Ankrah v. HSBC Bank United States, N.A. (In re Ankrah)

• Court: U.S. Bankruptcy Court — District of New Jersey
• Writing for the Court: Andrew B. Altenburg, Jr., U.S. BANKRUPTCY JUDGE
• Citation: Ankrah v. HSBC Bank United States, N.A. (In re Ankrah), 602 B.R. 286 (Bankr. N.J. 2019)
• Decision Date: 14 May 2019
• Docket Number: Adv. Pro. No. 18-1187-RG,Case No.: 17-28351-RG
• Parties: IN RE: Susanna ANKRAH, Debtor Susanna Ankrah, Plaintiff v. HSBC Bank USA, N.A., Defendant

602 B.R. 286

IN RE: Susanna ANKRAH, Debtor

Susanna Ankrah, Plaintiff

v.HSBC Bank USA, N.A., Defendant

Case No.: 17-28351-RG

Adv. Pro. No. 18-1187-RG

United States Bankruptcy Court, D. New Jersey.

Filed May 14, 2019

Scott C. Pyfer, Esq., Pyfer Law Group, LLC, 20 Commerce Dr., Suite 135, Cranford, NJ 07016

Nicholas V. Rogers, Esq., Phelan Hallinan Diamond & Jones, PC, 400 Fellowship Road, Suite 100, Mt. Laurel, NJ 08054

Stephen B. McNally, Esq., McNally & Busche, LLC, 93 Main Street, Suite 201, Newton, NJ 07860

Andrew B. Altenburg, Jr., U.S. BANKRUPTCY JUDGE

Dear Counsel:

The debtor filed an Amended Complaint seeking an order setting aside a foreclosure sale under section 548(a) of the Bankruptcy Code on the grounds that the sale was constructively fraudulent and/or under state law because the debtor lacked notice of the adjourned sale. Doc. No. 17. Before the court¹ now is the Motion to Dismiss the Amended Complaint² filed by HSBC Bank USA, NA ("HSBC"). Doc. No. 22. This court finds that the Amended Complaint should be dismissed.

The matter before the court is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(F). The court has jurisdiction pursuant to 28 U.S.C. § 1334, 28 U.S.C. § 157(a) and the Standing Order of Reference issued by the United States District Court for the District of New Jersey on July 23, 1984, as amended on September 18, 2012, referring all bankruptcy cases to the bankruptcy court. The following constitutes this court's findings of fact and conclusions of law as required by Federal Rule of Bankruptcy Procedure 7052.

As the matter before the court is a Motion to Dismiss, the court considers the facts in the light most favorable to the debtor. On July 18, 2017, the sheriff of Essex County sold property located at 69-71 Stockman Place, Irvington, New Jersey (the "Property"), to 69-71 Stockman Place LLC (the "LLC") for $ 143,000. Doc. No. 17, ¶ 8. More than 10 days later, on August 14, 2017, the debtor filed a motion with the New Jersey Superior Court to set aside the sale as defective because she did not receive notice of the sale. Doc. No. 17, ¶ 7. The sheriff's deed has not yet been transferred. Doc. No. 17, ¶ 7.

On September 8, 2017, the debtor filed the instant chapter 11 case. On April 10, 2018, she commenced this adversary proceeding, and on February 1, 2019 she filed the Amended Complaint. Doc. No. 17. The debtor alleged that "Before the purported, but invalid, Sheriff's sale of the Property occurred, the Debtor was prepared to commence a bankruptcy proceeding to stay the purported Sheriff's sale from proceeding. Before, at and after the occurrence of the purported, but invalid, Sheriff's sale of the Property, the Debtor was also prepared to obtain a satisfaction of the mortgage that relates to the foreclosure action with respect to the Property." Id. , ¶ 14. She also stated that between filing of this bankruptcy case and the adversary proceeding, she made substantial improvements to the Property, which contains four residential apartment units. Id. , ¶ 15.

The debtor argued that "The purported, but invalid, Sheriff's sale of the Property, without notice thereof having been received by the Debtor and without adequate and reasonable notice having been provided to the Debtor by the Bank, constitutes a significant and substantial irregularity in the conduct of the sale, which irregularity was also unduly prejudicial to the Debtor, such that the purported Sheriff's sale of the Property is invalid under applicable New Jersey state law." Id. , ¶ 16. The debtor thus argued that the sale should be avoided as a constructively fraudulent transfer pursuant to 11 U.S.C. § 548(a). Id. , ¶ 18. She alleged that the sale occurred within two years before the filing of her bankruptcy case, she received less than reasonably equivalent value, and she was insolvent or became insolvent as a result of the transfer. Id. , ¶ 17. In addition to avoiding the transfer, the debtor seeks an order from this court requiring HSBC to accept $ 143,000 from the debtor rather than the $ 261,933 plus interest owed under the judgment because that is what it accepted from the LLC in full satisfaction of the mortgage.³ Id. , ¶ 13.

HSBC filed the instant Motion to Dismiss on February 8, 2019. It stated that the Supreme Court's decision in BFP v. Resolution Trust Corp. , 511 U.S. 531, 114 S.Ct. 1757, 128 L.Ed.2d 556 (1994), precludes avoidance as a fraudulent transfer so long as the sale was conducted in accordance with New Jersey law. It then argued that the sale was conducted in compliance with New Jersey law as HSBC in fact did provide the debtor with notice of the adjourned sale. It further argued that equity does not support vacating the sale because there was competitive bidding that resulted in a third-party purchaser.⁴

The debtor responded with a letter incorporating her opposition to HSBC's Motion to Dismiss the original complaint as support for the relief she seeks in her Amended Complaint. Doc. No. 23. She also argued that notice of a sheriff's sale must be actual, not constructive. She repeated that "had the Debtor received such notice, the Debtor would have commenced this Chapter 11 case before such purported sale could have proceeded." Id. , p.2.

Motion to dismiss standard

HSBC seeks dismissal of the Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6),⁵ incorporated into adversary proceedings by Federal Rule of Bankruptcy Procedure 7012, for failure to state a claim upon which relief can be granted. Doc. No. 22, ¶ I. In considering a Motion to Dismiss, a court must bear in mind the following:

When reviewing a motion to dismiss ..., courts "accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief." Phillips v. Cnty. of Allegheny , 515 F.3d 224, 233 (3d Cir. 2008) (internal quotation marks omitted). Under such a standard, the factual allegations set forth in a complaint "must be enough to raise a right to relief above the speculative level." Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 555 [127 S.Ct. 1955, 167 L.Ed.2d 929] (2007). Indeed, "the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions." Ashcroft v. Iqbal , 556 U.S. 662, 678 [129 S.Ct. 1937, 173 L.Ed.2d 868] (2009). "[A] complaint must do more than allege the plaintiff's entitlement to relief. A complaint has to ‘show’ such an entitlement with its facts." Fowler v. UPMC Shadyside , 578 F.3d 203, 211 (3d Cir. 2009).

Ogbebor v. J.P. Morgan Chase, N.A. , CV163400FLWDEA, 2017 WL 449596, at *5 (D.N.J. Feb. 2, 2017).

Avoidance of the sale as a fraudulent transfer

This court will first address the fraudulent transfer allegation. A party alleging fraudulent transfer under Bankruptcy Code section 548(a)(1)(B) must prove, among other things, that reasonably equivalent value was not obtained in exchange for the property. The Supreme Court in BFP v. Resolution Trust Corp. , 511 U.S. 531, 114 S.Ct. 1757, 128 L.Ed.2d 556 (1994), held that "Any irregularity in the conduct of the sale that would permit judicial invalidation of the sale under applicable state law deprives the sale price of its conclusive force under § 548(a)(2)(A), and the transfer may be avoided if the price received was not reasonably equivalent to the property's actual value at the time of the sale (which we think would be the price that would have been received if the foreclosure sale had proceeded according to law)." Id. , at 545-46, 114 S.Ct. 1757.

Taking the facts in the light most favorable to the debtor, this court finds that the failure to notify the debtor of the adjourned sale was not an irregularity in the sale that resulted in a constructively fraudulent transfer in this case. The BFP Court was concerned with irregularities that hamper the exchange of reasonably equivalent value in exchange for property. "How closely the price received in a forced sale is likely to approximate fair market value depends upon the terms of the forced sale—how quickly it may be made, what sort of public notice must be given, etc." BFP , at 540, 114 S.Ct. 1757.

One of my colleagues explained the reasoning of BFP as follows:

Focusing on the manner in which foreclosed property is sold, the [Supreme] Court canvassed state foreclosure procedures, noting that foreclosure laws, in addition to providing notice to the borrower, typically require publication of a notice of sale, and "strict adherence to prescribed bidding rules and auction procedures." Id. at 542, 114 S.Ct. 1757 .... Presumably, by these comments, the Court was opining that state procedures are designed to solicit prospective purchasers and control auction processes in order to maximize the value achieved at such sales. The Court recognized the difficulty of valuing a property that must be sold within the strictures of state-prescribed foreclosure procedures, noting that "property that must be sold within those strictures is simply worth less. " Id. at 539, 114 S.Ct. 1757 ... (emphasis in original).

Matter of Varquez , 502 B.R. 186, 191-92 (Bankr. D.N.J. 2013).

As will be discussed below, New Jersey's foreclosure laws do not require notice to the borrower of adjournments. Thus, the state's foreclosure laws were complied with here. But more importantly, the debtor has not proffered any authority for the proposition that a sale made without notice to her caused the sale price to fall below reasonably equivalent value. The court in In re Ryker , 301 B.R. 156 (D.N.J. 2003), considered whether a "defect in the Notice of Sale was of such a magnitude that it chilled competitive bidding, thwarted the purpose of foreclosure sales in New Jersey, and, as a result, violated New Jersey foreclosure law." Id. , at 166. In Ryker , the issue was whether potential bidders had sufficient notice of a reduced amount to satisfy the...