In re Alejandro

• Citation: 642 B.R. 234
• Decision Date: 03 August 2022
• Docket Number: Case No. 22-12663 (MBK)
• Parties: IN RE: Yvette ALEJANDRO, Debtor.
• Court: U.S. Bankruptcy Court — District of New Jersey

642 B.R. 234

IN RE: Yvette ALEJANDRO, Debtor.

Case No. 22-12663 (MBK)

United States Bankruptcy Court, D. New Jersey.

Hearing Date: July 12, 2022

Signed August 3, 2022

John M. McDonnell, Esq., McDonnell Crowley, LLC, 115 Maple Avenue, Red Bank, NJ 07701, Counsel for Debtor.

Joseph M. Casello, Esq., Collins, Vella & Casello, LLC, 2317 Highway 34, Suite 1A, Manasquan, NJ 08736, Counsel for Cedar Glen Lakes, Inc.

MEMORANDUM OPINION

Michael B. Kaplan, Chief Judge

This matter comes before the Court on a motion ("Motion") (ECF No. 13) filed by Cedar Glen Lakes, Inc. ("Cedar Glen"), seeking relief from the automatic stay to proceed with removal proceedings in the state court. Yvette Alejandro ("Debtor") opposes the Motion. The Court has fully considered the submissions of the parties and the arguments set forth on the record July 12, 2022 hearing. For the reasons set forth below, the Court GRANTS the Motion.

I. Background

Cedar Glen is a housing cooperative under New Jersey law. Prior to filing for bankruptcy, Debtor was a member of the cooperative and a shareholder in Cedar Glen—specifically, she was the record owner of the stock and/or membership certificate and occupancy agreement ("Occupancy Agreement") for a unit known as 6A Kentucky Way in Whiting, New Jersey (the "Property"). At some point in 2019, the Debtor's daughter, boyfriend, and three children moved into the Property with Debtor.¹ Cedar Glen notified Debtor that she was in violation of her Occupancy Agreement by having her family live with her and Cedar Glen instructed that they must vacate the Property. After being made aware of the circumstances surrounding Debtor's family's living situation, the Board of Directors of Cedar Glen (the "Board") allowed a grace period of five weeks before requiring the family to vacate the unit. See Oct. 28, 2019 Letter — Exhibit C to Debtor's Br. In Opp'n 14, ECF No. 19-1. When the family did not move out by the December 3, 2019 deadline, the Board began imposing daily fines. After several months, the Board increased the daily fine. See March 10, 2020 Letter — Exhibit D to Debtor's Br. In Opp'n 16, ECF No. 19-1. The family did not leave the apartment until approximately July 2020. By that time, Debtor had racked up tens of thousands of dollars in fines, which went unpaid. Consistent with the Occupancy Agreement, the Board provided notice before taking enforcement action and provided Debtor with an opportunity to pay all sums due. See Resolution — Exhibit B to Cert. in Support of Motion 15, ECF No. 13-1 (stating that Debtor was given "appropriate violation notice ... pursuant to the By-Laws and Occupancy Agreement ... via Certified Mail and Regular Mail"). Debtor did not pay the fines. Accordingly, the Board issued a resolution (the "Resolution") cancelling her shares in the association on November 30, 2020.

Cedar Glen then filed a complaint in state court, seeking to convert its assessment into a judgment and extinguish the Debtor's remaining rights. The state court issued a final judgment against the Debtor on November 19, 2021 ("Superior Court Judgment"), in the amount of $34,159, plus attorney's fees and costs in the amount of $18,682. In January 2022, the state court issued a Writ of Possession requiring Debtor to vacate the Property by April 7, 2022. On April 1, 2022—days before the Writ of Possession deadline—the Debtor filed for bankruptcy under Chapter 13. Cedar Glen then filed the instant Motion and requests stay relief so that it can pursue its rights under applicable state law with respect to the Property.

II. Discussion

Cedar Glen's position is straightforward. It contends that Debtor's interest in her shares were cancelled when the Board issued its Resolution in November, 2020. Moreover, under the Occupancy Agreement, shareholders expressly waive any and all rights of redemption. Therefore, Cedar Glen asserts that at the time she filed her bankruptcy in April, 2021, the Debtor did not retain any rights either under the Occupancy Agreement or as a shareholder. In opposition, Debtor argues that the provision of the Occupancy Agreement which waives the right of redemption is void as being contrary to public policy. Debtor also asserts that her stock interests in the cooperative were not extinguished pursuant to the November 19, 2021 Judgement and can be treated through the bankruptcy plan.

The outcome of this case turns on whether, at the time she filed for bankruptcy, the Debtor had any interests or rights in the cooperative corporation. The Court begins with a general overview of the nature of a shareholder's interest in a cooperative corporation.

A. Cooperative Corporations in New Jersey

New Jersey state courts have explained that "a cooperative apartment association is a unique form of property ownership which does not fit into common law classifications." Plaza Rd. Co-op., Inc. v. Finn , 201 N.J. Super. 174, 180, 492 A.2d 1072, 1077 (App. Div. 1985). "Legal title to the real and personal property of a cooperative complex or project is vested in a cooperative corporation, and individuals purchase shares of stock enabling them to occupy a dwelling within the cooperative project under a proprietary lease." Presten v. Sailer , 225 N.J. Super. 178, 184–85, 542 A.2d 7, 10 (App. Div. 1988) (citations and footnotes omitted). Accordingly, a member of a cooperative has two different interests: (1) a personalty interest in the shares of stock that the member holds in the corporation; and (2) a realty interest in the proprietary lease or occupancy agreement. See In re Robertson , 147 B.R. 358 (Bankr. D.N.J. 1992). New Jersey state courts have explained that

These two property interests are intertwined, and the possession of one without the other is virtually worthless. In fact, the two interests are inseparable. A proprietary lease does not by itself create a possessory right to a cooperative apartment, but rather sets forth the rules by which an occupant must abide. Likewise, the mere ownership of shares in a cooperative association does not grant the shareholder possession of a cooperative apartment.

Id. at 368.

B. Debtor's Interest in Cedar Glen

When Debtor purchased her shares in the Cedar Glen Cooperative and signed the Occupancy Agreement, she became vested with essentially the same pair of property interests detailed in the Robertson case; namely: (1) a property interest in the form of her right to retain her shares in the cooperative corporation; and (2) a realty interest in the form of her right to occupy the unit dictated by the Occupancy Agreement. See McDaniel v. Metropolis Towers Apartment Corp. , No. 01-CIV-4138(WGB), 2002 WL 1065874, at *5 (D.N.J. Feb. 26, 2002). Therefore, in considering Cedar Glen's Motion—i.e., in deciding whether to lift the stay—this Court must consider both the Debtor's property and realty interests. See id.

Debtor concedes that her realty interest—her right to occupy the unit under the Occupancy Agreement—was terminated prepetition by virtue of the Superior Court Judgment, dated November 19, 2021. See Debtor's Br. In Opp'n 7, ECF No. 19 ("Here, as in Robertson , Debtor's rights under the Occupancy Agreement were terminated by the Superior Court Judgment ...."). However, Debtor maintains that her property interests persist because her rights to her "shares of the cooperative were not terminated, cancelled or transferred by way of the Superior Court Judgment." Id. In contrast, Cedar Glen asserts that Debtor's shares were cancelled in November, 2020 by virtue of the Resolution. For the reasons that follow, the Court agrees with Cedar Glen.

1. Debtor's Property Interest in the Shares of Cedar Glen

In Debtor's opposition, she directs the Court's attention to the Superior Court Judgment, which Debtor contends did not terminate her shareholder interest, or award title, or otherwise authorize Cedar Glen to cancel, reissue, rename, or transfer Debtor's shares. However, Debtor's argument misses the point, and she improperly focuses on the Superior Court Judgment. The controlling document on the issue of Debtor's shares is the Resolution. Indeed, the Resolution states that "the Stock Certificate belonging to [Debtor] ... shall be and hereby is revoked." And, "the Stock Certificate of [Debtor] shall be and hereby is cancelled, and any and all rights and privileges appurtenant thereto shall be and hereby are terminated." Resolution — Exhibit B to Cert. in Support of Motion 15, ECF No. 13-1. Under the Occupancy Agreement, Cedar Glen had specific authority to so cancel Debtor's shares in the event of default.

In the event a Member is determined to be in default of this Occupancy Agreement as provided in Article 15 hereof, the Corporation may, after 30 days prior written notice to the Member or his legal representative, declare the share of corporate stock held by the Member to be void and terminate this Occupancy Agreement , the corporation shall proceed to offer to sell the stock as provided in paragraph (E) [sic] of this Article.

Occupancy Agreement, Article 12(E) — Exhibit A to Cert. in Support of Motion 9, ECF No. 13-1 (emphasis added). The state court had no reason to direct the termination of Debtor's shareholder interest, award title, or authorize Cedar Glen to cancel, reissue, or transfer Debtor's other shares; undisputedly, the Resolution had done so prior to the state court action.

Cedar Glen submits—and Debtor does not dispute—that Debtor was in default. As a result, the Board enforced the terms of the parties’ agreement and afforded Debtor appropriate notice and an opportunity to cure her default before ultimately revoking her shares. Again, the Debtor's argument that the Superior Court Judgment did not "independently cancel [her] shares of stock in favor of Cedar Glen" misses the mark. Debtor's shares were already cancelled, revoked, or otherwise declared void by virtue of the Resolution dated November 30, 2020. Debtor's property interest in the cooperative terminated as of that date and Debtor...