Wright v. TryStone Capital Assets, LLC (In re Wright)
| Decision Date | 18 May 2023 |
| Docket Number | 20-12415-ABA,Adv. Proc. 20-1236-ABA |
| Parties | In Re: Leneto Runee Wright Debtor. v. Trystone Capital Assets, LLC, Defendant. Leneto Runee Wright, Plaintiff |
| Court | U.S. Bankruptcy Court — District of New Jersey |
Chapter 13
Hearing Date: May 9, 2023
The debtor seeks reconsideration of the court's opinion and order that held that the debtor was only entitled to avoid and recover the tax sale foreclosure to the extent of his exemption in the property pursuant to 11 U.S.C. § 522(h). Upon review of that decision and considering the additional arguments of counsel, the court finds that there is no basis to alter its prior decision; and the court will not compel the joinder of the chapter 13 trustee as an indispensable party; however, it will grant the debtor's alternative request for a stay pending appeal. Accordingly the Motion for Reconsideration will be granted in part and denied in part. As for the Motion for Relief from Stay re 344 Velde Avenue, Pennsauken, N.J. in the debtor's main case (Doc. No. 57), as the creditor is adequately protected and the court is granting a stay pending appeal, that Motion will be held in abeyance until a final determination of an appeal.
This matter before the court is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(F) and (H), and the court has jurisdiction pursuant to 28 U.S.C. § 1334, 28 U.S.C. § 157(a), and the Standing Order of Reference issued by the United States District Court for the District of New Jersey on July 23, 1984, as amended on September 18, 2012, referring all bankruptcy cases to the bankruptcy court. The following constitutes the court's findings of fact and conclusions of law as required by Federal Rule of Bankruptcy Procedure 7052.
The debtor, Leneto Runee Wright, filed an adversary proceeding against Trystone Capital Assets, LLC, alleging preferential and fraudulent transfer counts in connection with the prepetition tax sale certificate foreclosure of his residence. Doc. No. 1. Both parties filed motions for summary judgment. Doc. Nos. 48, 49. The court issued an opinion and order granting Trystone's Motion for Summary Judgment to dismiss the preference count, but denied both motions on the fraudulent transfer count without prejudice for Mr. Wright to submit evidence consistent with the law outlined in the opinion. Doc. Nos. 55, 56; In re Wright, 20-12415-ABA, 2022 WL 10192004 (Bankr. D.N.J. Oct. 17, 2022) (the "October 2022 Opinion"). After that submission, at a status conference on the matter held on January 24, 2023, Trystone advised the court that it would stipulate that the transfer could be avoided under section 548(a)(1)(B) as a constructive fraudulent conveyance, but that the parties disagreed as to what Mr. Wright could recover. Audio of 1/24/23 hearing at 10:32 a.m. Trystone then stated:
Id. The court then asked Mr. Wright's counsel if he agreed, and he stated that he did:
Id. at 10:32-10:33 a.m.[1] The court, as noted by Mr. Wright, Doc. No. 67-2, p. 2, then asked the parties to submit a briefing schedule as to that issue.
The court then set a briefing schedule regarding what the debtor could recover. See January 25, 2023 Minute Entry. That schedule included, [2] Id. Both parties submitted memorandum of law, and Mr. Wright submitted a response. Doc Nos. 61, 62, 63. The court determined it did not need to hear oral argument as the issues were only legal, not factual. On March 29, 2023, the court issued an opinion granting Mr. Wright's Motion for Summary Judgment and denying Trystone's Motion for Summary Judgment on Count I of the complaint, and avoiding the tax sale certificate foreclosure as a fraudulent transfer. In re Wright, 20-1236-ABA, 2023 WL 2697847 (Bankr. D.N.J. Mar. 29, 2023); Doc. No. 64 (the "March 2023 Opinion"). It further awarded the debtor the amount of his exemption: $25,150. Id.; Doc. No. 65. Mr. Wright then filed a Motion for Reconsideration. Trystone filed opposition. Doc. No. 68. Oral argument was held May 9, 2023 ("May 9 Hearing"). The record is closed. The matter is now ripe for consideration.
The debtor, Leneto Runee Wright, asks the court to reconsider its March 2023 Opinion to be in accord with the Third Circuit's decision in Hackler v. Arianna Holdings Co., LLC (In re Hackler), 938 F.3d 473 (3d Cir. 2019). Doc. No. 67-1. If the court does not amend the March 2023 Opinion, then Mr. Wright asks that the court stay the opinion and hold a hearing to establish a record for appeal. Id.[3] If the court declines this, then Mr. Wright asks that the court issue an order vacating the March 2023 Opinion, joining the chapter 13 trustee as a plaintiff, and proceeding to a decision regarding recovery under 11 U.S.C. § 550. Id. Failing reconsideration, Mr. Wright asks that the court stay its March 2023 Opinion pending appeal.
Mr. Wright brings his motion under Civil Rule 59, incorporated into adversary proceedings by Bankruptcy Rule 9023. Fed.R.Civ.P. 59; Fed.R.Bankr.P. 9023. Rule 59 permits a court to alter or amend a judgment "where the moving party shows that at least one of the following grounds is present: '(1) an intervening change in the controlling law; (2) the availability of new evidence that was not available when the court [made its initial decision]; or (3) the need to correct a clear error of law or fact or to prevent manifest injustice.'" In re Energy Future Holdings Corp., 904 F.3d 298, 311 (3d Cir. 2018) (quoting United States ex rel. Schumann v. Astrazeneca Pharm. L.P., 769 F.3d 837, 848-89 (3d Cir. 2014) (quoting Max's Seafood Café ex rel. Lou-Ann, Inc. v. Quinteros, 176 F.3d 669, 677 (3d Cir. 1999))). As Mr. Wright did not present an intervening change in the controlling law[4] or proffer new evidence[5], he must be asking the court to correct a clear error of law or fact or to prevent manifest injustice.[6]
The Bankruptcy Code sets forth several avenues to avoiding transfers: sections 544, 545, 547, 548, and 549 expressly name the trustee as the entity empowered to avoid transfers under those sections. 11 U.S.C. §§ 544(a), 545(a), 547(b), 548(a), 549(a) (collectively, the "Avoiding Powers"). Chapter 11 and 12 debtors-in-possession are authorized to exercise the rights and powers of a trustee, and therefore may exercise the Avoiding Powers. 11 U.S.C. §§ 1107(a), 1203. Section 522(h) provides that a debtor may avoid a transfer of property under sections 544, 545, 547, 548, and 549 if the transfer is avoidable by the trustee and the trustee does not attempt to avoid the transfer. 11 U.S.C. § 522(h). Since trustees and chapter 11 and 12 debtors already can assert avoiding powers "directly," section 522(h) is the means by which chapter 7 and 13 debtors can avoid transfers. The difference from what the court will then call "direct" standing is that section 522(h) limits the chapter 7 and 13 debtors to avoiding transfers of property "to the extent" of the debtor's exemption of that property. 11 U.S.C. § 522(h). See In re Wright, 2023 WL 2697847, at *2.
Mr. Wright now argues in his reconsideration motion that instead of addressing section 522(h)[7], he proceeded down another path-derivative standing-where he, as a chapter 13 debtor, asserted the trustee's "direct" avoiding power. He argues that the Third Circuit's decision in Hackler constitutes binding precedent that a chapter 13 debtor has standing to recover a home avoided as a preferential or fraudulent transfer pursuant to 11 U.S.C. § 550. Although he concedes that Hackler did not address derivative standing, Mr. Wright reasons that because courts must consider standing "as a threshold issue," In re Combustion Eng'g, Inc., 391 F.3d 190, 214 (3d Cir. 2004) (citing Bender v. Williamsport Area Sch. Dist., 475 U.S. 534, 546 n.8 (1986)), and the Hacklers had sought return of the property to pay the taxes back through a chapter 13 plan, that the Third Circuit must have determined that the Hacklers had derivative standing to achieve such relief. He argues, "Consequently, when the Third Circuit found that the debtor had the authority of the trustee to recover a home pursuant to section 550, it was an implicit and binding affirmation to all courts in the Third Circuit that any debtor can do the same." Doc. No. 67-2, p. 6.
Had the court held oral argument, Mr. Wright asserts that he would have pointed out the binding Hackler decision. He cites as additional support a Second Circuit decision that held that debtors have standing to recover a home fraudulently transferred by tax sale to pay the delinquent taxes through their chapter 13 plan, as proposed here by Mr. Wright. Gunsalus v. Cnty. of Ontario, 37 F.4th 859 (2d Cir. 2022).
The court disagrees with Mr. Wright's argument. First, Mr Wright did not assert derivative standing in his complaint or related pleadings. See Doc. Nos. 61 and 63. He asserted sections 547 and 548 as though he had the same direct right to assert these causes of action as the trustee, but without alleging...
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