Canandaigua Land Dev., LLC v. Cnty. of Ont. (In re Canandaigua Land Dev., LLC)

• Decision Date: 05 November 2014
• Docket Number: Adversary No. 11–02037–PRW.,Bankruptcy No. 11–20888–PRW.
• Citation: 521 B.R. 457
• Parties: In re CANANDAIGUA LAND DEVELOPMENT, LLC, Debtor. Canandaigua Land Development, LLC, Plaintiff, v. County of Ontario, and Dale C. Stell, and Joseph E. May, Defendants.
• Court: U.S. Bankruptcy Court — Western District of New York

521 B.R. 457

In re CANANDAIGUA LAND DEVELOPMENT, LLC, Debtor.Canandaigua Land Development, LLC, Plaintiff

v.County of Ontario, and Dale C. Stell, and Joseph E. May, Defendants.

Bankruptcy No. 11–20888–PRW.

Adversary No. 11–02037–PRW.

United States Bankruptcy Court, W.D. New York.

Signed Nov. 5, 2014.

David H. Ealy, Trevett, Cristo, Salzer & Andolina P.C., Rochester, NY, for Plaintiff.

Jason S. DiPonzio, Steven B. Levitsky, Handelman, Witkowicz & Levitsky, Rochester, NY, for Defendants.

Joseph E. May, pro se.

DECISION AND ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND DENYING DEFENDANT'S CROSS–MOTION FOR SUMMARY JUDGMENT

PAUL R. WARREN, Bankruptcy Judge.

Canandaigua Land Development, LLC (“Canandaigua”) commenced this adversary proceeding seeking to set aside the transfer of a sizeable parcel of undeveloped real property to the County of Ontario (“County”). Title to the parcel was transferred to the County as a result of an in rem tax foreclosure following Canandaigua's failure to pay real estate taxes. Canandaigua claims that the transfer is avoidable as a constructively fraudulent conveyance under 11 U.S.C. § 548(a)(1)(B). Presently before the Court are competing motions for summary judgment by Canandaigua and the County.¹

I.JURISDICTION

The Court has jurisdiction of this case pursuant to 28 U.S.C. §§ 157(a), 157(b)(1), and 1334(b). This is a core matter pursuant to 28 U.S.C. § 157(b)(2)(H). This decision constitutes the Court's findings of fact and conclusions of law to the extent required by Rule 7052 of the Federal Rules of Bankruptcy Procedure (“FRBP”).²

II.QUESTION PRESENTED

The question presented for determination is whether an in rem tax foreclosure conducted by the County—in full compliance with Article 11 of the New York Real Property Tax Law—can be set aside by the trustee as a constructively fraudulent transfer pursuant to 11 U.S.C. § 548(a)(1)(B). This precise issue has not previously been answered by either Division of the Bankruptcy Court or the District Court for the Western District of New York.³ The Court has permitted the parties considerable latitude in making submissions to fully brief and argue the points and authorities to be considered in deciding this issue. The parties have advised the Court that submissions have been concluded and that no further argument is required. The issue is now ripe for determination.

III.SUBMISSIONS BY THE PARTIES

Canandaigua filed a Motion for Summary Judgment on June 29, 2012 and a supporting Memorandum of Law (“Motion”) (ECF AP Nos. 55 & 57).⁴ The County filed a Cross–Motion for Summary Judgment seeking dismissal of the complaint on August 7, 2012 (“Cross–Motion”) (ECF AP No. 64). Canandaigua filed a Reply Memorandum of Law on November 21, 2012 (ECF AP No. 73). The County filed a Reply on December 3, 2012 (ECF AP No. 74). The County filed a Further Submission in Support of the Cross–Motion on December 21, 2012 (ECF AP No. 77). The County of Wayne, as an interested party by virtue of being the defendant in an adversary proceeding involving the same legal issue, filed a Supplemental Submission in Support of the Cross–Motion on January 4, 2013 (ECF AP No. 78). On January 17, 2013, Canandaigua filed a Reply to the County's Further Submission and Affidavit in Opposition to the Motion to Dismiss and a Supplemental Memorandum of Law (ECF AP Nos. 84 & 86). Canandaigua also filed an Affidavit of John K. McAndrew, Esq. (“McAndrew”) on behalf of Woods Oviatt Gilman, LLP (“Woods–Oviatt”), in support of Canandaigua's assertion that the law firm was a creditor with a valid claim against Canandaigua on the last date to redeem the parcel from foreclosure (ECF AP No. 85). On February 8, 2013, the County filed a Second Further Submission and a Second Supplemental Memorandum of Law (ECF AP Nos. 89 & 90).

On March 4, 2013, the Court entered an Order Converting the Chapter 11 case to a Chapter 7 case for cause, pursuant to 11 U.S.C. § 1112(b), on the motion of the County (ECF AP Nos. 93 & 64). Canandaigua appealed the Court's Order of Conversion, but subsequently withdrew that appeal. On April 12, 2013, the Chapter 7 Trustee submitted a letter to the Court, opposing the County's Cross–Motion and joining Canandaigua's Motion for summary judgment (ECF AP No. 109). At a hearing held on April 18, 2013, the Chapter 7 Trustee indicated his consent to Canandaigua's continued prosecution of the adversary proceeding on behalf of the Estate⁵ (ECF AP No. 109). The Court held a series of hearings with the parties following the conversion to Chapter 7, to narrow the issues, as is reflected by the docket. On June 6, 2014, the County filed its Reply on Behalf of the County of Ontario, addressing the issue of whether the 2011 real property taxes were a liability of Canandaigua as of the date of commencement of the bankruptcy case (ECF AP No. 128). The County filed a further Submission Regarding Claim of Woods Oviatt Gilman, LLP and Measure of Damages on July 28, 2014 (ECF AP No. 131).

After careful consideration of Canandaigua's Motion for summary judgment and the County's Cross–Motion for summary judgment, together with the various Memoranda of Law, affidavits, and exhibits, as well as the arguments of counsel at the series of hearings held with respect to the motions, the Court makes the following findings of fact and conclusions of law, by which the Court determines and orders that: (1) Canandaigua's Motion for summary judgment on its First Cause of Action, on behalf of the Chapter 7 Trustee, on the issue of liability for a constructively fraudulent transfer under 11 U.S.C. § 548(a)(1)(B), is GRANTED; (2) Canandaigua's Motion for summary judgment on its Second Cause of Action, on behalf of the Chapter 7 Trustee, to recover the Property for the benefit of the Estate, pursuant to 11 U.S.C. § 550(a), is GRANTED; (3) The County's Cross–Motion for summary judgment dismissing the complaint is DENIED.

IV.FINDINGS OF FACT

The relevant facts are not in dispute. The appropriate conclusions to be reached when applying the law to those facts are, of course, vigorously disputed by the parties.

Canandaigua is a limited liability company that owned approximately fifty acres of unimproved real estate in Canandaigua, New York (“Property”) (ECF AP No. 55–4 at ¶ 3). Canandaigua filed a petition commencing a Chapter 11 case on May 4, 2011 (ECF BK No. 1). Gary S. Kuskin (“Kuskin”) is listed as the Managing Member on the Petition (ECF BK No. 1). Kuskin, along with his wife and three children, are the owners of the company (ECF AP No. 55–4 at ¶ 4).

On Schedule B, Canandaigua listed the Property's market value at the time of filing as $300,000 (ECF BK No. 34). According to the County's tax bills, the assessed value at the time of filing was $425,000 (ECF BK No. 34). In amended schedules filed shortly after the Chapter 11 case was commenced, Canandaigua indicated that it had no ownership interest in real property because the Property had been the subject of a pre-petition in rem tax foreclosure (ECF BK No. 34, Amended Schedule A). The only asset listed by Canandaigua was a potential claim against the County to recover the foreclosed Property (ECF BK No. 34, Amended Schedule B).⁶ With the exception of its claim against the County, Canandaigua owned no assets when it filed for Chapter 11 protection (ECF BK No. 34).

A number of months prior to the filing of the Chapter 11 bankruptcy case, the County had commenced an in rem tax foreclosure against the Property, pursuant to Article 11 of the New York Real Property Tax Law (“NYRPTL”) (ECF AP No. 64–2 at ¶ 6). The tax foreclosure was commenced to collect delinquent real estate taxes for tax years 2009 and 2010 (“Foreclosure”) (ECF AP No. 55–4 at ¶ 7). The delinquent pre-petition real property taxes totaled $16,594.99 (Id. ). On October 4, 2010, the County sent Canandaigua notice of the Foreclosure proceeding, by both certified and regular first class mail, to the two addresses it had listed for Canandaigua, as required by § 1125 NYRPTL (ECF BK No. 64 at ¶¶ 6–9).

The notice informed Canandaigua that the last day to redeem the Property by paying the delinquent taxes was January 14, 2011 (“Redemption Date”), and that Canandaigua would be foreclosed of all rights in the Property in the event of the failure to pay all delinquent taxes by the Redemption Date (ECF AP No. 55–4 at ¶ 7; ECF AP No. 64–2 at ¶ 10). Canandaigua failed to redeem the Property by timely paying the delinquent taxes and failed to interpose an answer to the Foreclosure notice (ECF AP No. 64–2 at ¶ 11). On February 18, 2011, a default judgment in favor of the County in the Foreclosure proceeding was entered, awarding possession of and title to the Property to the County, pursuant to § 1136(3) NYRPTL (ECF AP No. 64 at Exhibit “E”).

On May 4, 2011, a few hours after Canandaigua filed its petition commencing the Chapter 11 bankruptcy case, the County conducted an auction sale of the Property, pursuant to § 1166 NYRPTL, at which co-defendant Stell made the highest bid of $155,000, plus payment of $12,558.17 for the 2011 property taxes, and co-defendant May made a back-up bid for an undisclosed amount (ECF AP No. 55 at ¶¶ 13–15). A representative of Canandaigua attended the auction and read aloud a statement informing all present of Canandaigua's bankruptcy filing earlier that day (ECF AP No. 55–14 at ¶¶ 8–9 & Exhibit “C”).

There is no genuine dispute that the in rem tax foreclosure complied with New York State law, that Canandaigua failed to either answer the foreclosure notice or timely redeem the Property (ECF AP No. 55–14 at ¶ 6), or that the total amount owed by Canandaigua for delinquent taxes was $16,594.99 (Id. at ¶ 5; ECF AP No. 64–2 at ¶ 7).⁷ There is also no genuine dispute concerning the fact that the Property had a value of at least $300,000 and perhaps as much as $425,000 on the date on which default judgment was granted in the Foreclosure (ECF AP No. 55–4 at ¶ 14; ECF AP No. 136, “Parcel Status Report”)....