United States Court of Appeals
For the First Circuit
No. 03-1527
IN RE BOSTON REGIONAL MEDICAL CENTER, INC.
Debtor, Appellant,
v.
COMMONWEALTH OF MASSACHUSETTS
DIVISION OF HEALTH CARE FINANCE AND POLICY,
Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Mark L. Wolf, U.S. District Judge]
Before
Howard, Circuit Judge,
Campbell and Stahl, Senior Circuit Judges.
Harold B. Murphy with whom D. Ethan Jeffery and Hanify & King
were on brief for appellant.
James J. Arguin, Assistant Attorney General, Office of the
Attorney General, with whom Thomas F. Reilly, Attorney General, was
on brief for appellee.
April 14, 2004
CAMPBELL, Senior Circuit Judge. At issue in this appeal
is whether amounts owing by a debtor hospital under Massachusetts
general law, chapter 118G, section 18, to a state fund known as the
Commonwealth's Uncompensated Care Pool are properly considered to
be "excise taxes" enjoying priority in bankruptcy under 11 U.S.C.
§ 507(a)(8)(e).
Appellant, Boston Regional Medical Center, ("BRMC or
debtor") filed a voluntary petition for reorganization under
Chapter 11 of the Bankruptcy Code in the United States Bankruptcy
Court for the District of Massachusetts. Appellee, the
Commonwealth of Massachusetts, by its Division of Health Care
Finance and Policy ("HCFP"), filed a proof of claim. After
resolving a disagreement over the dollar amount, appellee finally
asserted a priority of claim for $1,702,714, a sum representing
appellant's unpaid prepetition obligations as an acute hospital
under Mass. Gen. Laws ch. 118G, § 18 to the Commonwealth's
Uncompensated Care Pool (the "Pool").1 While the debtor agreed to
1
Mass. Gen. Laws ch. 118G, § 18 was added by 1996 Mass. Acts
ch. 151, § 275, which repealed and replaced an earlier and
substantially identical version of the same law, Mass. Gen. Laws
ch. 118F, § 15. The debt at issue relates to the years 1996
through 1999, so the earlier version of the statute is not
pertinent. Likewise, the numerous amendments to section 18 in the
year 1996 and after do not affect our analysis. 1996 Mass. Acts
ch. 203, § 18; 1997 Mass. Acts ch. 47, § 14; 1997 Mass. Acts ch.
170, § 27; 1998 Mass. Acts ch. 319, § 9; 1998 Mass. Acts ch. 463,
§ 100; 2001 Mass. Acts ch. 177, § 29; 2003 Mass. Acts ch. 26, §§
353 to 359. As the parties have stipulated to the facts pertinent
to the operation of the statute, we need refer only to the
stipulation, not to the particular statutes themselves.
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the dollar amount of the claim, it disputed appellee's contention
that the claim was entitled to priority as an "excise tax" under
section 507(a)(8)(E) of the Bankruptcy Code. Determining the claim
was for an excise tax, the bankruptcy court overruled appellant's
objection and granted priority to the claim. In re Boston Reg'l
Med. Ctr., 264 B.R. 222, 229-30 (Bankr. D. Mass. 2001) ("BRMC II").
Appellant appealed, and the district court affirmed the bankruptcy
court's judgment, stating its reasons in the course of an
unpublished bench ruling. We affirm the district court.
Facts
The case was submitted on stipulated facts, the substance
of which are as follows.
Prior to filing its Chapter 11 bankruptcy petition,
appellant, BRMC, owned and operated a 195-bed private, acute
hospital in Stoneham, Massachusetts. As an acute hospital2 within
Massachusetts, BRMC was required by Massachusetts law to
participate in the Pool (Pool).3 The Pool, administered by the
State's Division of Health Care Finance and Policy, is a fund from
2
"Acute hospital" is defined as "the teaching hospital of the
University of Massachusetts Medical School and any hospital
licensed under section fifty-one of chapter one hundred and eleven
and which contains a majority of medical-surgical, pediatric,
obstetric, and maternity beds, as defined by the department of
public health." Mass. Gen. Laws ch. 118G, § 1.
3
To maintain their licenses, every Massachusetts acute
hospital must pay or credit to the Pool such as the law requires.
See In re Ludlow Hosp. Soc'y, Inc., 216 B.R. 312, 315 (Bankr. D.
Mass. 1997).
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which Massachusetts hospitals are paid or credited for the free
health care they furnish to patients who do not have health
insurance or cannot otherwise pay for hospital care. Mass. Gen.
Laws. ch. 118G, §§ 18(h) and (k). The Pool's stated statutory
purpose is "to provide access to health care for low income
uninsured and underinsured residents of the Commonwealth."4 Id.
The Massachusetts Supreme Judicial Court has stated, in respect to
an earlier version of the Pool law, that the Pool's purpose is "'to
more equitably distribute the burden of uncompensated acute
hospital services across all acute hospitals.'" Gen. Hosp. Corp.,
v. Rate Setting Comm'n, 552 N.E.2d 113, 114 (Mass. 1990) (quoting
Mass. Gen. Laws ch. 6A, § 75).
Pool funding comes both from the mandatory assessments
made against each acute hospital based on its "private sector
charges," infra, and from other governmental funds and assessments.
The amounts collected by the Pool are segregated for its own
purposes and are not used to fund other governmental programs or
otherwise to defray the costs of state government.
4
This quoted language appears in the version of § 18 as
amended by 1997 Mass. Acts ch. 47, § 14, an emergency act, approved
July 11, 1997, and by 1997 Mass. Acts ch. 47, § 37, made effective
Oct. 1, 1997. This portion of § 18 was again amended by 2003 Mass.
Acts ch. 26, § 353, an emergency act, approved June 30, 2003, and
by 2003 Mass. Acts ch. 26, § 715 made effective July 1, 2003, in
subsec. (a), which substituted "is to reimburse hospitals and
community health centers for care provided to low-income, uninsured
and underinsured residents of the commonwealth" for "shall be to
provide access to health care for low income uninsured and
underinsured residents of the commonwealth".
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Section 18 provides for the collection and distribution
of Pool funds among the hospitals. According to section 18(e), a
hospital's liability to the Pool is proportional to the amount of
otherwise uncompensated care each hospital provides. Liability to
the Pool (i.e., the assessment based on its private sector charges)
"shall equal the product of (1) the ratio of its private sector
charges to all acute hospitals' private sector charges; and (2) the
private sector liability to the uncompensated care Pool as
determined by law . . . ."5 In order to determine the debtor
hospital's individual liability to the Pool, the HCFP must,
therefore, first determine the amount of private sector charges for
all hospitals in Massachusetts. "Private sector charges" is
defined as a hospital's gross patient service revenue, less the
amount of gross patient service revenue that is attributable to
Medicare, Medicaid and other "publicly aided patients, free care
and bad debt." Mass. Gen. Laws ch. 118G, § 1.
In calculating a hospital's liability to the Pool,
certain credits are provided. A hospital's assessed liability to
the Pool is offset against the amount owed by the Pool to the
5
This quoted language appears in the version of § 18 as
amended by 1997 Mass. Acts ch. 47, § 14, an emergency act, approved
July 11, 1997, and by 1997 Mass. Acts ch. 47, § 37, which went into
effect on July 11, 1997 and Oct. 1, 1997, respectively. Prior to
these amendments, the language was as follows, "A hospital's
liability to the pool shall equal the product of: (a) the ratio of
its private sector charges; and (b) the private sector liability to
the uncompensated care pool as determined by the general court."
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hospital for uncompensated care during the same period, thus
resulting in either a net liability to the Pool or a net
distribution from the Pool. Mass. Gen. Laws ch. 118G, § 18(d).
The Pool, therefore, charges the hospitals' collective private
sector revenue to pay for the hospitals' collective burden of
uncompensated care, resulting, at bottom, in a net transfer of
revenue from those hospitals that provide less uncompensated care
(as a proportion of the hospital's total patient service charges)
to those that provide more. Mass. Gen. Laws ch. 118G, §§ 18(d) and
18(h). To the extent a hospital receives reimbursement for free
care directly from Medicare, Medicaid or another source other than
the Pool, the amount owed by all other hospitals is reduced because
the amount of funding required from the Pool is reduced.
Furthermore, "disproportionate share hospitals" -- which
are hospitals that have "a payer mix where a minimum of sixty-three
percent of the acute hospital's gross patient service revenue is
attributable to [certain government payments] and free care" -- and
"non-disproportionate share hospitals" -- which do not have that
payer mix -- receive different treatment under section 18. Mass.
Gen. Laws ch. 118, § 1. In the event that the Pool does not have
sufficient funds to reimburse all hospitals for all of the free
care provided, the amount paid from the Pool is weighted towards
disproportionate share hospitals.
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Pursuant to section 18, BRMC owes appellee a total of
$1,702,714, representing the total amount due to the Pool for the
following fiscal years:
a. 1996 - $1,580,506
b. 1997 - $ 60,639
c. 1998 - $ (77,744) credit
d. 1999 - $ 139,313
The bankruptcy court concluded that the foregoing total
Pool claim was entitled to priority as an excise tax, thus giving
rise to the single issue presented in the current appeal. BRMC II,
264 B.R. at 229-30.
Present Contentions and the Opinions Below
As it did below, the appellant now argues that the claim
for the Pool assessment owed by BRMC is not for an "excise tax,"
thus not entitled to priority, under § 507(a)(8)(E) of the
Bankruptcy Code. In BRMC's view, the bankruptcy and district
courts failed to engage in an adequate "functional analysis" of the
nature of the statutory assessment underlying the Pool claim. BRMC
contends that the Pool statute is in form and function merely a
risk sharing plan imposed on acute hospitals -- a plan, that,
instead of being a tax, is really only a regulatory fee imposed for
the privilege of operating an acute hospital in Massachusetts.
In response, appellee argues that the mandatory exaction
placed by Massachusetts law upon the state's acute hospitals is a
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tax, having been legislatively established to raise monies to
advance the public purpose of promoting continued access to acute
hospital services by low-income uninsured and underinsured
residents of Massachusetts.
In ruling that the Pool assessment is a tax, not a fee,
the bankruptcy court similarly laid particular emphasis upon the
exaction's public purpose -- the promotion of hospital access to
low-income uninsured and underinsured residents of Massachusetts.
BRMC II, 264 B.R. at 225. That, coupled with its involuntary
character and its other functional attributes, was found to
differentiate it from a regulatory fee. Id. at 225-30.
In affirming the bankruptcy court's opinion, the district
court stated from the bench that the bankruptcy court's reasoning
was persuasive with "one possible exception." The court said the
mere fact that the Pool exaction was paid in order to serve the
public welfare would not necessarily demonstrate it was an excise
tax. Almost everything paid to the government, the court
suggested, is intended for a public purpose. Here, however, the
court found the exaction to be targeted specifically at paying for
medical care for members of the public unable to pay for
themselves. Unlike the case of a driver's license or other fee,
the money is not collected by the government simply to confer a
benefit on the payer or to pay itself for a government service
rendered to the payer. "Functionally and under the so-called
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Suburban factors, this is a tax," the district court said.
Further, the tax is an excise, the court continued, citing a
definition found in Black's Law Dictionary.6
Discussion
At issue is whether the assessments for the Uncompensated
Care Pool imposed upon appellant under state law constitute "excise
taxes" and, therefore, are entitled to priority under section
507(a) of the Bankruptcy Code. This is a federal question. City
of New York v. Feiring, 313 U.S. 283, 285 (1941); State of New
Jersey v. Anderson, 203 U.S. 483, 491 (1906). The parties have
stipulated to the facts, leaving only the application of the
statute, a matter we examine on appeal de novo. Commonwealth of
Mass. Div. of Employment and Training v. Boston Regional Med. Ctr.,
Inc. (In re Boston Reg'l Med. Ctr., Inc.), 291 F.3d 111, 119 (2002)
("BRMC I").
Provisions that grant priority in bankruptcy are to be
narrowly construed. See Cramer v. Mammoth Mart, Inc. (In re
Mammoth Mart, Inc.), 536 F.2d 950, 953 (1st Cir. 1976) (stating,
"We begin with the premise that the theme of the Bankruptcy Act is
6
The district court stated:
Black's Law Dictionary, the 7th edition, page 585,
defines an excise tax as a tax imposed on the
manufacture, sale, or use of goods, or on an occupation
or activity. Since the tax here is a tax that is levied
as a result of operating the hospital and measured by a
hospital's share of industry's revenues, it is an excise
tax, I find, as opposed to a tax of some other sort.
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'equality of distribution.' 'If one is to be preferred over
others, the purpose should be clear from the statute.'") (quoting
Nathanson v. NLRB, 344 U.S. 25, 29 (1952)); see also Northwest Fin.
Express, Inc. v. JWD, Inc. (In re Northwest Fin. Express, Inc.),
950 F.2d 561, 563 (8th Cir. 1991).
Section 507(a) sets forth in descending order nine
categories of priority claims. Appellee's claim for priority
status is stipulated to be based solely upon its being an "excise
tax" under § 507(a)(8)(E), the eighth category. The relevant
language reads as follows:
§ 507. Priorities.
(a) The following expenses and claims have
priority in the following order:
. . .
(8) Eighth, allowed unsecured claims of
governmental units, only to the extent that
such claims are for --
. . .
(E) an excise tax on --
(i) a transaction occurring before the date of
the filing of the petition for which a return,
if required, is last due, under applicable law
or under any extension, after three years
before the date of the filing of the petition;
or
(ii) if a return is not required, a
transaction occurring during the three years
immediately preceding the date of the filing
of the petition;
The parties do not question that appellee is a governmental unit,
that it holds an unsecured claim, that the claim relates only to
transactions occurring before the date of the filing of the
petition, and that the three-year limitation does not bar the
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claim. In dispute is only whether the claim is for an "excise
tax." Unless so, the claim is without priority.
The Bankruptcy Code does not define "excise tax," nor is
the legislative history informative on what the term means. BRMC
I, 291 F.3d at 120. We turn, therefore, to the relevant
interpretive case law. See BRMC I, 291 F.3d at 120 (citing United
States v. Reorganized CF & I Fabricators of Utah, Inc., 518 U.S.
213, 224 (1996)). The discussion in the cases has mostly concerned
the meaning of the term "tax," with little attention paid to the
term "excise." See, e.g., CF & I, 518 U.S. at 224-26 (relying on
precedent concerning definition of "tax" and concluding that the
obligation at issue was a "penalty" rather than a "tax" and,
therefore, that the obligation was not entitled to priority as an
"excise tax"); Workers' Comp. Trust Fund v. Saunders, 234 B.R. 555,
560 n.8 (D. Mass. 1999); In re Park, 212 B.R. 430, 434 (D. Mass.
1997) (noting that courts do not often engage in analysis of the
"excise" portion of the phrase "excise tax" once an exaction has
been determined to be a "tax").
The Supreme Court has defined taxes as "pecuniary burdens
laid upon individuals or their property, regardless of their
consent, for the purpose of defraying the expenses of government or
of undertakings authorized by it." Feiring, 313 U.S. at 285-88;
see also Anderson, 203 U.S. at 492; BRMC I, 291 F.3d at 120. This
definition is sometimes called the "Feiring-Anderson" standard. CF
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& I, 518 U.S. at 222 n.6. The Court has added that courts should
look beyond the statutory label of an exaction and evaluate its
"actual effects" to determine whether it functions as either a tax
or else as some different kind of obligation, like a debt, fee, or
penalty. CF & I, 518 U.S. at 221, 224-25; see also BRMC I, 291
F.3d at 120.
The lower courts have often struggled in applying the
Feiring-Anderson analysis to debts in a bankruptcy setting. Some
courts have asked whether the tax characteristics of a state-
imposed exaction outweigh its non-tax characteristics. In re
Chateaugay Corp., 153 B.R. 632, 641 (Bankr. S.D.N.Y. 1993); Bell v.
Brown (In re Payne), 27 B.R. 809, 817 (Bankr. D. Kan. 1983).
Others have asked whether, regardless of non-tax characteristics,
there are sufficient tax attributes to call the exaction a tax.
See, e.g., Waldo v. State of Montana Dept. of Labor and Industry
Uninsured Employers Fund (In re Waldo), 186 B.R. 118, 125 (Bankr.
D. Montana) (1995) (stating, "[t]herefore since all elements of the
[list of tax characteristics] are fully satisfied by the UEF's
claim against Debtor, Debtor's obligation is in the nature of a tax
for purposes of the Bankruptcy Code, specifically 11 U.S.C. §
507(a)(7)(E)."). Some courts have also sought to give particular
and separate weight to the Bankruptcy Code's principle of equal
distribution of the debtor's estate. See, e.g., Workers' Comp.
Trust Fund v. Saunders, 234 B.R. 555, 565-67 (D. Mass. 1999); see
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also Begier v. Internal Revenue Service, 496 U.S. 53, 58 (1990)
(stating "Equality of distribution among creditors is a central
policy of the Bankruptcy Code.").
Given the difficulty of applying Feiring-Anderson's
general definition of a tax to the unusual state exactions
sometimes encountered in a bankruptcy context, "courts have
formulated additional criteria for determining when a governmental
claim is entitled to priority treatment." In re United Healthcare
Sys., Inc., 282 B.R. 330, 335 (Bankr. D. N.J. 2002). Foremost
among these has been the multi-factored test developed in the Ninth
and Sixth Circuits known as the Lorber/Suburban II analysis.
County Sanitation v. Lorber Indus. of California, Inc. (In re
Lorber Indus. of California, Inc.), 675 F.2d 1062, 1066 (9th Cir.
1982); Ohio Bureau of Workers' Comp. v. Yoder (In re Suburban Motor
Freight, Inc.), 36 F.3d 484, 488 (6th Cir. 1994) ("Suburban II").
The bankruptcy court below relied heavily upon a Massachusetts
bankruptcy decision that applied Lorber/Suburban II to the Pool
exaction here. BRMC II, 264 B.R. at 226 (citing In re Ludlow Hosp.
Soc'y, Inc., 216 B.R. at 318-20). The district court seemed
largely content with that approach.
In Lorber, the Ninth Circuit held that, to qualify as a
tax, an exaction must be: (1) an involuntary pecuniary burden,
regardless of name, laid upon individuals or property; (2) imposed
by, or under authority of the legislature; (3) for public purposes,
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including the purposes of defraying expenses of government or
undertakings authorized by it; and (4) under the police or taxing
power of the state. Lorber, 675 F.2d at 1066. In Suburban II, the
Sixth Circuit expressed concern over the adequacy and possible one-
sidedness of Lorber's "public purpose" prong, and it added two
additional factors of its own, namely (5) whether the exaction is
universally applied to all similarly situated entities and (6)
whether the granting of priority status to a governmental claimant
would prejudice private creditors with like claims. Suburban II,
36 F.3d at 488-89; see also BRMC I, 291 F.3d at 121 n.10 (sharing
Suburban II court's concern that Lorber, by itself, was "incomplete
and one-sided, and may lead to incorrect results.") (citing
Suburban II, 36 F.3d at 488-89; Indus. Comm'n v. Camilli (In re
Camilli), 94 F.3d 1330, 1333-34 (9th Cir. 1996) (holding the
Suburban cases consistent with Lorber and following the Sixth
Circuit's reasoning)).
Debtor contends the Supreme Court implicitly rejected the
Lorber/Suburban II standard in United States v. Reorganized CF & I
Fabricators of Utah, Inc., a case decided after the Ninth and Sixth
Circuits' decisions in Lorber and Suburban II. In CF & I, the
Court made no mention of Lorber or Suburban II. Rather, it
emphasized the "continuing vitality of the cases in the Feiring
line." CF & I, 518 U.S. at 222. But Lorber and Suburban II
undertook to apply the principles stated in the Feiring line, and
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we see nothing in CF & I that renders those circuit precedents no
longer useful constructs. We faced this issue recently in BRMC I,
holding that Lorber and the Suburban cases remained persuasive
after CF & I. We said in BRMC I:
The BAP treated Anderson and [Feiring] on the
one hand, and Lorber and the two Suburban
cases on the other, as developing different
and apparently mutually exclusive tests. It
then concluded that the Supreme Court had
chosen the former test rather than the latter
in CF & I. We consider Lorber and the
Suburban cases to be refinements of the law
generated in Anderson and Feiring, which
remain persuasive to although not binding on
this court after CF & I.
BRMC I, 291 F.3d at 121 n.10 (citations omitted). The
Lorber/Suburban II approach therefore remains an available tool of
analysis, although, of course, subject at all times to the
overarching authority of Feiring and Anderson. See, e.g., San Juan
Cellular v. Public Serv. Comm'n of Puerto Rico, 967 F.2d 683, 684-
687 (1st Cir. 1992) (utilizing an approach that approximated the
first three prongs of Lorber); In re Ludlow Hosp. Soc'y, Inc., 216
B.R. at 319 (stating, "This Court disagrees with the Trustee's
assertion that [San Juan Cellular] represents an approach different
from what appears to be a well-settled line of cases commencing
with Feiring. Notwithstanding the fact that San Juan Cellular was
decided under the Tax Injunction Act, we find the thoughts
expressed by the panel in San Juan Cellular virtually
indistinguishable from those expressed by the Ninth and Sixth
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Circuits in Lorber and Suburban II, both decided under the
Bankruptcy Code."). Many other courts have found Lorber/Suburban
II to be consistent with, and useful in applying, the controlling
Feiring-Anderson rationale. See In re Cassidy, 983 F.2d 161, 163
(10th Cir. 1992); Indus. Comm'n of Ariz. v. Camilli (In re
Camilli), 94 F.3d 1330, 1331-32 (9th Cir. 1996), cert. denied, 519
U.S. 1113 (1997); In re Park, 212 B.R. 430, 433-34 (Bankr. D. Mass.
1997); Sacred Heart Hosp. v. Penn. Dep't of Labor and Indus. (In re
Sacred Heart Hosp.), 209 B.R. 650, 654-58 (E.D. Pa. 1997); In re
Chateaugay Corp., 177 B.R. at 637-38; In re S.N.A. Nut Co., 188
B.R. 392, 393-94 (Bankr. N.D. Ill. 1995).
Accordingly, in considering the term "tax" here, we avail
ourselves of the analytical approach set out in Lorber/Suburban II.
In doing so, we find ourselves in essential agreement with the
similar application of Lorber/Suburban II in In re Ludlow Hosp.
Soc'y, Inc., as adopted by the bankruptcy court below. BRMC II,
264 B.R. at 226 (citing In re Ludlow Hosp. Soc'y, Inc., 216 B.R. at
318-20).
1. Involuntary Burden
We ask first whether the Pool exaction was an involuntary
pecuniary burden. Lorber, 675 F.2d at 1066. The Lorber court
explained that an "involuntary pecuniary burden" was a "non-
contractual obligation imposed by state statute upon taxpayers who
had not consented to its imposition." Id. (citing Dungan v. Dept.
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of Agric., State of Calif., 332 F.2d 793 (9th Cir. 1964), aff'g In
re Farmers Frozen Food Co., 221 F. Supp. 385 (N.D. Cal. 1963)).
The exaction here was imposed by statute; it was neither consented
to, nor part of a contract. It was thus an involuntary pecuniary
burden.
Appellant argues that the assessment was nonetheless
voluntary because each acute hospital could to some degree regulate
its obligation to the Pool by choosing to provide more or less free
care. However, acute hospitals within the ambit of Mass. Gen. Laws
ch. 118G, § 18 have no legal option but to pay or credit such
assessments as are due. And even if appellant enlarged the quantum
of free care it provided, it could not be certain to avoid
liability. An acute hospital's liability is based, in part, upon
the amount of free care that all other acute hospitals in the state
have provided for that same year -- an unpredictable amount. The
only way appellant could be certain to avoid sharing in the burdens
of the Pool would be to cease all acute care operations. See In re
Suburban Motor Freight, 156 B.R. 790, 792 (S.D. Ohio 1992)
(concluding that the statute insurance scheme in favor of private
insurance was involuntary since employers were not permitted to opt
out and rejecting argument that scheme was voluntary because
employers could choose not to be under it by refusing to conduct
business in the state). By appellant's rationale, the federal
income tax would not qualify as a "tax" because the taxpayer may
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voluntarily minimize his or her tax liability by earning less
income or by taking advantage of deductions. See, e.g., In re
Sacred Heart Hosp., 212 B.R. at 474 (stating, "All taxes may be
avoided by a 'choice' of the taxpayer").
2. Exaction Imposed Under State's Authority
Secondly, there is no dispute the Pool exaction is
imposed under the authority of the Massachusetts legislature.
Lorber, 675 F.2d at 1066.
3. Exaction Was For A Public Purpose
Thirdly, the Pool exaction is for a public purpose, i.e.
for the defraying of expenses or undertakings of a type commonly
assumed by the government -- namely, those providing free health
care to persons without the resources to pay for it. Lorber, 675
F.2d at 1066. There is no correlation between what a hospital pays
and the receipt in return of some particular service. Rather, the
hospital is obliged, based on an equitable formula, to help fund
hospitals around the state that serve indigent members of the
public, thus enabling Massachusetts to provide free care to
residents. Disproportionate share hospitals rely on Pool funds to
remain in business.7 While acute hospitals are the exclusive
recipients of these funds, the amount each receives relates to the
7
While the Pool benefits disproportionate share hospitals by
assisting with their reasonable financial requirements relative to
caring for indigent patients, the statutory formula does not allow
hospitals to profit from Pool funds. Mass. Gen. Laws ch. 118G, §§
1 & 18A.
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amount of free public services each provides. Under the statutory
scheme, individual hospitals serve as conduits through which the
Pool channels funds to pay for the free care rendered to uninsured
or underinsured patients. This court stated in San Juan Cellular,
967 F.2d at 685, that "[c]ourts facing cases that lie in the middle
of this spectrum have tended (sometimes with minor differences
reflecting the different statutes at issue) to emphasize the
revenue's ultimate use, . . . ."8 The "ultimate use" here is a
valid governmental purpose -- one specifically identified in the
relevant Massachusetts statute. See Mass. Gen. Laws Ch. 118G, §
18.
Appellant argues that the exaction does not defray costs
of the Commonwealth because the Pool merely spreads the cost of
care among the acute hospitals. It further notes that the funds of
the Pool are segregated from other state revenues and not used to
fund other governmental operations of the Commonwealth of
Massachusetts. According to appellant, the exaction is merely to
defray costs and provide benefits to hospitals participating in the
program rather than to the Commonwealth and the general public. In
8
It is true that "all money collected by the Government goes
towards defraying its expenses, and is used for public purposes."
Yoder v. Ohio Bureau of Workers' Comp. (In re Suburban Motor
Freight, Inc.), 998 F.2d 338, 341 (6th Cir. 1993). We need not be
concerned here, however, because the connection between the Pool
payments and the recipient of free care is not tenuous -- the funds
are given in direct relation to the amount of free care provided.
Mass. Gen. Laws. ch. 118G, §§ 1 &18A.
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support of this argument, appellant analogizes the Pool to the
Unemployment Compensation Fund in BRMC I. We disagree. In BRMC I,
we concluded that the fund scheme was not a tax because, among
other reasons, "The distinction between the payments required to
sustain a government undertaking as a whole and those required
merely to compensate for the costs imposed by a particular
participant is significant." 291 F.3d at 122. Here the payments
to the Pool are geared to sustain, as a whole, the stated
governmental undertaking of providing access to health care for
low-income uninsured and underinsured residents of the
Commonwealth. Accordingly, these costs are distinguishable from
the costs in BRMC I.
Nor is the Pool analogous to the Unemployment
Compensation Fund. To be sure, the Pool operates as a sort of risk
sharing plan, but that does not preclude it from satisfying the
public purpose requirement. See Williams v. Motley, 925 F.2d 741,
745 (4th Cir. 1991) (pool of funds to be distributed among all of
the state's automobile insurers to compensate for uninsured drivers
was a tax, not a regulatory fee, because the pool's purpose was to
benefit the general public by reducing the overall costs of
uninsured motorist insurance coverage). We have expressed a
willingness to declare such fund-type mechanisms "taxes." See San
Juan Cellular Tel. Co., 967 F.2d at 685 (stating, "Or, [a tax] may
serve such purposes indirectly by, for example, raising money
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placed in a special fund to help defray the agency's regulation-
related expenses.").
4. Pool Assessment Imposed Under Police Or Taxing Power
Fourthly, there is no dispute that the Pool assessment
was imposed pursuant to the Commonwealth's police or taxing power.
Lorber, 675 F.2d at 1066.
5. Assessment Uniformly Applied To All
Fifthly, the Pool assessment is uniformly applied to all
similarly situated entities. Suburban II, 36 F.3d at 489. The
debtor argues that since the Pool statute favors disproportionate
share hospitals, it is not uniformly applied. It points out that
hospitals providing a disproportionate amount of free care receive
the most benefit from the Pool. For example, after years where
there is a deficiency in the Pool, those disproportionate share
hospitals with the greatest proportional requirement for Pool
income have to pay less of a share into the Pool than do the other
hospitals. Also, in the event that the Pool does not have
sufficient funds to reimburse all hospitals for all of the free
care provided, the amount paid from the Pool is weighted towards
disproportionate share hospitals. However, all acute hospitals are
subject to the same rules; all similarly situated hospitals are
treated alike. See, e.g., Ludlow Hosp. Soc'y, Inc., 216 B.R. at
320 (finding that Pool satisfied requirement that the assessment be
universally applied to similarly situated entities because the
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obligation to participate in the Pool is "universally imposed on
all acute hospitals in the Commonwealth"). Under the Pool
assessment scheme, acute hospitals with the same financial profiles
in any given year will have the same liability in the Pool. Boston
Reg'l Med. Ctr., 264 B.R. at 227. Under debtor's reasoning, the
federal personal income tax, which treats people with different
incomes differently, would not constitute a tax. We conclude the
exaction here is applied uniformly to similarly situated entities.
6. No Prejudice To Private Creditors
Lastly, under the final Lorber/Suburban II factor, we
consider if granting priority to the Pool assessment would
prejudice private creditors with like claims. Suburban II, 36 F.3d
at 489. The Suburban II court framed this sixth requirement
because it was concerned that private actors who might, in some
cases, perform the same function as the government would be given
inferior priority. Suburban II, 36 F.3d at 488 (stating "If the
State had an optional participation program, or allowed employers
to purchase private liability insurance, it would be unfair and
without statutory justification to call state-collected premiums
'taxes' and put the Bureau ahead in line while leaving unpaid
private insurers to languish along with the rest of the unsecured
creditors.") (quoting Suburban I, 998 F.2d at 342) (emphasis
supplied) (citations omitted).
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The bankruptcy court determined there were "no private
creditors with claims sufficiently similar to [appellee's] who
would suffer any disadvantage by conferring priority treatment to
a Pool claim." We agree. Appellant points to no private creditor
with a role comparable to appellee's. No private entity with
power to require hospitals to contribute to a fund for the sake of
preserving free care for the indigent has been identified. See
Camilli, 94, F.3d at 1334. Instead, appellant seeks to switch the
argument to the purported lack of injury to appellee if it does not
receive priority as a creditor. According to appellant, appellee
state agency (rather than the hospitals themselves) will suffer no
loss in any event. Supposedly this indicates the exaction is a
regulatory fee. This argument, however, ignores the loss to the
government's program, aimed at furnishing free hospital services to
the public, if the assessment is unpaid. The argument, moreover,
is beside the point; as it focuses on the purported lack of harm to
the government creditor rather than on whether granting priority to
the Pool assessment will prejudice a private creditor. As
appellant's argument has nothing to do with the government's
position in relation to similarly situated private entities, it is
not germane.
We conclude that the Pool assessment satisfies all of the
Lorber/Suburban II criteria for a tax. Appellant, however, argues
that a court must additionally inquire whether the non-tax
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characteristics, particularly the regulatory fee characteristics,
of the exaction outweigh the tax characteristics. Since the
Lorber/Suburban II criteria were developed to subsume that inquiry,
we arguably need not entertain it. But because the exercise is
illuminating, we take it on, finding that it leads to the same
result as was reached under Lorber/Suburban II.
Regulatory fees have been defined as "monies paid to the
government incident to a voluntary act that bestows a benefit on
the applicant, not shared by other members of society." N. Dakota
Workers Comp. Bureau v. Voightman (In re Voightman), 239 B.R. 380,
383 (8th Cir. 1999); see also Nat'l Cable Television Ass'n, Inc. v.
United States, 415 U.S. 336, 340-41 (1974) (defining regulatory
fees same way in non-bankruptcy context). Similarly, in San Juan
Cellular, we approved of the approach utilized by other courts,
which -- in distinguishing a tax from a regulatory fee -- focused
on the "revenue's ultimate use, asking whether it provides a
general benefit to the public, of a sort often financed by a
general tax, or whether it provides a more narrow benefit[] to
regulated companies or defray[s] the agency's cost of regulation."
967 F.2d at 685. The ultimate design and use of the exaction here
are to help finance the provision of hospital care to people unable
to pay for it themselves. While specialized and somewhat
intricate, it finances a general benefit to the public of a kind
that could properly have been financed from more ordinary tax
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revenues. Per contra, the Pool scheme is not aimed at bestowing a
narrow benefit upon the payer hospital, nor defraying the cost of
regulation. We conclude the exaction is a tax.
Appellant makes various other arguments not so far
addressed. We briefly discuss some of them, finding none to have
merit.
Relying on BRMC I, appellant argues that since appellee,
itself, does not have to pay any shortfall in the Pool, it is not
an involuntary creditor.9 In BRMC I, we stated that "[o]ne of the
important reasons for giving special priority in bankruptcy to
taxes is that state and federal governments do not generally choose
their tax debtors." 291 F.3d at 123. Taxing authorities receive
priority treatment because, inter alia, they are "involuntary
creditor[s] of the debtor," who are unable to "take security in
advance of the time that taxes become due." Id. In concluding
that the exaction in BRMC I was not a tax, we noted the law would
have allowed the Commonwealth to have required BRMC to post a
surety to secure its anticipated future liability to the fund at
9
If we are to understand appellant's argument as a claim that
appellee is not a creditor, let alone an involuntary creditor, it
nevertheless fails. Appellant has stipulated that it owes appellee
$1,702,714. Accordingly, appellee is a creditor. 11 U.S.C. § 101
(defining "creditor," inter alia, as "entity that has a claim
against the debtor that arose at the time of or before the order
for relief concerning the debtor," and defining "claim," inter
alia, as a "right to payment, whether or not such right is reduced
to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured, or
unsecured.").
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issue. Here, however, appellee has no authority to require
security in advance. Its remedies are ex post facto. Upon non-
payment by an acute hospital, appellee can only then either re-
calibrate the Pool in accordance with the statutory formula for the
next year or choose, for example, to refuse to renew the expired
licenses of a defaulting acute hospital. The appellee cannot be
said, therefore, to choose its debtors, nor is appellee other than
an involuntary creditor. Id.
On a different tack, appellant contends that for an
exaction to be a tax, the statute must provide the government with
an automatic lien to secure payment. The existence of an automatic
lien provision was one of several attributes of a tax listed by the
bankruptcy court in Park and Columbia Packing. However, the
absence of such a lien was not said to prevent an exaction from
being a tax. Here, appellee has different remedies at its
disposal, including the ability to offset payments due to the
defaulting hospital's Medicaid claims. BRMC II, 264 B.R. at 225,
228 (citing Mass. Gen. Laws ch. 118G, § 18(g)). Appellant's
argument in this regard seems inconsistent with our statement in
BRMC I that the absence of pre-default security for payment would
militate in favor of finding a priority claim. BRMC I, 291 F.3d at
123.
Appellant also argues that the amount of an exaction must
be fixed by statute in order to qualify as a tax and that, since
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the amount of the assessment here varies depending on the amount of
free care given by all acute hospitals, the exaction is not
sufficiently fixed by statute. In support of this claim, appellant
relies solely on In re Freymiller Trucking, Inc.. There, the
Bankruptcy Court for the Western District of Oklahoma stated, "I am
unable to think of a 'tax' . . . that is not based on a percentage
of something, be it income, sales, corporate capital, or the value
of property, a gift or inheritance." 194 B.R. 914, 915 (Bankr.
W.D. Okla. 1996). In concluding that a tax assesses at a "fixed
rate," the Freymiller court principally relied on Anderson, in
which the Supreme Court required that the amount of tax be fixed by
statute. Id.
However, the Anderson court did not state that a tax must
be based on a percentage, as the Freymiller court and appellant
suggest. Rather, the Anderson court sought to determine whether
the debt had arisen from a contract with the government as opposed
to being a tax. 203 U.S. at 492-93. Since the government had
fixed the amount of tax in a statute, the debtor was unable to
negotiate the amount of the tax, and the Court determined that the
exaction was a tax rather than a contract with the government.
Anderson, 203 U.S. at 493 (stating, "But this imposition is in no
just sense a contract. The amount to be paid, fixed by the
statute, is subject to control and change at the will of the
state . . . . The corporation is not consulted in fixing the
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amount of the tax, and under the laws of New Jersey the charter of
such corporations as this may be amended or repealed. The form of
the collection of taxes is left to the discretion of the taxing
power . . . ."). Thus, the Court's use of the term "fixed by
statute" seems to have meant merely that the exaction is based on
an amount determined by the government through statute. Id. Here,
the amount of the exaction has been determined by a statutory
formula, so the exaction satisfies the requirement.
Appellant also appeals to equity, arguing that granting
priority treatment to appellee would contravene the "fundamental
bankruptcy principal of equality of distribution among creditors."
See Boston Reg'l Med. Ctr., 256 B.R. 212, 218 (Bankr. D. Mass.
2000). In support of this argument, appellant reiterates the
contention that the Commonwealth does not, itself, suffer a loss
because any loss ultimately passes only to the acute hospitals.
However, the hospitals are the instruments of the government's
intended services to indigents: losses to them impact adversely
the public program, which the legislature and state government
entrusted to appellee to administer. We can see no difference
between the equities here and those that support the granting of
priority to other taxes.
Finally, we ask whether this tax fits within the term
"excise tax." 11 U.S.C. § 507(a)(8)(E). In another case, we have
quoted Black's Law Dictionary to the effect that, "[a]n excise tax
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is '[a] tax imposed on the manufacture, sale, or use of goods . .
. or an occupation or activity . . . .'" United Parcel Serv., Inc.
v. Flores-Galarza, 318 F.3d 323, 326 n.1 (1st Cir. 2003) (quoting
Black's Law Dictionary at 585 (7th ed. 1999)). The tax here can be
said to be levied on the Massachusetts acute hospital industry,
using an overall formula to determine each hospital's share. Like
the district court, we think it fits sufficiently within the broad
definition of an excise. We hold appellee's claim is entitled to
priority treatment as an "excise tax" pursuant to 11 U.S.C. §
507(a)(8)(E).
Affirmed.
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