In re R.A. Hendrickson Real Estate, Inc.

395 B.R. 565

In re R.A. HENDRICKSON REAL ESTATE, INC., Debtor R.A. Hendrickson Real Estate, Inc., Plaintiff, v. Harvey Weisman d/b/a Micro Leasing, The Moret Partnership, Sea Cliff Restaurant, LLC d/b/a Tupelo Honey Restaurant, Steven J. Ruden, D.D.S., P.C., and County Treasurer of Nassau County, New York, Defendants.

Bankruptcy No. 807-74458-reg.

Adversary No. 808-8034-reg.

United States Bankruptcy Court, E.D. New York.

October 22, 2008.

COPYRIGHT MATERIAL OMITTED

Richard J. McCord, Certilman Balin Adler & Hyman, East Meadow, NY, for Plaintiff.

John H. Hall, Jr., Shaw Licitra Gulotta Esernio & Henry PC, Garden City, NY, Gregory Messer, Law Offices of Gregory Messer, PLLC, Brooklyn, NY, Marc Wieman, Nassau County Attorneys Office, Mineola, NY, for Defendants.

MEMORANDUM DECISION

ROBERT E. GROSSMAN, Bankruptcy Judge.

Before the Court are cross-motions for partial summary judgment pursuant to Federal Rule of Civil Procedure 56, made applicable to bankruptcy proceedings by Federal Rule of Bankruptcy Procedure 7056. The Debtor, Plaintiff, seeks summary judgment against the Defendants, Harvey Weisman d/b/a Micro Leasing ("Weisman"), and The Moret Partnership ("Moret") on the first, second, third and sixth causes of action of the Adversary Proceeding Complaint, dated February 28, 2008 ("Complaint"). Weisman and Moret filed a cross-motion for summary judgment on those same causes of action.

In sum, the Debtor is asserting rights to certain real property and rents derived therefrom in which real property Weisman and Moret also claim an interest resulting from their purchase of certain tax liens from the Treasurer of Nassau County ("County Treasurer") and subsequent issuance of tax deeds. For the reasons that follow, the Court finds there are no genuine issues of material fact as they pertain to the Debtor's motion for summary judgment. On the merits of the Debtor's motion, the Court DENIES partial summary judgment in favor of the Debtor on the first, second, third and sixth causes of action of the Complaint.

On Weisman and Moret's cross-motion for summary judgment, the Court finds that there are genuine issues of material fact which preclude summary adjudication in their favor.

I. JURISDICTION

This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157(b)(2) and 1334(b), and the Standing Order of Reference in effect in the Eastern District of New York.

II. BACKGROUND

Prior to the issuance of tax deeds, the Debtor owned two parcels of real property at issue in this case: (1) 216 Sea Cliff Avenue, Sea Cliff, N.Y. (the "216 Sea Cliff Property"), and (2) 208 Sea Cliff Avenue, Sea Cliff, N.Y. (the "208 Sea Cliff Property"). The 216 Sea Cliff Property is occupied by one building which has two tenants: Sea Cliff Restaurant, LLC d/b/a Tupelo Honey ("Tupelo Honey"), and Steven J. Ruden, D.D.S., P.C. ("Dr.Ruden"). The 208 Sea Cliff Property is occupied by two buildings: one at 208 Sea Cliff Avenue and the other at 212 Sea Cliff Avenue.

The 208 Sea Cliff Property

The 208 Sea Cliff Property is not at issue in this case, but the parties have cited extensively to rulings by the state court with respect to that property which will be discussed later in this Memorandum Opinion.

In 2001, Weisman purchased a tax lien with respect to the 208 Sea Cliff Property and was issued a Treasurer's Deed (# 4737) on or about May 5, 2003. In 2004, Weisman commenced an action in state court based on Treasurer's Deed # 4737 seeking to extinguish the Debtor's interests in the 208 Sea Cliff Property. Harvey Weisman d/b/a Micro Leasing v. R.A. Hendrickson Real Estate, Inc., et al, Index No. 7357/04 (the "208 Sea Cliff Litigation"). On cross-motions for summary judgment, the state court issued a decision finding that Weisman's complaint was deficient in that it did not "contain an allegation that [Weisman] extends a right to redeem as required by § 5-57.1(d) of the Nassau County Administrative Code" and granted Weisman leave to file an amended complaint. The order further provided that in the event that Weisman failed to serve an amended complaint within thirty (30) days, the County Treasurer was directed to accept an amount necessary from the Debtor to effect a redemption of the property. Weisman did not file an amended complaint within the thirty days and the Debtor was able to redeem the property by paying the outstanding taxes and other charges, and Treasurer's Deed #4737 was cancelled on February 16, 2006.

The 216 Sea Cliff Property

In February 2001, the County Treasurer offered for sale tax liens on the 216 Sea Cliff Property which were purchased by Weisman. During the next three years, Weisman filed one or more affidavit(s) with the County Treasurer pursuant to the Nassau County Administrative Code ("NCAC") asserting that he sent one or more notice(s) to the Debtor giving it the opportunity to redeem the tax lien on the 216 Sea Cliff Property. The Debtor failed to redeem the property during that period. Pursuant to the NCAC, Weisman applied to the County Treasurer for a tax deed and was issued Treasurer's Deed #4751 on July 8, 2003, which was recorded on June 6, 2005.

On February 18, 2003, the County Treasurer offered for sale tax liens for unpaid 2002 general taxes on the 216 Sea Cliff Property. These liens were purchased by William Edwards ("Edwards"). The County Treasurer issued Treasurer's Deed # 4802 to Edwards on June 7, 2005, which deed was recorded on June 8, 2005. Shortly thereafter, Defendant, Moret, another entity owned by Weisman, acquired Treasurer's Deed #4802 from Edwards. Other than requesting that the Court fix, determine, and liquidate Moret's claim which is based on Deed #4802, Deed # 4802 is not a pivotal issue and the record is silent as to steps taken by Moret in relation to Deed # 4802.

On January 23, 2007, Weisman commenced a quitclaim action based on Treasurer's Deed # 4751 against the Debtor in state court seeking to extinguish the Debtor's interests in the 216 Sea Cliff Property. Harvey Weisman d/b/a Micro Leasing v. R.A. Hendrickson Real Estate, Inc., New York State Dept. of Taxation and Finance, Incorporated Village of Sea Cliff, Tupelo Honey, Jon Hendrickson, Index No. 07-001297. The Debtor filed an answer and asserted, among other things, that Weisman failed to strictly adhere to the procedures of the NCAC, and that the Debtor was ready, willing and able to redeem the property. Weisman filed a motion for summary judgment, but that action was stayed when the Debtor filed a Chapter 11 bankruptcy petition on November 2, 2007.

III. THE BANKRUPTCY PROCEEDINGS

The Debtor filed Chapter 11 with the stated intention of redeeming the 216 Sea Cliff Property from Weisman and using the rental arrearage and prospective regular monthly income to fund a plan of reorganization. See E.D.N.Y. LBR 1007-1 Affidavit of Jon Hendrickson, dated November 8, 2007. According to the Debtor, since 2003 the Debtor's tenants, Tupelo Honey and Dr. Ruden, failed to make regular monthly rental payments to the Debtor as a result of the uncertainty as to the Debtor's continued ownership of the 216 Sea Cliff Property. This further exacerbated the Debtor's cash flow issues and prevented it from having the funds necessary to redeem the tax liens.

In March and April 2008, the Debtor entered into two stipulations with Weisman and Moret which were both so-ordered by this Court. Pursuant to the first stipulation, Dr. Ruden agreed to deposit $99,000 in rental arrears which had accrued since 2003, plus ongoing rental payments, into an escrow account to be held by the Debtor's counsel pending further order of the Court resolving the Debtor's entitlement to those rents. The second stipulation accomplished the same result with respect to $149,500 in rental arrears owed by Tupelo Honey. Weisman asserts that it is entitled to the escrowed rents by virtue of its ownership interest in the property resulting from Treasurer's Deed # 4751 issued in 2003. The Debtor's counsel continues to hold those rents in escrow.

On February 28, 2008, the Debtor filed the instant adversary proceeding against Weisman, Moret, Tupelo Honey, Dr. Ruden and the County Treasurer seeking:

1. a determination that the interests of Weisman and Moret in the 216 Sea Cliff Property constitute liens which the Debtor can redeem as if no treasurers deed had been issued;

2. a declaratory judgment that as of the date of the bankruptcy filing the Debtor was the owner the 216 Sea Cliff Property with all rights of a fee owner, e.g., the right to operate the building located on the property, and enter into and enforce leases with tenants of the property;

3. a declaratory judgment that the rental arrears and current rent are property of the estate pursuant to 11 U.S.C. § 541;

4. a judgment for turnover to Debtor of rents due and owing by Dr. Ruden and Tupelo Honey;

5. to satisfy tax liens through confirmed plan of reorganization and upon such documented satisfaction, a judgment directing County Treasurer to issue a deed cancellation of Treasurers Deed # 4751;

6. an order fixing Moret's informal proof of claim asserting a secured claim against the 216 Sea Cliff Property so Debtor can determine the amount required to redeem the property;

7. an order prohibiting Weisman, Micro and Moret from interfering with the Debtor's landlord relationship with the tenants;

8. a judgment declaring that County Treasurer's auction sale of tax liens on February 2008 was a violation of the automatic stay; and

9. costs and disbursements.

It is the Debtor's intention, if successful in this adversary proceeding, to use the escrowed rental income to fund its redemption of the tax liens pursuant to a Chapter 11 plan of reorganization. The Debtor has represented that if it is unable to use the rental income towards the tax lien redemption, it will not have the funds necessary to redeem.

On July 9, 2008, the Debtor filed a motion for partial summary judgment on the first, second,...