Stahlberger v. Ellison (In re Stahlberger)

In Re: Jennifer Keri Stahlberger, Debtor.

Jennifer Keri Stahlberger, Plaintiff v. PF Ellison, Defendant.

Case No.: 20-23388-ABA

Adv. No.: 20-1627-ABA

UNITED STATES BANKRUPTCY COURT DISTRICT OF NEW JERSEY

February 10, 2021

Chapter: 13

Judge: Andrew B. Altenburg, Jr.

OPINION

Jennifer Stahlberger, the debtor/plaintiff, seeks to avoid the transfer of her real property to defendant PF Ellison, LLC ("PF Ellison") on the basis that the transfer constituted a preference and/or a constructively fraudulent transfer. Doc. No. 2 ("Amended Complaint"). PF Ellison filed a Motion to Dismiss (Doc. No. 4) arguing that the date of the transfer of the property relates back to the date a lis pendens - making the transfer more than two years prior to Ms. Stahlberger's filing of bankruptcy and as such, the Amended Complaint fails to state a claim upon which relief can be granted. Ms. Stahlberger opposes (Doc. No. 6). Both parties having briefed the issues, and a hearing held on February 9, 2021, the matter is ripe for adjudication.

Because the court finds that the date of the transfer of the property relates back to the date a lis pendens was filed, thus making the transfer more than two years prior to the filing of the bankruptcy, neither the preference or fraudulent transfer claims can succeed and consequently, the Amended Complaint must be dismissed

JURISDICTION AND VENUE

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 this court's findings of fact and conclusions of law as required by Federal Rule of Bankruptcy Procedure 7052.

BACKGROUND

The relevant facts do not appear in dispute. PF Ellison recites that Propel Funding Multi State, LLC ("Propel Funding") purchased a tax sale certificate (a "TSC") from the Tax Collector for the Township of Upper Deerfield. Doc. No. 4, p. 1, ¶ 4. The Certificate of Sale and the Recording Information Sheet show that Propel purchased the TSC on July 8, 2016 and recorded it on May 9, 2017. Doc. Nos. 4-2, pp. 2-3. After several assignments of that TSC, on October 16, 2018, the then-current assignee Caz Creek NJ II, LLC filed a tax foreclosure action against Ms. Stahlberger in the Superior Court of New Jersey, Cumberland County and on October 23, 2018 recorded a lis pendens. Doc. No. 4-1, ¶¶ 4-5 (certification); see Doc. No. 4-4, p. 4 (lis pendens). On October 30, 2018, it served the summons and complaint on Ms. Stahlberger. Doc. No. 4-5 (Affidavit of Service of Summons and Complaint). On July 24, 2020, the TSC was assigned to PF Ellison. See Doc. No. 4-9, p. 2. On September 10, 2020, Final Judgment in Foreclosure was entered in favor of PF Ellison, vesting title to the property in PF Ellison. Doc. No. 4-1, p. 3, ¶ 11; see Doc. No. 4-10, p. 2.

Ms. Stahlberger seeks avoidance of the transfer of her real property located at 227 Silverlake Road, Upper Deerfield, New Jersey, obtained by PF Ellison through a tax foreclosure sale. She alleges that the transfer was to PF Ellison on account of a tax sale certificate purchased in July 2016, while Ms. Stahlberger was insolvent, within 90 days prior to the filing of the bankruptcy case, enabling PF Ellison to acquire more than if the property were liquidated under chapter 7. Doc. No. 2, ¶¶ 4-5. Specifically, regarding value, Ms. Stahlberger alleges that the property is currently listed for sale by PF Ellison for $179,000 but PF Ellison was owed $50,000 or less. Id. Accordingly, she argues, the transfer is avoidable as a preference pursuant to 11 U.S.C. § 547.

In a second count, Ms. Stahlberger alleges that she owned the Silverlake property prior to entry of Final Judgment in PF Ellison's favor in September 2020, accordingly "such transfer" was made within two years prior to her filing her chapter 13 bankruptcy case on December 8, 2020. Id., ¶¶ 8-9. She alleges she received no value for the transfer and was insolvent at the time of the transfer. Id., ¶¶ 10-11. Accordingly, the transfer should be avoided as a constructively fraudulent transfer pursuant to 11 U.S.C. § 548(a)(1)(B).

PF Ellison seeks dismissal of both counts, arguing that the date of the transfer of the property relates back to the date its predecessor filed a lis pendens, making the transfer more than two years prior to Ms. Stahlberger's filing of bankruptcy, thus neither the preference or fraudulent transfer claims can succeed. PF Ellison asserts that the Amended Complaint therefore should be dismissed as failing to state a claim upon which relief can be granted. It alternatively asserts that the Amended Complaint should be dismissed as having been filed in bad faith, citing 11 U.S.C. § 1307(c).

DISCUSSION

A Rule 12(b)(6) motion to dismiss for failure to state a claim is made applicable in an adversary proceeding pursuant to Bankruptcy Rule 7012. Fed. R. Bankr. P. 7012; Fed. R. Civ. P. 12(b)(6). "A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) may be granted only if, accepting all well-pleaded allegations in the complaint as true and viewing them in the light most favorable to the plaintiff, a court concludes that plaintiff has failed to set forth fair notice of what the claim is and the grounds upon which it rests." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). A complaint will survive a motion to dismiss if it "contain[s] sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009).

As the only disputed element pertains when the transfer was made, the court will address both the preference and the fraudulent transfer counts together. Pursuant to section 547,

(b) Except as provided in subsections (c) and (i) of this section, the trustee may . . . avoid any transfer of an interest of the debtor in property—

(1) to or for the benefit of a creditor;

(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;

(3) made while the debtor was insolvent;

(4) made—

(A) on or within 90 days before the date of the filing of the petition; . . . and

(5) that enables such creditor to receive more than such creditor would receive if—

(A) the case were a case under chapter 7 of this title;

(B) the transfer had not been made; and

(C) such creditor received payment of such debt to the extent provided by the provisions of this title.

11 U.S.C. § 547(b) (emphasis added).

Section 548 provides regarding fraudulent transfers, in pertinent part:

(a)(1) The trustee may avoid any transfer . . . of an interest of the debtor in property, . . . that was made . . . on or within 2 years before the date of the filing of the petition, if the debtor voluntarily or involuntarily— . . .

(B)(i) received less than a reasonably equivalent value in exchange for such transfer or obligation; and

(ii)(I) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation[.]

11 U.S.C.A. § 548(a)(1)(B) (emphasis added).¹

Section 547 provides that when a transfer is made depends upon when the transfer was perfected:

• if perfected at or within 30 days after the transfer, then the transfer is deemed made at the time the transfer takes effect (11 U.S.C. § 547(e)(2)(A));

• if the transfer is perfected after 30 days, then the transfer is deemed made at the time of that perfection (11 U.S.C. § 547(e)(2)(B)); and

• if the transfer is not perfected at the later of the commencement of the case or 30 days after the transfer takes effect between the transferor and the transferee, then the transfer is deemed made immediately before the date of the filing of the petition (11 U.S.C. § 547(e)(2)(C)).

A transfer of real property is perfected "when a bona fide purchaser of such property from the debtor against whom applicable law permits such transfer to be perfected cannot acquire an interest that is superior to the interest of the transferee." 11 U.S.C. § 547(e)(1)(A).

Section 548 similarly provides:

For the purposes of this section, a transfer is made when such transfer is so perfected that a bona fide purchaser from the debtor against whom applicable law permits such transfer to be perfected cannot acquire an interest in the property transferred that is superior to the interest in such property of the transferee, but if such transfer is not so perfected before the commencement of the case, such transfer is made immediately before the date of the filing of the petition.

11 U.S.C.A. § 548(d)(1).

Accordingly, the court looks to when the transfer in this case was perfected under applicable, i.e., New Jersey, law. See Rzasa-Ormes v. Arturi, D'Argenio, Guaglardi & Meliti, LLP, ADV. 09-01883 DHS, 2010 WL 4259829, at *6 (Bankr. D.N.J. Oct. 25, 2010) (determining the date of the transfer for preference purposes requires the court to determine when, under state law, another creditor could not obtain a superior lien: "The date when it could not is the date of perfection.") (citing In re Hagen, 922 F.2d 742, 746 (11th Cir. 1991)).

PF Ellison argues that its filing of a lis pendens perfected its transfer for purposes of section 547 and 548. New Jersey law requires the filing of a lis pendens "[i]n every action instituted in any court of this State having civil jurisdiction or in the United States District Court for the District of New Jersey, the object of which is to enforce a lien upon real estate or to affect the title to realestate or a lien or encumbrance thereon[.]" N.J.S.A. 2A:15-6. If the action "to enforce or declare rights in, or concerning, or for partition of real estate . . . arises out of a written instrument, which instrument either is executed by defendant and identifies...