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

• Decision Date: 06 June 2018
• Docket Number: Adv. No.: 16-1202-ABA,Case No.: 16-14328-ABA
• Citation: 588 B.R. 401
• 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

588 B.R. 401

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: November 15, 2017

Hearing Date: November 16, 2017

Signed June 6, 2018

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 court previously determined 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), not barred by the United States Supreme Court's holding in BFP v. Resolution Trust Corp., 511 U.S. 531, 114 S.Ct. 1757, 128 L.Ed.2d 556 (1994). In re GGI Properties, LLC, 568 B.R. 231 (Bankr. D.N.J. 2017). The court additionally concluded that the transfer could constitute an avoidable preference under 11 U.S.C. § 547(b). It thus denied the Motion for Summary Judgment filed by City of Millville ("City") on those grounds. But as it further found that there was a genuine issue of material fact regarding the value of the property transferred on December 31, 2015 (the time of the transfer via foreclosure) and March 8, 2016 (the petition date) (together, the "Relevant Dates"), it set trial on that issue. The trial having concluded and the parties having submitted memoranda of law, the court now values the property at $530,000. It finds that the debtor, GGI Properties, LLC ("GGI"), did not receive reasonably equivalent value for the transfer, therefore the transfer can be avoided as constructively fraudulent.

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 23, 1984, as amended September 12, 2012, 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. HISTORY OF THE PROPERTY

Glass-making has American roots in South Jersey, an area rich in the sand and iron used in glass, as well as in trees for fuel.¹ In 1779, several glassblowers from Wistarburgh Glass Manufactory, which had opened in 1739 in Alloway, New Jersey, established their own "glass works" in what became Glassboro, New Jersey.² Then in 1888, Dr. Theodor Corson Wheaton, a pharmacist, began making his own pill bottles in Millville, New Jersey in a company that became Wheaton USA.³ In 2002, GGI's predecessor bought Wheaton.

Kenneth Rock, 75 years old, spent his career in the glass industry. T1, p. 116.⁴ He worked for the Coming Glass Works out of college, then Sylvania to build a glass factory in Kentucky and serve as General Manager for 19 years, and finally for Wheaton Industries in Millville. Id. , pp. 116-17. Wheaton hired Mr. Rock in the 1990s as vice president of its glass tubing operations, and later promoted him to president and put him on its board, T1, pp. 116-17. Wheaton had its corporate headquarters, two glass factories, a research facility and a plastics division in Millville. Id. , p. 117. It also had operations in Elmer, Mays Landing, and Williamstown, New Jersey; a large glass factory in Flat River, Missouri; and a joint venture in China with Beijing General Glass Company. Id. , p. 117; see pp. 120-21.

At some point, Wheaton was purchased by Alusuisse, which was acquired by Alcan (and which later became part of Rio Tinto). Id. , p. 118. Mr. Rock was Senior Vice President of Global Glass Operations. Id. , p. 119. Under Alcan, the factory began to struggle. Id. , p. 119. Mr. Rock formed The Glass Group Inc. with Leonard Nave and some other investors to buy, inter alia, the subject property at 200-300 G. Street, Millville, also known as Lot 1, on September 20, 2002. Id. , pp. 120, 184; In re GGI Properties, LLC , 568 B.R. at 238. Mr. Rock became Chairman and CEO of the new company. Id. , p. 120. It is not known what The Glass Group paid for Wheaton. According to Mr. Rock, the company was losing money when The Glass Group bought it, and though he was able to bring it up to break-even condition, in 2005 it filed chapter 11 in Delaware. Id. , p. 121; see Bankr. No. 05-10532KG.⁵

While in bankruptcy, The Glass Group sold some pieces of its property to Gerresheimer Glass Inc. and Kimble Glass Inc., and other pieces to a foreign company, and on September 7, 2006, Lot 1 to GGI, again formed for this purpose, for one dollar. T1, pp. 132-33; In re GGI Properties, LLC, 568 B.R. at 236. GGI is owned by in equal halves by the Leonard Nave Revocable Trust, trustee Leonard Nave, and the Kenneth C. Rock Revocable Trust, trustee Mr. Rock. Id. , p. 162 and Ex. D-16. It is not known who the beneficiaries of these trusts are.

At the time of GGIs purchase of Lot 1 in 2006, the property was assessed at $2,650,000, with $365,100 allocated to the land and $2,285,000 to the improvements.

Ex. P-20. In 2008, GGI successfully appealed that assessment, lowering the assessment to $1,676,400 as of October 1, 2007, reflecting the same $365,100 Value for the land while reducing the amount allocated to the improvements to $ 1,311,000. Id.

In 2009, GGI stopped paying its real estate taxes. T1, p. 137-38. In September 2009, it listed the property for sale for $1,649,000 but it did not sell. In re GGI Properties, LLC, 568 B.R. at 238. Mr. Rock testified that in 2009, GGI had terminated two leases on the property at the City's request due to its concern that they were creating a hazard to the community. T1, p. 171. However, an appraisal created for GGI in 2012 (the "Kay Appraisal") referenced a month-to-month lease existing in 2012. Id. , pp. 120, 172. In any case, after the leases were terminated, GGI did not re-let any of the premises. Id. p. 138. In August 2010, the City purchased the tax certificate for the unpaid taxes of 2009 and 2010. In re GGI Properties, LLC, 568 B.R. at 236.

In 2012, still not paying its taxes, GGI again appealed its assessment. T1, p. 83. The Kay Appraisal estimated the fair market value of the property from between $300,000 and $600,000. Id. , pp. 83-84; T2, p. 94. GGI and the City eventually settled on an assessed value of $600,000 as of October 1, 2011⁶ based on this appraisal, again reflecting an assessed value of $365,100 for the land, but now only $234,900 for the improvements. Id. , pp. 82-83, 94; T2, p. 94. The County Tax Board entered judgment on the settlement thereafter. Id. , p. 113. GGI argues that the property is worth "at least $600,000" based on this assessment remaining in place as of the Relevant Dates.

Despite the reduction in the assessment, GGI did not resume paying its taxes. The City filed a complaint for an in rem foreclosure on October 21, 2014 and obtained a final judgment on December 31, 2015, reflecting unpaid taxes at that time of $427,767.45. Ex. P-15; In re GGI Properties, LLC, 568 B.R. at 236.

After that complaint had been filed but before judgment on it was entered, GGI entered into a contract for sale of the property. On January 9, 2015, Community Development, LLC ("CDL"), a company created by Richard Brooks for this purpose, signed an agreement to purchase the property for $700,000. T2, p. 34; Ex. P-4 (the "CDL Agreement"). Mr. Brooks, whose former business was demolition and liquidation, testified that he anticipated several types of businesses operating at the property, including a truck and auto auction site; an R & D lab; residential boiler manufacturing; food court backed by a microbrewery; UPS distribution/warehousing and equipment surplus as needed by local food companies such as Campbell's Soup and Progresso; resurrection of Money Talks Magazine (for which he'd been a founder and publisher in New York). T2, pp. 21-23. He would also demolish one and a half buildings to harvest the steel, which he estimated was worth between $800,000 and $1 million, at only a $250,000 cost to demolish, Id. , p. 23.

The CDL Agreement set the purchase price at $700,000 with a down payment of $25,000 to be held in escrow with CDL's title insurance company. Ex. P-4, ¶¶ 2, 3(a). At closing, CDL would pay $275,000, plus, if it so chose, assumption of the property taxes outstanding at the time of closing, with a credit against the purchase price of the outstanding property taxes as of January 1, 2014.⁷ Id. , ¶ 3(b), (c). Any remainder owed would be included in a note and a mortgage on the property and paid semi-annually over three years with interest at 5 percent per annum. Id. , ¶ 3(d). The CDL Agreement disclosed existing liens and encumbrances as the property taxes and a mortgage in favor of Mr. Rock, which had been disclosed as in the amount of $332,429. Id. , ¶ 3(j); Ex, D-16. Despite this disclosure, the contract did not provide either for the assumption or the payment of the mortgage.

Closing on the CDL Agreement was to be held no later than 45 days from the execution of the agreement, "or at any other date as may be selected by the mutual agreement of Seller and Purchaser ...," id. , ¶ 3(k), though time was also made "of the essence." Id. , ¶ 4(d). Forty-five days would have been on or around February 23, 2015, but according to Mr. Brooks, the parties did not close on account of the "reluctance" of one of his funders regarding the back taxes. T2, pp. 15-16. Mr. Brooks had asked the City to allow him to pay the back taxes over 12 months, id. , p. 16, a request the City rejected via email on April 17, 2015. Id. , p. 25.

Nevertheless, on June 1, 2015, GGI and CDL amended the CDL Agreement. Ex. D-17 (the "First Amended CDL Agreement"). This amendment ratified...