GGI Props., LLC v. City of Millville (In re GGI Props., LLC)

• Decision Date: 07 June 2017
• Docket Number: Adv. No.: 16–1202–ABA,Case No.: 16–14328–ABA
• Citation: 568 B.R. 231
• Parties: IN RE: GGI PROPERTIES, LLC, Debtor. GGI Properties, LLC, Plaintiff, v. City of Millville, Defendant.
• Court: U.S. Bankruptcy Court — District of New Jersey

568 B.R. 231

IN RE: GGI PROPERTIES, LLC, Debtor.GGI Properties, LLC, Plaintiff,

v.City of Millville, Defendant.

Case No.: 16–14328–ABA

Adv. No.: 16–1202–ABA

United States Bankruptcy Court, D. New Jersey.

Hearing Date: March 28, 2016

Signed June 7, 2017

Ira Deiches, Deiches & Ferschmann, Haddonfield, NJ, Todd W. Heck, Testa Heck Testa & White, P.A., Vineland, NJ, for Plaintiff.

Nona Ostrove, Law Offices of Nona L. Ostrove, LLC, Voorhees, NJ, for Defendant.

MEMORANDUM DECISION

Andrew B. Altenburg, Jr., United States Bankruptcy Judge

I. INTRODUCTION

This matter is before the court on the motion of the City of Millville (the "City") for summary judgment. Through its adversary proceeding complaint, the Debtor, GGI Properties, LLC ("GGI"), seeks to avoid the transfer of a parcel of real estate located in the City, after the City, pursuant to New Jersey's tax sale laws, foreclosed on the property due to unpaid real estate taxes. GGI alleges that the transfer is avoidable as a constructively fraudulent transfer and/or as a preference and seeks recovery. The City argues that the Supreme Court's holding in BFP v. Resolution Trust Corp. , 511 U.S. 531, 114 S.Ct. 1757, 128 L.Ed.2d 556 (1994) (" BFP"), applies to preclude avoidance and/or such an avoidance would impinge on state court rights. Alternatively, if the court disagrees with those arguments, it asserts that GGI received reasonably equivalent value in exchange for the transfer.

After careful review of the submissions of the parties, the relevant case law concerning third party purchasers pursuant to a tax sale and foreclosure, and statutes, the court determines that a transfer of property to a municipality pursuant to a tax sale and foreclosure, where there was no competitive bidding, can constitute a fraudulent conveyance under 11 U.S.C. § 548(a)(1)(B), and is not barred by the United States Supreme Court's holding in BFP . Likewise, this court further concludes that the transfer may also constitute an avoidable preference under 11 U.S.C. § 547(b). Finally, the court finds that there is a genuine issue of material fact regarding the value of the property transferred and, if necessary, what would be an appropriate remedy, thus the summary judgment motion must be denied.

II. JURISDICTION AND VENUE

The court has jurisdiction over this contested matter under 28 U.S.C. §§ 1334(a) and 157(a) and the Standing Order of the United States District Court dated July 10, 1984, as amended October 17, 2013, referring all bankruptcy cases to the bankruptcy court. This matter is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(F), (H). Venue is proper in this Court pursuant to 28 U.S.C. § 1408. The statutory predicates for the relief sought herein are 11 U.S.C. §§ 548(a)(1)(B), 547(b), and 550(a).

III. BACKGROUND¹

The property at issue is approximately 18 acres located at 200 G Street, off Route 47, a main road into the City of Millville, site of the former Wheaton Glass Works factory (the "Property"). Doc. No. 18–3, ¶ 5; Doc. No. 20, ¶ 6. GGI obtained the Property through the liquidating chapter 11 plan filed in a bankruptcy case in the Bankruptcy Court for the District of Delaware (the "Delaware Bankruptcy") involving GGI's predecessor in interest, The Glass Group, Inc. In the course of that case, a secured claim of the City against the Property was challenged and significantly reduced. Ultimately, the Property was deeded to GGI on September 7, 2006. Doc. No. 18–4, pp. 21–22.

Thereafter, GGI defaulted in payment of taxes to the City in 2009. Doc. No. 18–1, ¶ 3. The City purchased the tax sale certificate on August 12, 2010 for $63,029.19. Doc. No. 18–5, pp. 76–77. On October 21, 2014, the City filed a foreclosure action on the certificate in the Superior Court, Cumberland County. Doc. No. 18–1, ¶ 4. GGI filed an answer that was deemed non-contesting by the court on December 15, 2014. Id. GGI filed a motion to have its answer deemed contesting that the Superior Court denied, Doc. No. 24–1, pp. 2–8, and then filed a motion for reconsideration, which the Superior Court also denied. Doc. No. 24–1, p. 11. The Superior Court ruled simply: "Reconsideration is denied. Def [sic] has cited no law in support of his position that failure to discharge mortgage prevented def from paying real estate taxes." Id.

On June 25, 2015 GGI filed its first chapter 11 bankruptcy case in this court. See Bankr. Case No. 15–21939–ABA.² This court dismissed the case by order dated October 8, 2015 on motion of the U.S. Trustee and after a hearing. See Bankr. Case No. 15–21939–ABA, Doc. Nos. 18, 44. Considerations for dismissal included a lack of insurance on the Property and the inability of GGI to find a committed purchaser for the Property. Id. , Doc. Nos. 18–2, 18–3.

After the dismissal, the Superior Court entered a final judgment in the tax foreclosure, on December 31, 2015. Doc. No. 18–5, pp. 79–80. According to its tax collector, $429,767.45 in taxes, interest and fees was owed at that time. Doc. No. 18–2, p. 6.³

GGI filed its bankruptcy case ⁴ on March 8, 2016, Bankr. No. 16–14323–ABA, and this adversary proceeding on March 15, 2016. GGI owns no real property and conducts no business. Bankr. No. 16–14323–ABA, Doc. No. 1, pp. 8–9. Other than $51, this lawsuit is its only asset. Id. , pp. 9–11, 22. GGI disclosed $372,537 in unsecured claims, including Mr. Rock claiming $332,429 in loans that had been secured by the Property, and Mr. Nave claiming $19,717 in loans. Id. , pp. 14–15. Mr. Rock declared under penalty of perjury that he has "agreed verbally with Mr. Nave as the Trustee for GGI in the Chapter 11 proceeding⁵ that he would subordinate his note and mortgage to all administrative fees, legal fees and unsecured claims filed or arising out of this Chapter 11 proceeding." Doc. 19–1, ¶ 4.

GGI describes the Property as containing buildings that "were previously deteriorating, but since the City has assumed ownership and total control of the property, some of the buildings that had been in reasonably good condition have been allowed to be vandalized to such an extent that they are probably not salvageable." Doc. No. 20, ¶ 6.

The City states that the Property contains "deteriorating" buildings "that have been vacant for at least ten years." Doc. No. 18–3, ¶ 5. It continues that "[t]he derelict buildings are an eyesore that sit at the entrance to the City and desperately need to be rehabilitated or torn down." Id. Further, "[t]he property is an environmental clean-up site with remediation being conducted by Rio Tinto, the corporate successor to Wheaton Glass." Id. See also Doc. No. 20, ¶ 6. It claims it has spent over $20,000 in securing the Property, such as by covering open holes with steel plates. Doc. No. 18–3, ¶ 6.

GGI disagrees that the buildings have been vacant for 10 years, alleging that some had been rented during a portion of the time GGI owned the Property. Doc. No. 20, ¶ 6. But it concedes "[s]ome of the buildings are now an eyesore. They sit at the entrance to the City, and need to be rehabilitated or torn down." Id. However, "[i]t is the expressed intention of GGI's current contract purchaser to rehabilitate the buildings, where practical, and to otherwise tear down the unfit buildings and to restore the property to a useable site." Id. GGI also disclosed on its petition that it has been a party to a proceeding under an environmental law and had notified the New Jersey Department of Environmental Protection on March 13, 2015 of a release of hazardous material. Bankr. Case. No. 16–14328–ABA, Doc. No. 1, p. 23. An appraisal submitted by the City includes the Remediation Agreement entered into by Wheaton USA Inc. (the owner of the Property operated by Wheaton Glass Company) in September 2002. Doc. No. 18–5, p. 87.

Mr. Nave claims that the City has not been cooperative with its attempts to sell the Property. Doc. No. 20, ¶ 7. He attributes this to a "grudge" held by the City dating back to the Delaware Bankruptcy. Id. He avers that "successive" purchasers have been "rebuffed or effectively discouraged" by the City, "even though GGI's most recent scheduled contract purchaser, Anthony DeSantis et al., were also the only responding parties to the City under its separate March 2016 Request for Proposals for redevelopment of the Property issued before this bankruptcy proceeding commenced." Id. Mr. Nave also alleges that "[o]rdered mediation sessions [occurring in connection with this adversary proceeding] were unnecessarily delayed and protracted by the City, with no perceptible intent by the City to meaningfully participate nor to timely accommodate the timing needs of GGI's contract purchasers." Id. The failure to "voluntarily" discharge the 2004 mortgage is another reason Mr. Nave claims the City has "thwart[ed] GGI's good faith attempts to sell the property...." Id. , ¶¶ 7–8.⁶

The City notes in response that GGI raised much of this in the state court, but that court rejected those arguments. Doc. No. 24, ¶ 2; Doc. No. 24–1. As for the mediation, the City contends that GGI was at fault for several adjournments. The City also notes that GGI filed a Notice of Lis Pendens covering the Property on March 24, 2016, preventing a sale of the Property during this proceeding. Doc. No. 18–6, ¶ 5.

A. Various values ascribed to the Property

The parties argue vastly different values for the Property: $0 says the City while GGI alleges "approximately $700,000."

The Glass Group purchased the property on September 20, 2002 from Wheaton USA, Inc. for $1. Doc. No. 18–4, pp. 2–7. As recited above, GGI acquired the Property through that entity's chapter 11 plan in 2006, also for $1. Doc. No. 18–5, p. 20. Three years later, on September 6, 2009, it listed the Property for sale for $1,649,000, a drop from its original list price of $2,970,000. Doc. No.18–5, p. 81. The Property did not sell.

GGI appealed its tax assessment in 2008, obtaining an adjustment from $2,650,000 to $1,676,400. Doc. No. 18–5, p. 33. A few years later...