U.S. BANK-CUST/SASS MUNI V. DTR v. BOROUGH OF FRENCHTOWN

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-3760-11T1

U.S. BANK-CUST/SASS MUNI V. DTR.,

Plaintiff-Appellant,

v.

BOROUGH OF FRENCHTOWN,

Defendant-Respondent.

____________________________________

March 7, 2013

Argued February 4, 2013 - Decided

Before Judges Sabatino and Fasciale.

On appeal from the Superior Court of New Jersey, Law Division, Hunterdon County, Docket No. L-222-11.

Robin London-Zeitz argued the cause for appellant (Gary C. Zeitz, L.L.C., attorneys; Ms. London-Zeitz, on the brief).

Judith A. Kopen argued the cause for respondent (Gebhardt & Kiefer, P.C., attorneys; Ms. Kopen, on the brief).

PER CURIAM

This appeal involves a sale of a tax sale certificate during the course of a bankruptcy. The debtor filed the bankruptcy petition in October 1995, and the bankruptcy case remained open for over a decade. The real property in question, located in Frenchtown, was originally part of the bankruptcy estate. The bankruptcy trustee abandoned the property to the debtor in May 2005, without any filed objection, when it became clear that a substantial environmental lien rendered the property valueless to the estate. The debtor also had failed to pay real estate taxes and sewer charges. However, the trustee's abandonment notice did not list any unpaid realty taxes or sewer charges as liens on the property.

After the property's abandonment, defendant, the Borough of Frenchtown ("the Borough"), sold a tax sale certificate to plaintiff, U.S. Bank-Cust/Sass Muni V. Dtr., in December 2006 at a public auction. The price was $4,555.78, representing the unpaid real estate taxes and sewer fees, plus an additional premium of $6,100.

Plaintiff took no action to foreclose on the property until April 2010, more than two years after the bankruptcy was terminated in March 2008. The foreclosure action was not pursued to judgment, however, apparently because plaintiff discovered the environmental lien, which had priority over the tax lien and which eliminated any equity in the property.

In March 2011, plaintiff filed the present lawsuit against the Borough, seeking among other remedies a refund of the December 2006 sale of the tax certificate. Plaintiff argued that the certificate was void ab initio because its issuance by the Borough allegedly violated the automatic stay provisions in the bankruptcy code, 11 U.S.C.A. 362(a). The Borough, on the other hand, maintained that the certificate's issuance was permissible under recognized exemptions to the automatic stay.

After considering the matter on cross motions for summary judgment, the trial court issued a written decision on February 17, 2012, rejecting plaintiff's argument that the Borough's issuance of the tax sale certificate violated the automatic stay provisions. The trial court essentially analogized the issuance of the tax sale certificate to the transfer of an asset from one creditor of the debtor, i.e., the Borough, to another creditor, i.e., plaintiff. The court found that such actions did not constitute an enforcement of the lien.

Plaintiff now appeals, arguing that the trial court misapplied the bankruptcy code and related case law in finding that the automatic stay did not invalidate the tax sale certificate. Plaintiff further argues that it is entitled to a refund of the certificate at an enhanced statutory rate of interest pursuant to N.J.S.A. 54:5-43, or, alternatively, at the postjudgment interest rate under Rule 4:42-11(a).

The automatic stay imposed by the Bankruptcy Code prohibits, among other things, "any act to create, perfect, or enforce against property of the debtor any lien" that secures a claim arising before the commencement of bankruptcy. 11 U.S.C.A. 362(a)(5). The Code further provides an exception to the automatic stay in 11 U.S.C.A. 362(b)(18), which allows "the creation or perfection of a statutory lien for an ad valorem property tax, or a special tax or special assessment on real property whether or not ad valorem, imposed by a governmental unit, if such tax or assessment comes due after the date of the filing of the petition[.]" (Emphasis added).1

At oral argument on the appeal, we inquired of counsel as to whether the unpaid real estate taxes and sewer charges involved in this case were "prepetition" obligations incurred before the bankruptcy petition was filed in October 1995, or, alternatively, "postpetition" obligations that arose after October 1995. For the reasons we have noted, such timing factors may be significant to a legal analysis of the applicability of the automatic stay.

In response to our request, the Borough's counsel submitted a post-argument letter enclosing a certification from the municipal tax collector. According to that certification, all of the real estate taxes and sewer charges underlying the tax sale certificate were postpetition. In particular, the assessor indicates that the unpaid taxes correspond to the second, third, and fourth quarters of 2005, and the sewer charges were for the third and fourth quarters of that same year.

Plaintiff has objected to our consideration of the tax assessor's certification because the information within it was not presented to the trial court on the summary judgment motions. Plaintiff requests that we afford it an opportunity to conduct discovery relating to this new evidence "and any other relevant issues arising from it." In light of that fair request, we will remand this matter to afford plaintiff such an opportunity for that reasonable discovery and investigation.

The appeal is consequently remanded for this limited purpose. The trial court shall convene a case management conference with counsel within two weeks of this opinion to plan the reasonable discovery that plaintiff desires.2 The court also shall establish a supplemental briefing schedule, culminating with a new return date for reconsideration of the cross-motions, in light of the recently-gathered evidence about the timing of the unpaid taxes and sewer fees. If, on further reflection, the motion judge disavows his original conclusion in favor of the Borough and rules for plaintiff, the Borough may file an appeal within forty-five days of that ruling. On the other hand, if the judge reinstates his prior conclusion, plaintiff may file an amended notice of appeal within forty-five days. In either event, the appellate case manager will issue a post-remand briefing schedule and have the matter calendared anew.

Remanded. We do not retain jurisdiction.

1 Counsel have cited to case law relative to these and other potentially-applicable Code provisions and disagree over the significance of those related cases. We need not resolve their substantive differences at this time, pending the completion of the remand and further confirmation of the facts.

2 For the convenience of the trial court, counsel shall supply it with copies of their appellate briefs and appendices, and the transcript of the prior motion argument.