Azeglio v. Act Prop., LLC (In re Azeglio)
| Decision Date | 23 July 2021 |
| Docket Number | Case No. 19-29009 (JNP),Adv. Pro. No. 19-2192 |
| Citation | 631 B.R. 215 |
| Parties | IN RE: Nicholas L. AZEGLIO, Sr., Debtor. Nicholas L. Azeglio, Sr., Plaintiff, v. Act Property, LLC, Defendant. |
| Court | U.S. Bankruptcy Court — District of New Jersey |
Mark S. Cherry, Law Office of Mark S. Cherry, Cherry Hill, NJ, for Plaintiff.
Stephen B. McNally, McNally & Busche, L.L.C., Newton, NJ, for Defendant.
Nicholas L. Azeglio, Sr. ("Debtor") filed an adversary complaint (the "Complaint") against ACT Property, LLC ("Defendant"), seeking to avoid the transfer of real property which was completed pursuant to a tax foreclosure judgment. Defendant filed a motion to dismiss the Adversary Proceeding and a motion for relief from stay in the main case.1 Debtor opposed both motions.
The primary issue is one which has recently been directly, and indirectly, considered by several judges in this District: whether the date on which a lis pendens is filed is treated as the date of transfer for purposes of sections 547 and 548 of the Bankruptcy Code. If yes, then the date of transfer in this case would be outside both the 90-day preference lookback period (the "Preference Period") and the two-year fraudulent transfer period (the "Fraudulent Transfer Period," collectively the "Look Back Periods"). See 11 U.S.C. §§ 547(b)(4)(A), 548(a)(1). If no, then the transfer took place on the date of the foreclosure judgment, which was within both Look Back Periods.
In In re Polanco, 622 B.R. 631 (Bankr. D.N.J. 2020), I concluded that the date of transfer for purposes of a preference is the lis pendens filing date. Debtor presents no arguments in this case to change that decision. Similarly, because In re Stahlberger, 2021 WL 509849 (Bankr. D.N.J. 2021) (Altenburg, J.), is persuasive, I conclude that the effective date of transfer for a fraudulent transfer action under section 548 is also the lis pendens filing date. Therefore, because the lis pendens in this case was filed prior to both Look Back Periods, Debtor cannot prevail under either section 547 or 548, and both motions will be granted for Defendant.
The relevant facts are undisputed. In 2014, US Bank Cust/ACTLien Holding ("US Bank") purchased a tax sale certificate against Debtor's property, located at 380 West Weymouth Road, Vineland, New Jersey (the "Property"). Adv. Pro. Dkt. No. 1, 18. In March 2017, US Bank filed a complaint against Debtor, in the Superior Court of New Jersey,2 seeking to foreclose on the Property and Debtor's right of redemption (the "Tax Foreclosure Proceeding"), Adv. Pro. Dkt. No. 18, Shortly thereafter, on March 17, 2017, US Bank filed a notice of lis pendens (the "Lis Pendens Filing Date") in accordance with New Jersey law. Id. Subsequently, Defendant was assigned the tax sale certificate and substituted as the plaintiff in the Tax Foreclosure Proceeding. Id. On July 10, 2019, the state court entered a final judgment (the "Tax Foreclosure Judgment") foreclosing Debtor's right of redemption and transferring title to the Property to Defendant. Adv. Pro. Dkt. No. 1, 18.
On October 7, 2019, Debtor filed a petition for relief under Chapter 13 of the Bankruptcy Code (the "Petition Date"). Dkt. No. 1. Two weeks later, Debtor filed the Complaint seeking to avoid the Tax Foreclosure Judgment as either a preference or a fraudulent transfer pursuant to sections 547(b) and 548(a)(1)(B) of the Bankruptcy Code. Adv. Pro. Dkt. No. 1.
Debtor argues the transfer occurred on the Tax Foreclosure Judgment date, not the Lis Pendens Filing Date, because entry of the Tax Foreclosure Judgment is what divests property interests. Adv. Pro. Dkt. No. 20. According to Debtor, until entry of a final judgment a bona fide purchaser could acquire an interest superior to Defendant's by redeeming the tax sale certificate when it purchases the Property.
Id. Specifically, Debtor argues that because the Tax Foreclosure Judgment was entered 89 days prior to the Petition Date, the transfer for avoidance purposes was within both Look Back Periods. Id. To support this theory, Debtor argues decisions in this District, specifically Polanco, Stahlberger, and In re Nealy, 623 B.R. 278 (Bankr. D.N.J. 2021) (Kaplan, C.J.), incorrectly interpret sections 547(e) and 548(d). Id.
Defendant conversely argues3 the transfer occurred on the Lis Pendens Filing Date, which was more than two years prior to the Petition Date, placing the transfer outside both Look Back Periods. Adv. Pro, Dkt. No. 18. Defendant relies on the above decisions in supporting its argument. Id. Therefore, Defendant argues, because the transfer was outside the Look Back Periods, Debtor cannot prevail on either count, and dismissal of the adversary proceeding and granting stay relief to allow Defedant to proceed with its state law remedies related to the Property is appropriate. Id.
This Court has jurisdiction under 28 U.S.C. §§ 157(b) and 1334(b). Venue is proper in this Court under 28 U.S.C. § 1408. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (F), (G), and (H).
In determining whether Debtor can successfully avoid the transfer, the Court must consider whether the date of transfer for the purposes of sections 547 or 548 of the Bankruptcy Code is the Lis Pendens Filing Date or the Tax Foreclosure Judgment date.
Pursuant to Federal Rule of Civil Procedure 12(b)(6), made applicable by Federal Rule of Bankruptcy Procedure 7012, a motion to dismiss may be granted if the complaint fails "to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). To survive a motion to dismiss, the complaint must "contain sufficient factual matter, accepted as true, ‘to state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). A motion to dismiss must be filed before any responsive pleading, including an answer. Turbe v. Gov't of Virgin Islands, 938 F.2d 427, 428 (3d Cir. 1991) ; Fed. R. Civ. P. 12(b). Untimely motions to dismiss are treated as motions for judgment on the pleadings pursuant to Rule 12(c). Id. "In this situation, we apply the same standard as under Rule 12(b)(6)." Id.
However, Rule 12(d) states: "if on a motion under Rule 12(b)(6) or (12)(c), matters outside the pleadings are presented to and not excluded by the court, the motion must be treated as one for summary judgment under Rule 56." Fed. R. Civ. P. 12(d). Here, Defendant's motion to dismiss must be treated a motion for summary judgment because Defendant filed the motion to dismiss after the answer, and the Complaint does not mention the lis pendens.
Under Rule 56(a), made applicable by Bankruptcy Rule 7056, summary judgment is appropriate where "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a) ; see Polanco, 622 B.R. at 635. Rule 56 requires a court enter summary judgment if a party is unable to establish the existence of an element essential to that party's case as to which that party will bear the burden of proof at trial. Id.; Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). "In deciding a motion for summary judgment, the judge's function is not to weigh the evidence and determine the truth of the matter, but rather to determine if there is a genuine issue for trial." Josey v. John R, Hollingsworth Corp., 996 F.2d 632, 637 (3d Cir. 1993). Because the material facts are not in dispute, and Debtor cannot show that the transfer occurred within the Look Back Periods, summary judgment is appropriate in this case.
A preference action under section 547(b) of the Bankruptcy Code permits a plaintiff to avoid any transfer of an interest of the debtor in property that was: (1) to or for the benefit of a creditor; (2) on account of an antecedent debt; (3) made while the debtor was insolvent;4 (4) made within 90 days before the Petition Date (or one year for an insider); and (5) enabled a creditor to receive more than it would have under a Chapter 7 liquidation. See 11 U.S.C. § 547(b). For real property, the date of transfer is the date of perfection. Polanco, 622 B.R. at 637 ; see 11 U.S.C. § 547(b)(4), (e)(1). Pursuant to section 547(e)(1), a party's interest "is perfected when a bona fide purchaser of such property ... cannot acquire an interest that is superior to the interest of the transferee." 11 U.S.C. § 547(e)(1) (emphasis added).
In Polanco I found that, under New Jersey law, the filing of a lis pendens meets the requirements for perfection in section 547(e)(1). Therefore, the date of transfer for purposes of a preference is the lis pendens filing date. See Polanco, 622 B.R. at 637. The material facts of this case are identical to Polanco. In both cases the defendant filed a lis pendens prior to the Preference Period, but obtained the tax foreclosure judgment during the Preference Period.
However, Debtor makes an argument not raised in Polanco - that a bona fide purchaser could have acquired a superior interest in the Property by paying off the tax lien. Therefore, Debtor argues that Polanco was incorrectly decided. Debtor's argument must fail because under New Jersey law there cannot be a bona fide purchaser once a lis pendens is filed.
A bona fide purchaser is " ‘one who has purchased property for value without notice of any defects in the title of the seller’ ... whether or not such a purchaser exists." In re Rapid Freight Sys., Inc., 2011 WL 1300441, at *7 (Bankr. D.N.J. 2011) (emphasis added) (quoting United States v. Hunter (In re Walter), 45 F.3d 1023 1030 (6th Cir. 1995) ). Under New Jersey law, filing a lis pendens "gives the world notice that the party has an interest in the property ‘whic...
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