Polanco v. City of Camden (In re Polanco)

• Decision Date: 24 November 2020
• Docket Number: Adv. Pro. No. 20-01370,Case No. 19-31409 (JNP)
• Citation: 622 B.R. 631
• Parties: IN RE: Felix POLANCO, Debtor. Felix Polanco, Plaintiff, v. City of Camden, Defendant.
• Court: U.S. Bankruptcy Court — District of New Jersey

622 B.R. 631

IN RE: Felix POLANCO, Debtor.

Felix Polanco, Plaintiff,

v.City of Camden, Defendant.

Case No. 19-31409 (JNP)

Adv. Pro. No. 20-01370

United States Bankruptcy Court, D. New Jersey.

Signed November 24, 2020

Charles M. Izzo, Law Office of Charles M. Izzo, Camden, NJ, for Debtor

MEMORANDUM DECISION

JERROLD N. POSLUSNY, JR., U.S. Bankruptcy Judge

Felix Polanco (the "Debtor") filed an adversary complaint (the "Adversary Complaint"), bringing claims against the City of Camden ("Camden"), pursuant to sections 547 and 548 of Title 11 of the United States Code (the "Bankruptcy Code"). Dkt. No. 1. The Debtor seeks to avoid the transfers of seven properties (the "Properties") to Camden completed pursuant to a tax foreclosure judgment.¹ The Debtor has filed a motion for summary judgment (the "Motion") on both counts of the Adversary Complaint, and Camden has filed an opposition to the Motion which included a cross-motion (the "Cross-Motion") for summary judgment on the preference count only.

The primary issue in this matter is whether filing a lis pendens related to a tax foreclosure action prior to the preference period, prevents a trustee from prevailing on a preference action when title to the property is transferred within the preference period. See 11 U.S.C. § 547. Because the Court finds that the transfer relates back to the filing of the lis pendens, the Debtor cannot prevail on his preference action. For that reason, and other reasons discussed below, the Court will deny the Motion and grant the Cross-Motion as to the preference count. The Court will also deny the Motion with respect to the fraudulent transfer count because there is a material dispute related to the values of the Properties.

Jurisdiction

This Court has jurisdiction under 28 U.S.C. §§ 157(b)(1) and 1334(b). Venue is proper in this Court under 28 U.S.C. § 1410. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (E), (F) and (H).

Background

On June 20, 2019,² Camden filed a complaint under New Jersey's in rem tax foreclosure statute ("Foreclosure Complaint"), see N.J.S.A. 54:5-104.29, et. seq., seeking to foreclose on twenty-three properties, only some of which were owned by the Debtor, the remaining properties were owned by other defendants (the "Non-Debtors"). The Debtor was named as a defendant having an interest in twelve of those properties, including the seven Properties at issue in this adversary proceeding.³ Dkt. No. 5. Camden filed a lis pendens in accordance with New Jersey law by filing a copy of the Foreclosure Complaint with the Camden County Recording office on June 29, 2019. Id. Final judgment was entered on November 8, 2019 (the "Foreclosure Judgment") and filed with the county clerk on November 22, 2019. Dkt. No, 1. Upon the entry of the Foreclosure Judgment, title to the Properties vested with Camden. See In re Berley Assocs., Ltd., 492 B.R. 433, 441 (Bankr. D.N.J. 2013) (A New Jersey a tax sale certificate foreclosure is a "strict foreclosure," resulting in a straight transfer of title.)

The Debtor filed a petition for relief under Chapter 13 of the Bankruptcy Code on November 13, 2019 (the "Petition Date"). Dkt. No. 1. As such, August 15, 2019 was the start of the 90-day preference lookback period (the "Preference Period"). 11 U.S.C. § 547(b)(4)(A). Shortly after the Petition Date the Debtor filed the Adversary Complaint seeking to avoid seven of the transfers pursuant to sections 547(b) and 548(a) of the Bankruptcy Code. Dkt. No. 1. The Adversary Complaint includes a chart (the "Chart") listing the alleged value and tax lien debt for each property.⁴ Id. Camden's answer admits most of the facts laid out above, but not the alleged values of the Properties, the amount of tax lien debt, or the date of transfer. Dkt. No. 3.

The Motion argues that the Debtor has established all the elements necessary for summary judgment under both sections 547 and 548 of the Bankruptcy Code. Dkt. No. 4. The factual support for the Motion rests solely on the allegations made in the Adversary Complaint. Id. Although listing the values and claims for each individual property, the Motion treats the Foreclosure Judgment as a single transfer and argues that the total value of the Properties exceeds the tax debt owed on the Properties, making this a transfer for less than reasonably equivalent value. Id.

The Cross-Motion seeks summary judgment on the preference claim only and opposes the Motion related to the fraudulent transfer claim. Dkt. No. 5. The Cross-Motion argues several material facts are in dispute, including the value of the Properties, and the Debtor's insolvency at the time of the transfers. In support of its request for summary judgment, the Cross-Motion argues that, because Camden filed its lis pendens prior to the Preference Period, the Debtor cannot prevail on the preference claim. Id. Regarding the claim for fraudulent transfer, the Cross-Motion not only disputes the values of the Properties, but also argues the Debtor is improperly treating the Foreclosure Judgment as a single transfer of all the Properties and attempting to compare the total tax debt owed against all Properties to the total value of all the Properties. Camden argues each transfer must be considered individually to determine whether the tax debt against each property was reasonably equivalent to the value of that particular property foreclosed upon.

Both parties appeared at the Hearing and reiterated their arguments. The Court asked the parties to brief the issue of whether there was a single transfer of the Properties, or multiple separate transfers. Camden filed an additional brief, but the Debtor did not.

Discussion

A. Summary Judgment Standard

The Court is asked to consider cross motions for summary judgment. Under Rule 56(a), made applicable by Bankruptcy Rule 7056, summary judgment is appropriate where "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). Rule 56 requires a court enter summary judgment if a party is unable to establish the existence of an element essential to that party's case as to which that party will bear the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). "In deciding a motion for summary judgment, the judge's function is not to weigh the evidence and determine the truth of the matter, but rather to determine if there is a genuine issue for trial." Josey v. John R. Hollingsworth Corp., 996 F.2d 632, 637 (3d Cir. 1993). In determining whether a factual dispute warranting trial exists, the court must view the record evidence and the summary judgment submissions in the light most favorable to the non-movant. In re Moran-Hernandez, 544 B.R. 796, 800 (Bankr. D.N.J. 2016) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ). A material fact is one that "might affect the outcome of the suit under the governing law." Id. "A dispute is genuine when it is ‘triable,’ that is, when reasonable minds could disagree on the result." Id. (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) ).

Once the moving party establishes the absence of a genuine dispute of material fact the burden shifts to the non-moving party. A party may not defeat a motion for summary judgment unless it sets forth specific facts, in a form that "would be admissible in evidence," establishing the existence of a genuine dispute of material fact for trial. Id. (citing Fed. R. Civ. P. 56(e) (providing that in response to a summary judgment motion the "adverse party may not rest upon the mere allegations or denials of [its] pleading, but the adverse party's response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine [dispute] for trial")); see also Fireman's Ins. Co. of Newark. N.J. v. DuFresne, 676 F.2d 965, 969 (3d Cir. 1982).

The Motion seeks summary judgment under sections 547(b) and 548(a) of the Bankruptcy Code. The Cross-Motion seeks summary judgment exclusively on whether the Foreclosure Judgment was a preferential transfer under section 547 of the Bankruptcy Code and argues that the Debtor is not entitled to summary judgment under section 548 of the Bankruptcy Code. As such, the Court first considers the elements of the Debtor's preference claim to determine whether either party is entitled to judgment as a matter of law.

A. Preference Action

Pursuant to section 547(b) of the Bankruptcy Code, a trustee, or here, the Debtor,⁵ may avoid any transfer of an interest of the debtor in property that: (1) was to or for the benefit of a creditor; (2) was on account of an antecedent debt; (3) was made while the debtor was insolvent;⁶ (4) was made within 90-days before the Petition Date (or one year for an insider); and (5) enabled the creditor to receive more than it would have under a Chapter 7 liquidation. See 11 U.S.C. § 547(b). The Debtor bears the burden of proof for each of these elements. See In re Bayonne Med. Ctr., 429 B.R. 152, 186 (Bankr. D.N.J. 2010). As noted above, if the Debtor is unable to establish one of these elements, the Court must grant summary judgment in favor of Camden. See Celotex, 477 U.S. at 322, 106 S.Ct. 2548.

Beginning with the Motion, there are several material facts in dispute, including the value of the Properties. The Chart lists the Debtor's alleged values for the Properties, purportedly based on a comparative market analysis but, as noted, Camden disputes these valuations and has taken steps to obtain its own appraisals. Until those values are determined, the Debtor cannot establish that Camden received more than it would have under a Chapter 7 liquidation, as required by section 547(b)(5). Moreover, as discussed in detail below, the Debtor cannot establish the transfers occurred within the Preference...