Matter of Great Northern Forest Products, Inc.
| Decision Date | 20 December 1991 |
| Docket Number | Bankruptcy No. GK 89-04489,Adv. No. 90-8250. |
| Citation | 135 BR 46 |
| Parties | In the Matter of GREAT NORTHERN FOREST PRODUCTS, INC., Debtor. James W. BOYD, Trustee, Plaintiff, v. DOCK'S CORNER ASSOCIATES, a New Jersey Limited Partnership, Defendant and Counter-Plaintiff and Third-Party Plaintiff, v. James W. BOYD, Trustee, Counter-Defendant, and Old Kent Bank-Southwest, Third-Party Defendant. |
| Court | U.S. Bankruptcy Court — Western District of Michigan |
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James Vantine, Kalamazoo, Mich., for trustee James W. Boyd.
Richard Shapiro and James A. Engbers, Grand Rapids, Mich., for Dock's Corner Associates.
Scott Hogan, Grand Rapids, Mich., for Old Kent Bank-Southwest.
The cross motions for summary judgment in this adversary proceeding raise four major issues: First, does a landlord hold a valid lien on personal property stored on its real property and, if so, is the lien avoidable? Second, is the Debtor responsible to remedy alleged pollution on the landlord's real property under New Jersey and federal environmental laws? Third, are any of the landlord's asserted unpaid rents, use and possession charges, or environmental clean up costs entitled to administrative priority pursuant to 11 U.S.C. §§ 503(b)(1)(A) and 507(a)(1)?1 Fourth, may any rents, use and possession charges, or environmental clean up costs be recovered by the landlord from the proceeds of the sale of a secured creditor's personal property collateral pursuant to § 506(c)?
Great Northern Forest Products, Inc. (herein "Debtor") filed its petition for relief under chapter 11 of the Bankruptcy Code on December 6, 1989. The proceeding was soon converted to a chapter 7 case on December 15, 1989. Gerald L. Barefield (herein "Trustee") was appointed as the chapter 7 Trustee on the conversion date.2
Old Kent Bank-Southwest (herein "Bank") filed its Proof of Claim on December 20, 1989, in the amount of $2,825,033.10. The Bank's claim is secured by a perfected security interest in the Debtor's assets including machinery, equipment, inventory and other personalty. The Trustee has not objected to the amount of the Bank's claim or the validity or perfection of its security interest. The Bank holds no mortgage on the Debtor's or Dock's Corner Associates' (herein "Dock's Corner") real property.
On January 31, 1990, counsel for the Trustee received a letter from counsel for Dock's Corner indicating it would assert a landlord's lien on all items of equipment, inventory, and personal property located at 167-169 Dock's Corner Road, South Brunswick, Middlesex County, New Jersey (herein the "Premises"). By correspondence dated February 2 and 12, 1990, counsel for the Trustee requested return from Dock's Corner of the personal property that was the subject of the alleged landlord's lien. Dock's Corner did not respond to these letters.
On April 23, 1990, after notice and a hearing, this court entered an order approving the sale of certain of the Debtor's personal property assets. The sale included treated wood inventory (Lot 3) located at the Premises. The wood inventory was sold to Sherwood Lumber Corporation of Islandic, New York, for the sum of $185 per 1000 board feet. The proceeds from Lot 3 totaled $138,409.50.
The sale order provided: (1) the property was sold free and clear of all liens or encumbrances with claims attaching to the proceeds in the same order of rank, validity, and priority as existed before the sale, (2) expenses of custody, protection and insurance of the property sold, including legal expenses of the Trustee, would be charged against the sale proceeds under § 506(c), and (3) the proceeds from the sale would be escrowed until the validity of Dock's Corner's asserted landlord's lien was determined by the court. The sale order was not appealed by any party in interest.
On May 15, 1990, the Trustee abandoned all other personal property of the Debtor located at the Premises. No objection to this abandonment was filed by any party in interest. The abandonment order became final on June 17, 1990. No appeal was filed with regard to the abandonment order.
On June 18, 1990, the Trustee filed a Complaint for Invalidation of Alleged Landlord's Lien against Dock's Corner (herein "Trustee's Complaint"). The Trustee requests the court to determine the Debtor was not a tenant of Dock's Corner and therefore, under New Jersey law, a lien may not attach against the Debtor's personal property. Alternatively, to the extent the Debtor owed Dock's Corner any obligation which might be subject to a landlord's lien, it is requested that any such lien be deemed avoided pursuant to § 545(3) and (4).
On September 20, 1990, Dock's Corner filed its Answer, Counterclaim, and Third Party Complaint to the Trustee's Complaint (herein "Dock's Corner's Answer", "Counterclaim" or "Third Party Complaint"). Dock's Corner admitted all factual allegations alleged in the Trustee's Complaint except it denied that its asserted landlord's lien was invalid or voidable. In its Counterclaim and Third Party Complaint, Dock's Corner asserts: (1) it has a statutory lien for unpaid rent for a period of not more than six months; (2) the Debtor, as tenant, has a responsibility to clean up the Premises under the New Jersey Environmental Cleanup Responsibility Act and other New Jersey and federal environmental statutes; (3) that any environmental clean up costs are entitled to administrative expense priority and must be paid by the Debtor's estate; and (4) that all unpaid rent subject to the landlord's lien and all asserted clean up costs may be recovered from the sale proceeds of the Bank's personal property collateral under § 506(c).
On October 20, 1990, the Trustee answered the Counterclaim (herein "Trustee's Answer"). The Trustee asserts three affirmative defenses. First, the Debtor was not a party to any written or oral lease with Dock's Corner. Since Debtor did not rent the Premises and is not a lessee pursuant to a lease, Dock's Corner is not entitled to a statutory lien for unpaid rent. Even assuming there is a lease agreement between the Debtor and Dock's Corner, any statutory lien is avoidable pursuant to § 545. Second, the Trustee is not responsible for compliance with the environmental statutes and any potential costs for compliance do not take priority over the Bank's secured claim. Third, Dock's Corner does not qualify for administrative priority and its requested surcharge pursuant to § 506(c) is not proper.3
On October 26, 1990, the Bank answered the Third Party Complaint (herein "Bank's Answer"). The Bank's affirmative defenses are the same as the Trustee except the Bank asserts that Dock's Corner lacks standing to bring an action pursuant to § 506(c) and, even assuming standing exists, Dock's Corner has failed to state a valid claim under the statute.
The court has jurisdiction over this adversary proceeding. 28 U.S.C. § 1334. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (B), (K), and (O), and the court has the authority to enter a final judgment or order.4
The facts in this case are relatively simple. Based upon the court's review of the record, the following facts are uncontested.5 The Debtor is a Delaware corporation with its principal place of business in Michigan. Arnox is also a Delaware corporation and owns 100% of the stock of the Debtor. (Trustee's Complaint at 2; Dock's Corner's Answer at 2.) Dock's Corner is a New Jersey limited partnership and the owner of industrial property located at 167-169 Dock's Corner Road, South Brunswick, Middlesex County, New Jersey. (Dock's Corner's Answer at 4; Trustee's Complaint at 2.) Arnox leased a portion of the Premises from Dock's Corner pursuant to a written lease.6 (Trustee's Complaint at 2; Dock's Corner's Answer at 2.)
Although no written or oral lease existed between Dock's Corner and the Debtor, and no written sublease or assignment existed between Arnox and the Debtor, Arnox permitted the Debtor to use a portion of the Premises.7 (Trustee's Complaint at 2; Dock's Corner's Answer at 2; Affidavit of David R. Biek dated March 28, 1991.) Both the Debtor and Arnox were in the business of treating lumber and used the Premises for this purpose.8 (Counterclaim at 6; Trustee's Answer at 3; Bank's Answer at 3.) Dock's Corner asserts that the Debtor and/or Arnox caused environmental damage to the Premises through their process of treating wood.
On April 23, 1990, the court confirmed a sale of virtually all of the Debtor's assets, including certain treated wood inventory, located on the Premises. The Bank holds valid and perfected security interests in all equipment, inventory, and personal property of the Debtor which was stored at the Premises, including the treated wood inventory sold on April 23, 1990. (Third Party Complaint at 6; Trustee's Answer at 3; Bank's Answer at 6; Affidavit of Michael Stolz dated April 4, 1991.) The court ordered the Trustee to hold the proceeds from the sale of the wood inventory until the validity of the alleged landlord's lien was determined. (Exhibit 2 of Brief in Support of Old Kent Bank-Southwest's and the Trustee's Motion for Summary Judgment.) Subsequently, on May 15, 1990, the Trustee abandoned the remaining assets located upon the Premises per order of this court. (Exhibit 3 of Brief in Support of Old Kent Bank-Southwest's and the Trustee's Motion for Summary Judgment.)
In considering the cross motions for summary judgment, this court is guided by the standards set forth by Judge Gibson in FMB-First Michigan Bank v. Van Rhee, 681 F.Supp. 1264, 1266 (W.D.Mich.1987), wherein it is stated:
Summary judgment is appropriate only where no genuine issue of material fact remains to...
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