discharged
upon completion of the plan.
The only issue properly before the court is Pagano's objection to the UEF claim. As noted
above, that objection must be overruled. However, unless this court orders otherwise pursuant to a
proper motion or adversary proceeding, (2)
this case will not be dismissed and the unpaid portion of the
UEF claim will not survive Pagano's discharge.
Counsel for the UEF shall submit an appropriate form of order, which counsel for Pagano has
approved as conforming to this decision.
Dated: August 29, 2000 ___________________________
U.S. Bankruptcy Judge
1. The UEF attempted to circumvent this conundrum by seeking an order amending Pagano's plan
to increase the payments to over $4,000.00 per month. The court denied this motion, as the UEF failed
to demonstrate that Pagano would be able to make the payments. 11 U.S.C. § 1325(a)(6). Pagano's
income is less than $2,000.00 per month. His disposable income is a small fraction of that.
2. Disputes over dischargeability must be resolved by adversary proceeding pursuant to FRBP
7001(6). A request to revoke confirmation of a Chapter 13 plan requires an adversary proceeding
pursuant to FRBP 70