Matter of Maimone
| Decision Date | 30 July 1984 |
| Docket Number | Adv. No. 82-0251-TS.,Bankruptcy No. 80-04406 |
| Parties | In the Matter of John C. MAIMONE and Raffaela Maimone, a/k/a Lena Maimone, Debtors. John C. MAIMONE and Raffaela Maimone, Plaintiffs, v. COLUMBIA SAVINGS BANK, Howell State Bank and Beinhauer Rouhana & Pike, P.A., Defendants. |
| Court | U.S. Bankruptcy Court — District of New Jersey |
Gross & Novak by Roger Steffens, East Brunswick, N.J., for trustee.
Markowitz & Zindler by Joseph Markowitz, Lawrenceville, N.J., for Citizens State Bank.
Kleinberg Moroney Masterson & Schachter, P.C. by Harold M. Cohen, Millburn, N.J., for debtors.
McDonough, Murray & Korn, P.C. by Jay Scott MacNeill, Westfield, N.J., for Beinhauer Rouhana & Pike, P.A.
Morrison & Morrison by Gloria B. Cherry, Hackensack, N.J., for Columbia Sav. & Loan Ass'n.
Riker Danzig, Scherer & Hyland by Karen Bezner, Morristown, N.J., for Howell State Bank.
This motion raises the important question, among others, of whether post-petition interest on a senior secured claim should be subordinated to the pre-petition claim of a junior secured creditor.
1. John C. Maimone and Raffaela Maimone, the Debtors, filed a petition for relief under Chapter 11 of the Bankruptcy Code on October 20, 1980.
2. Real property owned by the Debtors in issue in this action comprises approximately 148 acres located in Marlboro Township, Monmouth County, New Jersey and is identified as Lots 2, 3, 4 and 4Q, Block 46, on the official tax map of Marlboro Township. This will be referred to as the Marlboro property.
3. Four separate complaints have been filed in these proceedings relating to the Marlboro property, as follows.
a. On January 22, 1982, Citizens State Bank ("Citizens") filed a Complaint (Adversary No. 82-0128) to vacate automatic stay pursuant to section 362 of the Bankruptcy Code to allow Citizens to proceed with a Sheriff's Sale of the Marlboro property, pursuant to a judgment of foreclosure and writ of execution issued by the Superior Court of New Jersey, Chancery Division, Monmouth County. This action concluded on July 9, 1982 pursuant to a Consent Order denying the prayer of such Complaint and fixing the lien of the Bank, such lien to attach to the proceeds of sale of such real property.
b. On February 9, 1982, John C. Maimone, acting as Debtor in Possession, filed a Complaint (Adversary No. 82-0251) for the purpose of having alleged lien holders Columbia Savings & Loan Assoc. ("Columbia"), Howell State Bank ("Howell"), and Beinhauer, Rouhana & Pike ("the Partnership") prove the extent and validity of their alleged liens. Following appointment of the Trustee on September 22, 1982, the Trustee joined the Debtor as plaintiff.
c. On June 21, 1983, the Trustee filed an additional Complaint (Adversary No. 83-0861) for the purpose of having the United States of America, Internal Revenue Service, Fidelity Union Bank, and various lienholders and judgment creditors of the Debtors prove the extent and validity of their alleged liens. This court entered judgment fixing the liens of the United States of America, Internal Revenue Service on September 30, 1983 and of Fidelity Union Bank on September 8, 1983, and entered default judgments against all other defendants.
d. Finally, on February 14, 1984, the Trustee filed yet another Complaint (Adversary No. 84-0073) for judgment determining the extent and validity of alleged liens, specifically, the alleged first mortgage of Columbia and the alleged third mortgage, assigned to William J. Rouhana, Jr.
4. None of the mortgagees other than Citizens State Bank ever filed Complaints for relief from the stay with respect to the Marlboro property.
5. The encumbrances on the Marlboro property, in order of priority, are as follows:
a. Columbia is the holder of the first mortgage, recorded in the Monmouth County Clerk's Office on November 1, 1976. It is owed a principal balance of $295,454.28, an escrow balance of $1,016.67, and 10% simple interest which computes to a per diem rate of $81.22 from April 30, 1979 to the present, and monthly late charges of $133.48 from July 1, 1979 to the present. The monthly late charge is equivalent to 0.54% interest per annum. At this rate, the amount due on October 20, 1980, the date the petition was filed, would have been $342,384.21;1 additional interest and penalties from then until January 23, 1984 were fixed by order of court entered May 3, 1984 at $96,229.99;2 and additional interest and penalties from then until May 3, 1984 equal $8,737.143 for a total debt of $447,351.34 as of May 3, 1984.
b. Citizens is the holder of a second mortgage on the Marlboro property recorded on April 18, 1979 in the Office of the Clerk of Monmouth County. A Consent Order entered by this Court on July 9, 1982 fixed the amount due under this mortgage at $225,483.33, including principal of $150,000, taxed costs of foreclosure action in the sum of $1,983.27, and interest from May 1, 1980 to June 22, 1982 in the sum of $75,483.33, with a per diem charge thereafter of $81.25, representing 19.77% per annum of the principal balance. Citizens does not contend that this order is binding. See Ordin, Finality of Order of Bankruptcy Court, 54 Am.Bankr. L.J. 173 (1980).
Citizens State Bank obtained a judgment in foreclosure against real property on May 15, 1980, five months prior to the Debtors' petition, which had fixed the obligation at $155,179.47 plus taxed costs of foreclosure of $1,983.27 "together with lawful interest from May 1, 1980." The legal rate of postjudgment interest at that time was 8% per annum, or $34.45 per diem, N.J.C.P.R. 4:42-11(a) (Gann 1981 ed.); the interest rate was raised to 12% per annum or $51.67 per diem on September 14, 1981, N.J.C.P.R. 4:42-11(a) (Gann 1982 ed.). Calculated at this rate, the amount due on October 20, 1980, the date the petition was filed, would have been the sum of $163,122.59,4 and the additional interest from then until May 1, 1984, the approximate date the Trustee paid Citizens for its pre-petition claim, would have been the sum of $60,937.25,5 for a total of $224,059.84.
c. Howell State Bank held a third mortgage on the Marlboro property, recorded on June 12, 1979, which secured a principal obligation of $75,000 plus interest allegedly totaling $33,021.06 as of March 4, 1982 and per diem interest of $46.20 thereafter. This represents an interest rate of approximately 22.5% per annum. Howell assigned this mortgage to William J. Rouhana, Jr., a member of the Partnership, on November 15, 1983.
d. The Partnership holds the fourth mortgage on the Marlboro property recorded on June 28, 1979 which secures a principal obligation of $259,240.52.
e. In addition, Fidelity Union Bank holds a judgment lien entered on August 6, 1979, the amount of which was fixed at $458,639.17, in a consent order entered by the Court, as of August 15, 1983; the United States of America, Internal Revenue Service holds tax liens totaling $70,820.96, its first Notice of Tax Lien having been filed on August 20, 1979; and Howell State Bank holds a fifth mortgage in the principal amount of $25,000 recorded on February 27, 1980 in the Office of the Clerk of Monmouth County.
6. In Adversary Complaint No. 82-0251, in response to the Partnership's claim to the fourth mortgage on the Marlboro property, the Debtor-Plaintiff filed an amendment to its Complaint (styled as a "counterclaim" against the Partnership) alleging that the Partnership had obtained the mortgage and the accompanying $259,240.52 promissory note from him under duress. Debtor contends that while acting as the Debtor's legal counsel, the Partnership, a now-dissolved law firm, had allegedly threatened to obstruct an impending real estate closing unless the Debtors would execute a mortgage to the Partnership, ostensibly as security for payment of the Partnership's legal fees. This claim remains unresolved.
7. On September 30, 1982, the Partnership filed the present Motion to Abate Post-Petition Interest as to the first and second mortgages of Columbia and Citizens, primarily for the reason that it is inequitable to allow interest on the earlier mortgages to consume the entire value of the mortgaged property. The Partnership has also sought to compel Citizens to seek payment from sale of a liquor license it allegedly holds as collateral, prior to seeking payment from the Marlboro property, pursuant to the doctrine of marshaling of assets. Citizens refutes this on the ground that the liquor license is owned by parties other than the debtors. The license was held in the name of LaCollina, Inc., a corporation of which the debtors were at one time shareholders. The debtors, however, were not the sole shareholders of LaCollina and do not have an interest in the license.
8. On February 28, 1983, this Court entered a Consent Judgment permitting the Trustee to sell the Marlboro property free and clear of all liens, with any valid liens to attach to the proceeds of the sale, subject to administrative expenses to be fixed by the Court.
9. On April 11, 1983, the Trustee held an auction and, over the objections of several lienholders, confirmed the highest bid of $526,000.
10. On May 2, 1983, the Partnership filed a Motion to set aside the Trustee's sale. Citizens filed a certification in support of this motion on May 10, 1983.
11. On July 6, 1983, the Court entered an Order Vacating Sale and directed that the Trustee conduct another sale of the real property at public auction, after Beinhauer had guaranteed a minimum bid of $600,000.
12. At the resale held on November 18, 1983, the Marlboro property was sold for $820,000 and the sale was confirmed by the Trustee without objections by any party. The Trustee paid taxes in the amount of $106,685.18, auctioneer fees of $16,913.50, an advertising agency fee of $5,869.40, title insurance fees of $213.70, and property insurance fees of $2,894.00, leaving on...
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