In re Princeton Office Park, L.P.

504 B.R. 382

In re: Princeton Office Park, L.P., Reorganized Debtor.

Case No.: 08–27149 (MBK)

United States Bankruptcy Court, D. New Jersey.

Filed January 31, 2014

Morris S. Bauer, Esq., Norris, McLaughlin & Marcus, P.A., 721 Route 202–206, P.O. Box 5933, Bridgewater, NJ 08807–5933, Lawrence S. Berger, Esq., Berger & Bornstein, P.A., 237 South Street, P.O. Box 2049, Morristown, NJ 07962–2049, Co–Counsel for Princeton Office Park, L.P.

Stephen B. McNally, Esq., McNally & Associates, L.L.C., 93 Main Street, Suite 201, Newtown, NJ 07860, Counsel for Plymouth Park Tax Services, LLC.

Chapter 11

MEMORANDUM DECISION

MICHAEL B. KAPLAN, U.S.B.J.

I. INTRODUCTION

As more fully detailed below, this contested matter comes before the Court upon Princeton Office Park, L.P.'s (“Reorganized Debtor”) request for reconsideration of Plymouth Park Tax Services, LLC's (“Plymouth”) allowed claim, which claim relates to Plymouth's purchase of a tax sale certificate on property owned by the Reorganized Debtor. In short, the Reorganized Debtor seeks (i) disallowance of Plymouth's claim based upon provisions in New Jersey's Tax Sale Law and, more specifically, forfeiture of the tax sale certificate by Plymouth pursuant to N.J.S.A. 54:5–63.1, and (ii) to void Plymouth's lien pursuant to 11 U.S.C. § 506(d).

The Court conducted a lengthy trial on this matter, during which time eight witnesses were presented by the parties.¹ After careful consideration of the evidence and arguments adduced at trial, and upon review of the submissions of the parties, which include post-trial submissions, the Court will sustain the objection of the Reorganized Debtor to Plymouth's claim. The Court finds that Plymouth knowingly charged the Reorganized Debtor improper amounts, by way of Plymouth's proofs of claim, in contravention of N.J.S.A. 54:5–63.1. Accordingly, the tax sale certificate held by Plymouth is subject to forfeiture, and its lien on the Reorganized Debtor's property is void pursuant to 11 U.S.C. § 506(d).

II. JURISDICTION AND VENUE

The Court has jurisdiction over this contested matter under 28 U.S.C. §§ 1334(a) and 157(a) and the Standing Order of the United States District Court dated July 10, 1984, as amended October 17, 2013, referring all bankruptcy cases to the bankruptcy court. This matter is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(B). Venue is proper in this Court pursuant to 28 U.S.C. § 1408. The statutory predicates for the relief sought herein are 11 U.S.C. §§ 502(j) and 558, and N.J.S.A. 54:5–63.1. Pursuant to Fed. R. Bankr.P. 7052, the Court issues the following findings of fact and conclusions of law.²

III. FINDINGS OF FACT³A. Procedural History and Background

1. The Reorganized Debtor is a New Jersey limited partnership whose primary asset is a vacant industrial building complex located at 4100 Quakerbridge Road in Lawrence Township, Mercer County, New Jersey (“Property”).

2. Plymouth is a company which was formed for the purpose of investing in tax sale certificates in the State of New Jersey, as well as other states.

3. The Reorganized Debtor filed a petition for relief under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”) on September 9, 2008 (the “Petition Date”).

4. Prior to the Petition Date, on December 19, 2005, Plymouth attended a Lawrence Township, New Jersey sale of municipal tax liens and bid to acquire a tax sale certificate (hereinafter, the “Certificate”) from Lawrence Township representing unpaid municipal taxes due with respect to the Property for the period from December 31, 2004 and prior.

5. At the sale, Plymouth bid the amount of $204,396.79 to acquire the Certificate, bidding a 0% interest rate for redemption, and in addition paid a premium in the amount of $600,100 to Lawrence Township.⁴

6. Following the sale, Plymouth periodically and consistently paid real property taxes accruing for periods subsequent to 2004 and through the Petition Date against the Property, which amounts once remitted to Lawrence Township were incorporated into the obligation due pursuant to the Certificate.

7. Pursuant to N.J.S.A. 54:5–33, Lawrence Township was obligated to return the premium to Plymouth if the Certificate was redeemed within five years, after which time the premium was due to be surrendered to Lawrence Township.

8. As permitted under N.J.S.A. 54:5–86, on December 18, 2007, Plymouth filed a foreclosure complaint seeking, inter alia, to bar the Reorganized Debtor's equity of redemption. An Order Setting Time, Place and Amount of Redemption was entered by the Superior Court on June 6, 2008, which provided that a Final Judgment could be requested on July 19, 2008. This deadline was extended by consent to September 10, 2008.

9. The Reorganized Debtor's Chapter 11 filing on September 9, 2008 was precipitated by its inability to satisfy the Plymouth tax obligation in full by the redemption date.

10. Shortly after the Petition Date, on October 29, 2008, Plymouth filed a Proof of Claim (the “First POC”) in the amount of $1,775,791.33.

11. Faced with the jeopardy of losing the premium paid by Plymouth to Lawrence Township under N.J.S.A. 54:5–33 if redemption of the certificate was not made within five years from the date of sale, Plymouth initiated a motion for relief from stay in the Bankruptcy Court on April 27, 2009, seeking permission to complete the tax foreclosure of the Property.

12. That motion was denied by the Order Vacating Automatic Stay entered on July 15, 2009 (the “July 15, 2009 Order”).

13. The July 15, 2009 Order nonetheless protected Plymouth by tolling the five year escheatment period under N.J.S.A. 54:5–33 “during the period that the bankruptcy is in effect, which should be until [December 1, 2014] or by further application to the court.”

14. The July 15, 2009 Order further required that the First POC of Plymouth be amended to remove the premium.

15. Finally, the July 15, 2009 Order provided that the amended proof of claim be “paid through the debtor's plan for complete satisfaction of its tax lien certificate(s),” and that the Township of Lawrence shall return the $600,100 premium to Plymouth “upon receipt by the Township of Lawrence of the Plymouth tax sale certificate(s) endorsed for cancellation.”

16. As instructed in the July 15, 2009 Order, on January 28, 2010, Plymouth filed its amended proof of claim (the “Amended POC” and, collectively with the First POC, the “Proofs of Claim”), removing the $600,100 premium from the claim.

17. The Amended POC also reduced a 2005 Year End Penalty (“YEP”).⁵

18. In the First POC, the 2005 YEP principal amount was $24,073.53 and the interest thereon was $11,651.59.

19. In the Amended POC, the 2005 YEP principal amount was changed to $11,386.24 and the interest thereon concomitantly reduced.

20. Legal fees and costs were reduced from $2,205 to $1,215 in the Amended POC.

21. The $1,215 included attorneys' fees at $500, filing and service of process fees, and title search fees in connection with the foreclosure action on the subject property.

22. The total amount due as of the Petition Date was reduced in the Amended POC to $1,155,487.81.

23. Both Proofs of Claim filed by Plymouth in this matter include:

(i) the initial Certificate purchase amount of $204,396.79;

(ii) the series of subsequent tax payments from [December 29, 2005] through [May 20, 2008] in the aggregate principal amount of $677,701.84; ⁶ (iii) the 6% flat penalty of $12,263.81 imposed on the initial purchase amount pursuant to N.J.S.A. 54:5–61; ⁷

(iv) the 6% Year End Penalty (YEP) imposed on the subsequent tax payments made by Plymouth Park in 2005, 2006 and 2007 pursuant to N.J.S.A. 54:4–67;

(v) legal fees and costs; and

(vi) interest on the subsequent tax payments and the YEP at the rate of 18%.

24. On September 8, 2009, the Reorganized Debtor filed its Second Modified Chapter 11 Plan and Second Modified Disclosure Statement.

25. The Second Modified Chapter 11 Plan proposed the reduction of the interest rate on the obligation of the Reorganized Debtor to Plymouth to 6%.

26. On February 17, 2010, this Court issued an Opinion which granted the Reorganized Debtor's request for interest rate modification in the Second Modified Chapter 11 Plan.

27. As a result of the Opinion, as well as limited negotiations between the parties, the Reorganized Debtor proposed certain revisions to the Second Modified Chapter 11 Plan. The Court thereafter entered an Order Confirming Second Amended Plan of Reorganization as Modified Herein on May 10, 2010 (“Confirmation Order”).

28. The Confirmation Order recited the modifications to the Second Modified Chapter 11 Plan, and further incorporated the determinations set forth by the Court in the Opinion.⁸

29. Throughout the process of confirmation of the Second Modified Chapter 11 Plan, the Reorganized Debtor maintained its intention to prosecute an objection to the allowance of Plymouth's Proofs of Claim under N.J.S.A. 54:5–63.1. In its first consideration of this issue, the Court held, in footnote 11, p. 20 of the Court's Opinion of February 17, 2010:

The record before the Court does not support the conclusion that Plymouth Park knowingly charged or exacted a fee or charge from Debtor in excess of the amounts permitted under New Jersey law. [footnote omitted] In fact, when the Court instructed it to do so, Plymouth Park filed an amended proof of claim removing the $600,100 premium. Moreover, Plymouth Park's response to Debtor's concerns over the calculation errors was reasonable and prompt, such that Debtor avoided any substantial prejudice or harm. As such, Plymouth Park has not forfeited its claim.

30. This holding was subsumed into the Court's Confirmation Order.

31. The Court nonetheless preserved the Reorganized Debtor's right to “pursue discovery and seek reconsideration under 11 U.S.C. § 502(j)” of its determination to allow Plymouth's Amended POC. This determination was also stated in footnote 11, p. 20 of...