I NOEL A. KLEBAUM, State Bar No.

077025
County Counsel, County of Ventura
2 JOHNE. POLICH, State Bar No. 179295
Assistant County Counsel
3 800 South Victoria Avenue, LlC #1830
Ventura, California 93009-1830
4 Telephone: (805) 654-2952
Fax: (805) 654-2185
5 E-mail: john.polich@ventura.org
6 Attorneys for Ventura County
Treasurer-Tax Collector
12 MERVYN'S HOLDINGS, LLC,
I
INTRODUCTION
1. On October 23,2009, Debtors Mervyn's Holdings, LLC, et al. ("Mervyn's"),
6/22/10
10 a.m. (E.D.T.)
Chapter II
(Jointly Administered)
Hearing Date:
Time:
Debtors.
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
Case No. 08-11586(KG)
AMENDED OBJECTION OF
CREDITOR VENTURA COUNTY
TREASURER-TAX COLLECTOR TO
DEBTORS' (I) ELEVENTH
OMNffiUS OBJECTION
(SUBSTANTIVE) TO CLAIMS
UNDER TITLE 11 UNITED STATES
CODE, SECTIONS 502 AND 505,
FEDERAL R. BANKRUPTCY P. 3007
AND LOCAL RULE 3007-1 AND (II)
MOTION TO REDUCE OR
EXPUNGE SUCH CLAIMS UNDER
TITLE 11, UNITED STATES CODE,
SECTIONS 105 AND 505 (TAX
CLAIMS)
et at.,
II In re:
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filed an eleventh omnibus objection to claims and motion ("Motion") requesting, among
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other things, that the claim by Creditor Ventura County Treasurer-Tax Collector
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I
Amended Objection of Creditor Ventnra County Tax Collector To Motion To Reduce or Expunge Tax Claim
0 q/ v * &1 +
0811586100617000000000011
Docket #5036 Date Filed: 6/17/2010
1 ("County"), relating to certain business property taxes, be reduced or expunged. (See
2 Objection, Exh. A, Claim No. 7327.) The County timely filed an objection ("Objection")
3 pointing out that, among other deficiencies, the Motion did not provide any specific
4 evidence or legal argument explaining why the County's claim should be expunged.
5 (Objection, ~ 21.) The County reserved its right to amend the Objection if Mervyn' s
6 supplemented the Motion with additional evidence or argument relevant to the County's
7 claim. (Objection, ~ 24.)
8 2. On June 15,2010, Mervyn's filed a reply brief ("Reply") offering, for the first
9 time in these proceedings, specific arguments disputing the County's claim. None of the
10 legal authorities or evidence cited in the Reply were mentioned in Mervyn's original
II Motion and therefore could not be addressed in the County's Objection. These new
12 arguments include Mervyn's claim that it did not own any business personal property in
13 Ventura County as of January 1,2009, the tax lien date for local property tax purposes.
14 (E.g., Reply, ~ ~ 19-23.)
15 3. Permitting Mervyn's to introduce substantive new arguments in its Reply would
16 be manifestly unfair, in view of the County's limited ability to respond. (See Local
17 Rules of the United States Bankruptcy Court District of Delaware rule 9006-1.)
18 Accordingly, the County continues to object that the Motion should be dismissed, on the
19 grounds that the original Motion did not provide the County with sufficient notice of the
20 nature of the dispute. (Objection, ~ 21.) However, ifthe court decides to consider the
21 new arguments raised in Mervyn's Reply, the County requests, in the alternative, that the
22 court accept this amended Objection providing the County's response to those arguments.
23 IT
24 ARGUMENT
25 4. Mervyn's Reply asserts that the County's claim should be expunged on two
26 new grounds: (1) that Mervyn's sold all of its business property in Ventura County prior
27 to January 1,2009, the applicable tax lien date; or, alternatively, (2) that if Mervyn's did
28 not sell all of its business property in Ventura County prior to January 1,2009, it had
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Amended Objection of Creditor Ventnra Connty Tax Collector To Motion To Rednce or Expunge Tax Claim
I "abandoned" the property prior to that date. (E.g., Reply, ~ 19.) These arguments
2 obscure the facts and are not supported by applicable law.
3 A. The Ventura Counly Assessor Properly Rejected Mervyn's Claim that the
4 Business Properly was Sold Prior to the Tax Lien Date
5 5. The County is aware that Mervyn's claims that all of the business property at its
6 Ventura County locations was sold prior to the January 1,2009, lien date. As noted in the
7 Reply, Mervyn's has repeated this assertion in numerous communications with the
8 County during the past year. (E.g., Reply, Declaration of David Robson, ~ ~ II, 14.)
9 However, the Reply obscures the principal flaw in Mervyn's argument - namely, that
10 Mervyn's, despite repeated requests by the County, has never produced documentation
II proving when the property sales actually occurred. Among more than 200 pages of
12 declarations and exhibits, Mervyn's Reply does not include a single receipt, bill of sale,
13 inventory list, manifest, or other documentation showing the dates of the sales, the prices
14 paid for the business property, or the identifYing of the buyers. Absent such proof, the
15 County properly rejected Mervyn's claims and assessed the property to Mervyn's.
16 6. Under California law, the county assessor of each county is required to assess
17 all taxable property in the county to the persons "owning, claiming, possessing, or
18 controlling" the property as of the applicable lien date. (Cal. Rev. & Tax. Code, 405f
19 For these purposes, the "lien date" is the first day of January preceding the fiscal year in
20 which the taxes are levied. ( 2192.) Thus, for property taxes levied for fiscal year 2009-
21 20 I0 (including the property taxes at issue in the County's claim), the "lien date" for
22 determining the ownership of taxable property was January I, 2009.
23 7. In order that assessors may determine to whom property should be assessed,
24 California law requires persons who own taxable personal property valued at $100,000 or
25 more to file a "property statement," signed under penalty of perjury, with their county
26 assessor. ( 441, subd. (a).) The property statement must be filed annually between the
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1/ All further section references are to the California Revenue and Taxation Code
28 unless otherwise indicated.
3
Amended Objection of Creditor Ventnra County Tax Collector To Motiou To Reduce or Expunge Tax Claim
1 applicable lien date and the following April 1. ( 441, subd. (b).) The assessor uses
2 infonnation disclosed in the property statements to prepare an assessment "roll" listing all
3 taxable personal property in the county. ( 601, 602 subd. (d).) The roll is prepared
4 annually by no later than July 1. ( 616.)
5 8. If the information provided in a property statement is incomplete, or if
6 an assessor otherwise needs additional infonnation to complete the assessment
7 roll, the assessor may require persons to make available for examination infonnation
8 or records regarding any personal property located on premises the person
9 controls. ( 441, subd. (d)(1).) For these purposes, "details of property acquisition
10 transactions ... and other data relevant to the detennination of an estimate of value
11 are to be considered as infonnation essential to the proper discharge of the assessor's
12 duties." (Ibid.) The assessor may reject any property statement the assessor detennines to
13 be in error. ( 441, subd. (g).) Further, where a property owner refuses to provide
14 additional infonnation or records concerning an item of property, the assessor is required,
15 "based on infonnation in his possession," to estimate the value of the property and
16 promptly assess the property based on the estimated value. ( 501.)
17 9. The County first became aware of the purported sale of Mervyn's business
18 property in March 2009, when Mervyn's filed 2009 property statements for each of its
19 four store locations in Ventura County. The property statements listed no business
20 property owned, claimed, possessed, controlled, or managed by Mervyn's in Ventura
21 County as of the January 1,2009, lien date. For unknown reasons, Mervyn's did not sign
22 the property statements under penalty of perjury. However, in a letter attached to the
23 statements, Joanne Stone, of Mervyn's Tax Department, stated that all of the Ventura
24 County Mervyn's locations were closed during the last week of December 2008 and that
25 all business property at the locations had been sold by liquidators. (See Declaration of
26 Frank E. Newell, attached hereto as Exh. A ["Newell Dec."], ~ 8.) Ms. Stone's letter did
27 not specifY when the sales occurred.
28 10. In June of 2009, as the staff of the Ventura County Assessor ("Assessor")
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Amended Objection of Creditor Ventnra County Tax Collector To Motion To Reduce or Expunge Tax Claim
1 began to compile infonnation for the 2009-2010 tax roll, the staff attempted to confinn
2 whether and when the sales described in Mervyn's property statements had occurred. On
3 June 10,2009, the staff contacted Mr. Pat Farrell, manager of the Center Point Mall
4 where the Mervyn's Oxnard store was located. Mr. Farrell infonned the staff that no
5 business property had been removed from the Oxnard location as of January 1, 2009.
6 Mr. Farrell further stated that trucks had arrived to remove the business property from the
7 location sometime in February 2009. (Newell Dec., ~ 9.)
8 11. On June 12,2009, the Assessor's staff inspected the vacant Mervyn's
9 locations in Ventura, Simi Valley and Thousand Oaks. The inspections revealed that
10 some outside signs and other business property were still present at the Ventura location.
11 Approximately 10 percent of the business personal property and trade fixtures were still
12 inside the Simi Valley store. (Newell Dec., ~ 10.)
13 12. Later on June 12,2009, the Assessor's staff spoke by telephone with Joanne
14 Stone of Mervyn's Tax Department. Ms. Stone insisted that all ofthe business
15 property in each of the Mervyn's Ventura County locations had been sold prior to
16 December 31, 2008. (Newell Dec., ~ 11.) The staff requested, pursuant to section 441,
17 subdivision (d)(l), that Mervyn's provide the Assessor with additional documentation
18 showing the date of the sales, the price paid for the property, the identity of the buyers,
19 and the dates by which the property was removed from the locations. Ms. Stone said that
20 she would refer the matter to Mervyn's
21 lawyers. (Ibid.)
22 13. On June 19, the Assessor received a letter from Mervyn's counsel,
23 Morgan, Lewis & Bockius LLP, stating that all business property at Mervyn's Ventura
24 County locations was sold in liquidation sales on or prior to December 31, 2008. The
25 letter further stated that if any business property remained at the locations after
26 December 31,2008, that property was "abandoned in place" by Mervyn's and thus had no
27 value. However, the letter provided no documentation showing the date of the alleged
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5
.Amended Objection of Creditor Ventura County Tax Collector To Motion To Reduce or Expunge Tax Claim
1 sales, the price of the property sold, the identity ofthe buyers, or the date by which the
2 property was removed from the locations. (Newell Dec., ~ 12.)
3 14. In view of Mervyn's refusal to provide the requested documentation
4 concerning the property sales, the Assessor's staff decided to reject Mervyn's 2009
5 business property statements, as authorized under section 441, subdivision (g). (Newell
6 Dec., ~ 13.) The decision was based, in part, on Mr. Farrell's statement that no business
7 property was removed from the Mervyn's location in Oxnard until February 2009, as well
8 as the Assessor's staffs observations of business property still remaining at the Ventura
9 and Simi Valley stores. The staff also determined that is was unlikely the four Mervyn's
10 locations could have closed in the last week of December 2008 and be cleared of all
11 merchandise, fixtures and other business property by January 1, 2009. (Ibid.)
12 15. In accordance with section 501, the Assessor estimated the value of the
13 business property based on the information in his possession at the time of the preparation
14 of the 2009-2010 assessment tax roll. The property was assessed to Mervyn's on the
15 2009-2010 roll based on the values claimed in Mervyn's 2008 property statements, less
16 one year's depreciation. (Newell Dec., ~ 14.)
17 16. Under the circumstances, the Assessor's decision was reasonable. In 2008,
18 Mervyn's filed property statements for its four Ventura County locations claiming
19 ownership of personal property and trade fixtures valued in excess of$2.7 million.
20 (Newell Dec., ~ 6.) A year later, Mervyn's filed unsigned property statements claiming
21 that all of that property had been sold and moved in a matter of days, during the week
22 prior to the tax lien date for 2009-2010. The Assessor rightfully requested documentation
23 necessary to substantiate these claims and, ifpossible, identify new owners to which the
24 property could be assessed. As provided in California law, "details of property
25 acquisition transactions ... and other data relevant to the determination of an estimate of
26 value are to be considered as information essential to the proper discharge of the
27 assessor's duties." ( 441, subd. (d)(l).) When Mervyn's refused to provide such
28 documentation, the Assessor properly rejected the 2009 property statements.
6
Amended Objection of Creditor Ventnra Connty Tax Collector To Motion To Rednce or Expunge Tax Claim
1 ( 441, subd. (g).) The Assessor was legally required to estimate the value of the
2 property, based on the information in his possession, and promptly assess it. ( 501.)
3 B. Mervyn's "Abandonment" of the Property is Irrelevant
4 17. Mervyn's Reply contends that, if any business property in its Ventura
5 County locations was not sold, such property was "deemed abandoned" on or prior to
6 December 31,2008, pursuant to orders of this court. (Reply, ~ 7.) The County does not
7 dispute that this court issued orders retroactively permitting such "abandonment" or that
8 the abandonment of property may have certain legal consequences under federal
9 bankruptcy law. However, for purposes of California property taxes, the mere
10 abandonment or neglect of otherwise taxable property is no defense against lawful
II assessment.
12 18. Mervyn's cites Professor Collier and rulings of the bankruptcy courts for the
13 proposition that, when property is abandoned, it is "no longer property of the bankruptcy
14 estate." (Reply, ~ 20.) This argument, while relevant in the area of bankruptcy, misses
15 the point. The County has never claimed that the business property at Mervyn's Ventura
16 County locations at any time became property of a bankruptcy estate, nor has the Assessor
17 attempted to assess the property to such an estate. In fact, under California law, the filing
18 of a petition under Chapter II of the U.S. Bankruptcy Code does not constitute a change
19 in ownership of property owned by the debtor in possession. (See BOE Letter No. 88/55
20 [July 26, 1988], attached hereto as Exh. B.) For California property tax purposes,
21 Mervyn's business property in Ventura County did not change ownership when Mervyn's
22 filed bankruptcy, or when Mervyn's later, for purposes of the bankruptcy proceedings,
23 claimed that it had "abandoned" the property. Rather, the property remained property
24 of Mervyn's at all times until a sale or other recognized transfer of the property to a
25 new owner. (See, e.g., Francis H Leggett & Co. v. Los Angeles County (1965)
26 235 Cal.App. 2d 752,753-54 [holding that personal property was properly assessed to
27 seller under contract of sale for property, where all consideration had not been paid and
28 other conditions of sale contract had not been completed as of tax lien date].)
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Amended Objection of Creditor Ventnra Connty Tax Collector To Motion To Rednce or Expunge Tax Claim
1 III
2 CONCLUSION
3 19. Mervyn's Reply advances new arguments as to why the County's claim should
4 be expunged, but these arguments are no more effective than the claims raised in its
5 original Motion. Given Mervyn's refusal to provide basic documentation of the sales of
6 its business property in Ventura County, the County had little choice but to reject
7 Mervyn's claims and assess the property to Mervyn's. The County therefore respectfully
8 requests that the Motion be dismissed. Alternatively, the court should abstain from ruling
9 on the Motion and permit Mervyn's to apply for relief under the remedies available to
10 assessees under California law. (Objection, ~ ~ 8-11.)
11 IV
12 ADDITIONAL INFORMATION
13 20. Address to which Debtors must return any reply:
14 John E. Polich
Assistant County Counsel
15 Office of the County Counsel
800 South Victoria Avenue, LlC #1830
16 Ventura, California 93009
Telephone No.: (805) 654-2592
17 Facsimile No.: (805) 654-2185
18 21. Person possessing ultimate authority to reconcile, settle or otherwise resolve
19 the claim on behalf of County:
20 Chief Deputy Tax Collector
800 South Victoria Avenue, LlC #1290
21 Ventura, California 93009
22 Telephone: Please contact through the attorney above at (805) 654-2592.
. 23 22. Claim 7327 (Business Personal Property Tax): Mervyn's #87, Parcel
24 Number 084-0-072-325/001, located at 4750 Telephone Road, Ventura, California,
25 assessed at $8,141.77. Mervyn's seeks to reduce tax claim to zero. Mervyn's #28, Parcel
26 Number 203-0-320-365/017, located at 2701 Saviers Road, Oxnard, California, assessed
27 at $7,550.24. Mervyn's seeks to reduce tax claim to zero. Mervyn's #298, Parcel
28 Number 525-0-030-410/001, located at 285 North Moorpark Road, Thousand Oaks,
8
Amended Objection of Creditor Ventura County Tax Collector To Motion To Reduce or Expnnge Tax Claim
I California, assessed at $5,740.57. Mervyn's seeks to reduce tax claim to zero.
2 Mervyn's #42, Parcel Number 611-0-044-095/001, located at 2801 Cochran Street, Simi
3 Valley, California, assessed at $5,926.84. Mervyn's seeks to reduce tax claim to zero.
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8 Dated:
b/il/l!)
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NOEL A. KLEBAUM
County Counsel, County of Ventura
By
Assistant County Counsel
Attorneys for Treasurer-Tax Collector
9
Amended Objection of Creditor Ventnra County Tax Collector To Motion To Reduce or Expunge Tax Claim
I211
.
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SAE WCAUFANIA
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SATE BOARD OF EQUALIZATION

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BX 9428, SARAENT. CARRNIA 9420) 1TM-CLb
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(916) 445-4982
July 26, 1988
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TO COUNTY ASSESSORS:
N

No. 88/55
CHANGE IN OWNERSHIP DUE T BANKRUPTCY
Under the United States Bankruptcy Code, when petitions for bankruptcy are
filed under Chapters 7, 11 and 13, a separate and distinct estate, the estate
of the bankrupt. is created by operation of law (11 U.S.C. . 541). All
propert owned by the bankrupt automatically comes under the control of the
bankruptcy court. Si nee Property Tax Rul e 462( a)(2) indicates that a change
in ownership occurs when property is transferred by operation of law, we have
previously taken the position that all property owned by the bankrupt
undergoes a change in ownership when a petition for bankruptcy is filed. At
the urging of count assessors', we have undertaken a review of our previously
established position and, after extensive analysis, have revised our
conclusion regarding the change in ownership implications of filing a petition
for bankruptcy. A)though it is not entirely free of doubt, we now conclude
that the better view of the applicable law is that a change in ownership does
not result from the filing of a petition for bankruptcy, regardless of whether
the petition is filed under Chapter 7,11, or 13.
Chapter 7: The most conmon form of relief sought by debtors is a petition
under Chapter 7 for liquidation resulting in a distribution of assets. Under
Chapter 7, as well as under Chapters 11 and 13, the f11ing of the petition
automatically creates a separate entity, the estate of the bankrupt. All of
the property owned by the debtor, i nel udi ng exempt property is now controll ed
by and scbjeet to the di sposition of" the bankruptcy court. The debtor must
file a claim in order to have certain. property exempted from this estate.
Once the estate has been created, the estate assets are held for the benefit
of the debtor's creditors. Any income from property in the estate accrues to
the estate. For example, if a debtor filing a Chapter 7 petition owned an
apartment building. that apartment building would become part of the estate.
Any rents received because of ownership of that building would belong to the
estate and would be held by the estate for the benefit of the debtor's
creditors. We believe that the beneficial use of the property remains with
the debtor, however, because the assets held in the estate are used to satisfy
the debtor's liabilities. Since beneficial use of the assets of the estate is
not transferred as a result of filing a petition under Chapter 7, a change in
ownership does not automatically result from the creation of the estate
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TO COUNTY ASSESSORS
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A change in ownership of all of the debtor's assets which have come under the

control of the court will occur, however, if and when these assets are
transferred by the court though the process of liquidation to pay the debts of
the bankrupt. Property which came wHhin the control of the court, but which
was returned to the debtor because of 1 ega 1 exempti ons wi 11, of course, not
undergo a change in ownership.
Chapter 11: A a 1 ternati ve to 1 i qui dati on is provi ded for debtors under
Chapter 11. This chapter provides a means by which financially distressed
businesses, including sole proprietors, partnerships, and corporations, may
restructure their finances to continue their operations and avoid
liquidation. The filing of a Chapter 11 petition automatically institutes a
stay of debt collections and lien enforcement. Like Chapter 7, the filing of
a petition under Chapter 11 automatically p1 aces all property of the bankrupt
under the control of the court.
Under a Chapter 11 reorganization the debtor will ordinarily remain in control
of its business, unless the court finds it necessar to appoint a trustee.
The debtor remaining in control is called a "debtor in possession."
A debtor in possession has an exclusive right to file a reorganization plan
during a specified period. The purpose of thi s period is to give the debtor
enough time to forulate the reorganization plan by negotiating with creditors
and by predicting the future capacity of the enterprise. When the plan is
confired by the court, the estate of the bankrupt is automatically
terminated. 8y operation of law, all property of the estate returns to the

control of the reorganized debtor, unless otherwise provided in the plan or in

the confirmation order.
The whole purpose of a Chapter 11 reorganization is to encourage and
facilitate the rehabilitation of businesses in financial trouble and to avoid
liquidation. Therefore, the creation of the estate does not result in the
transfer of benefiCial ownership but perits the assets of the bankrupt to be
used in its ongoing operations for the benefit of the debtor but free of debt
collection and lien enforcement. Since the beneficial ownership of the assets
of the estate are not transferred as a result of filing a petition under
Chapter 11, a change in ownership does not resul t from the creation of the
estate.
Chapter 13: Chapter 13 of the Bankruptcy Code is designed to enable
individual debtors who wish to pay their debts to receive protection from
creditors while a plan of repayment is developed and carried out. Under
Chapter 13, the debtor may remain in possession and may continue to use the
property in the estate.
Under Chapter 13, the debtor must file a debt adjustment plan which the court
must confim. Upon confiration of the plan, the property of the estate
returns to the control of the debtor.

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"

,--- " --
TO COUNT ASSESSORS -3-
Si nce the essence of a bankruptcy under Chapter 13 is the debt adjustment
plan, and the debtor retains use of the property in the estate, the creation'
of the estate does not result in the transfer of beneficial ownership.
Consequently, a change in ownership does not occur when an estate is created
by the filing of a petition under Chapter 13.
In sUlIary, although the filing of a petition for bankruptcy under Chapter 7,
11, or 13 creates a separate and distinct estate, the estate of the bankrupt,
beneficial use of the bankrupt's assets is not transferred upon the creation
of the estate. Since beneficial use of the bankrupt's assets is not
transferred, the assets do not undergo a reappraisal change in ownership upon
the creation of the estate.
While the Board of Equalization is not authorized to demand bankruptcy
infonnation, such ' inforation often is found in conjunction with the
Assessment Standards Oivi si on's Legal Entity Ownership Program. When such
infonation is discovered it will be mailed to your office for your decision'
as to the specific properties that require reappraisal.
VW:wpc
AL-24-0138F
Sincerely,
UtU
Verne Walton, Chief
Assessment Standards Oivision
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