Opinion
01-Civ.-4138 (WGB)
February 26, 2002
Gregory George Diebold, Esq., HUDSON COUNTY LEGAL SERVICES CORP., JERSEY CITY, N.J., Counsel for Plaintiff/Appellant/Debtor.
John P. McNicholas, Esq., MORRISON COHEN SINGER WEINSTEIN, LLP, NEW YORK, NY., Counsel for Defendant/Appellee.
On Appeal From the July 17, 2001 Opinion and August 15, 2001 Order of the United States Bankruptcy Court, Bankr. No. 00-32923.
O P I N I O N
Elliot McDaniel appeals the July 17, 2001 Opinion of the Hon. William H. Gindin, U.S.B.J., granting Appellee Metropolis Towers Apartment Corp. ("MTAC") relief from the Automatic Stay imposed by § 362 of the Bankruptcy Code. Appellant claims that the Bankruptcy Court incorrectly concluded that his property interest in a cooperative apartment had been terminated pre-petition by MTAC, and that as a result, the Bankruptcy Court wrongly concluded that Debtor did not have a protectable property interest in the apartment at the time he filed his Bankruptcy Petition.
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1331 and § 158(a). The Court has carefully reviewed and considered the parties' briefs, the Bankruptcy Court's July 17, 2001 Opinion, and the other items that were included in the record on appeal. The Court heard oral argument on October 10, 2001 related to Petitioner's request for a stay of the Bankruptcy Court's decision lifting the Automatic Stay. At the argument on October 10, 2001, the Court denied Petitioner's request for a stay, for reasons set forth on the record at the hearing.
The Court, having determined that further oral argument is not necessary, will decide this motion without oral argument pursuant to Fed.R.Civ.P. 78. For the following reasons, the Court affirms the Bankruptcy Court's July 17, 2001 Opinion and August 15, 2001 Order.
BACKGROUND
In 1984, the Debtor, Elliot McDaniel, purchased shares of stock in a cooperative housing development known as Gregory Park. (July 17, 2001 Bankr. Op., p. 3). Gregory Park Cooperative Corp. was MTAC's predecessor-in-interest. (Id.) Mr. McDaniel fell increasingly far behind in the payment of his maintenance fees to the cooperative, and in June, 1998 the cooperative sent Mr. McDaniel a notice that he had 10 days to either pay his debts or forfeit his rights to occupy his unit in the cooperative. (Id.) Mr. McDaniel did not pay his debts, and received another notice in December, 1998 indicating that his rights were forfeit because of his continued non-payment. (Id.)
These letters were sent both by regular and certified mail, return receipt requested. The certified letters were returned "Unclaimed, Returned to Sender," and the regular letters were not returned. The Bankruptcy Court found that the debtor purposefully failed to claim the properly mailed letters from the post office, and accordingly had notice that he was in Default. The Court agrees.
In July, 1998 Gregory Park filed for Chapter 11 bankruptcy. (July 17, 2001 Bankr. Op. p. 3-4.) As part of the Gregory Park Bankruptcy proceeding, the cooperative filed omnibus objections to shareholder interests in Gregory Park that were held by residents who were significantly in arrears in payment of maintenance fees owed to the cooperative pursuant to their proprietary lease agreements. (Id., at p. 4.) The shareholders who were in arrears included Mr. McDaniel. (Id.) Although given the opportunity to do so, Mr. McDaniel did not cure his debt to the cooperative, or object to the cooperative's motion to cancel his shares in the cooperative. (Id., at p. 4)
The Bankruptcy Court ultimately entered an order allowing Gregory Park to cancel its old shares and issue new shares to both MTAC and shareholder residents in good standing. (Id.) When new shares in Metropolis Towers were issued to Gregory Park shareholders in good standing, i.e. those who had paid their fees, Mr. McDaniel did not receive any new shares. (Id.) Mr. McDaniel did not object to the Bankruptcy Court's confirmation of the reorganization plan. (Id.)
On February 18, 2000, Appellant was served with a summons for an action commenced against him by MTAC in the Superior Court of Hudson County, New Jersey. (Id.) MTAC sought a declaratory judgment confirming the termination of McDaniel's rights in both the apartment and his shares in the cooperative, and seeking to eject Mr. McDaniel and his wife from the premises. (Superior Court Complaint, Ex. 3 to Appellee's Designation of Additional Record Items.) The state court proceeding was stayed when Mr. McDaniel filed his Chapter 13 petition before Judge Gindin on April 28, 2000. (July 17, 2001 Bankr. Op. p. 4.)
On August 15, 2000 MTAC made a motion before Judge Gindin seeking relief from the Automatic Stay, so that MTAC could pursue Mr. McDaniel's eviction in state court. (Id., at p. 2.) Judge Gindin conducted a hearing on MTAC's motion on September 11, 2000, and on July 17, 2001 issued an Opinion finding that McDaniel's rights in MTAC were validly terminated pre-petition in accordance with the law of the state of New Jersey. (Id.) Given this pre-petition termination of McDaniel's interests in the apartment, Judge Gindin issued an Order on August 15, 2001 granting MTAC relief from the Automatic Stay.
MTAC argued, and the Bankruptcy Court agreed, that pursuant to the Occupancy Agreement signed by Mr. McDaniel, the default letters sent by MTAC in response to Mr. McDaniel's repeated non-payment were sufficient to terminate his rights in the cooperative corporation. (Califano Decl. in Support of MTAC's Motion to Lift Stay, ¶¶ 12-18; July 17, 2001 Bankr. Op. p. 7.) Although Judge Gindin's Opinion did not expressly cite to the termination of Mr. McDaniel's cooperative shares in the Gregory Park reorganization as a basis for the termination of Mr. McDaniel's rights in the apartment, Judge Gindin did note that Appellant had not objected to the Reorganization Plan that authorized Gregory Park to cancel its shares and issue new shares to both MTAC and shareholder residents in good standing. (Op. p. 4.)
On appeal, McDaniel asks this Court to determine whether the Bankruptcy Court erred in concluding that the Debtor's property interest was terminated pre-petition by virtue of the termination notices sent to him. If Petitioner's interests in the property were not in fact terminated pre-petition, then Petitioner would be entitled to have the Automatic Stay re-instituted, and his former holdings in the cooperative treated as assets of his estate.
DISCUSSION STANDARD OF REVIEW
Pursuant to 28 U.S.C. § 158(a), "[t]he district courts of the United States shall have jurisdiction to hear appeals from final judgments, orders, and decrees, and, with leave of the court, from interlocutory orders and decrees, of bankruptcy judges." The Third Circuit has taken a pragmatic view of finality in bankruptcy cases. See John Hancock Mut. Life Ins. Co. v. Route 37 Business Park Assocs., 987 F.2d 154, 157 (3d Cir. 1993). A decision in a bankruptcy matter is final when "`nothing remains for the [lower] court to do.'" In re West Electronics Inc., 852 F.2d 79, 81 (3d Cir. 1988) (quoting Universal Minerals, Inc. v. C.A. Hughes Co., 669 F.2d 98, 101 (3d Cir. 1981)).
As Mr. McDaniel listed no substantial assets or debts beyond his purported interests and obligations in the cooperative, the Bankruptcy Court's finding that his interests in the apartment had been terminated pre-petition effectively ended the bankruptcy proceeding, as there were no remaining issues for the Bankruptcy Court to address. Accordingly, this Court has jurisdiction to consider Mr. McDaniel's appeal of Judge Gindin's decision.
While reviewing Mr. McDaniel's appeal, the Court is mindful that a bankruptcy court's factual findings may be disturbed only if clearly erroneous. See In re Sharon Steel Corp., 871 F.2d 1217, 1221 (3d Cir. 1989). A factual finding is clearly erroneous if it is either "completely devoid of minimum evidentiary support displaying some hue of credibility or . . . bears no rational relationship to the supportive evidentiary data," Krasnov v. Dinan, 465 F.2d 1298, 1302-03 (3d Cir. 1972), or, even though there is some evidence to support it, if the reviewing court is left with the definite and firm conviction that a mistake has been made.United States v. United States Gypsum Co., 333 U.S. 364, 395 (1948).
Legal conclusions of the bankruptcy court, however, are subject to plenary review. See Fed.R.Bankr.P. 8013; J.P. Fyfe, Inc. v. Bradco Supply Corp., 891 F.2d 66, 69 (3d Cir. 1989). Where mixed questions of law and fact are presented, the appropriate standard must be applied to each component. In re Sharon Steel Corp., 871 F.2d at 1222. Thus, where a decision involves a legal concept with a factual component — "usually expressed in the language of a standard enunciated by case law rule or by statute" — a reviewing court "must accept the [lower] court's findings of historical or narrative facts unless they are clearly erroneous, but . . . must exercise a plenary review of the [lower] court's choice and interpretation of legal precepts and its application of those precepts to the historical facts." Universal Minerals, Inc. v. C.A. Hughes Co., 669 F.2d 98, 103 (3d Cir. 1981).
DISCUSSION
When a Chapter 13 bankruptcy petition is filed, a Trustee in bankruptcy may assume any executory contract or unexpired lease of the debtor. 11 U.S.C. § 362, 365(a). Such an assumption by the Trustee ultimately allows the debtor, through the debtor's confirmation plan, to cure any defaults that may exist as to the executory contract or unexpired lease.
Conversely, "it is a well `recognized principle of bankruptcy law that an executory contract or lease validly terminated prior to the institution of the bankruptcy proceedings, is not resurrected by the filing of the petition in bankruptcy and cannot therefore be included among the debtor's assets.'" In re Robertson, 147 B.R. 358, 361 (Bankr.D.N.J. 1992), quoting Kopelman v. Halvajian, 663 F.2d 463, 467-68 (3d Cir. 1981) (citations omitted). Essentially, if a property interest has been terminated prior to the filing of the bankruptcy petition, there is nothing for the Trustee to protect. Judge Gindin's decision lifting the Automatic Stay flowed entirely from his finding that, at the time Appellant filed his Chapter 13 bankruptcy petition in March, 2000, he had no remaining interest in the Metropolis Towers co-op, and no property to protect by way of the Automatic Stay.
Appellant contends that Judge Gindin's decision was erroneous, given New Jersey case law directing that a shareholder in a cooperative apartment should not have their interests terminated merely for a minor default in maintenance payments. See, e.g., Harrison Park Owners, Inc. v. Dixon, 604 A.2d 165, 168 (N.J.Super.Ct. App. Div. 1992). Appellant also places great weight on Judge Winfield's detailed and well reasoned decision in Robertson, where the Bankruptcy Court held that termination of a Debtor's rights under a proprietary lease agreement with a cooperative did not also terminate a debtor's shares in the cooperative. 147 B.R. at 368. Because the Debtor's shares in the cooperative had not been independently terminated, Judge Winfield reinstated the proprietary lease (which had been previously terminated by the cooperative) and allowed the debtor to repay her obligations to the cooperative through her Chapter 13 Plan. Id.
Having reviewed the record on appeal, the Court has no basis to conclude that Judge Gindin's factual findings were "clearly erroneous." For that reason, this Court has no basis to upset the two central findings of fact made by Judge Gindin, namely 1) that Mr. McDaniel received, pursuant to the Occupancy Agreement, two mailings informing him that the cooperative was terminating his right to occupy the apartment under the Occupancy Agreement, for his repeated failure to stay current with his maintenance payments, and 2) that Gregory Park had, as part of its reorganization, terminated all outstanding shares held by debtors in arrears, which included the shares formerly held by Mr. McDaniel.
In assessing the legal implications of the Bankruptcy Court's factual findings, the Court will exercise plenary review. After a review of Judge Gindin's Opinion and the relevant case law, the Court concludes that Judge Gindin did not articulate a sufficient legal basis to justify his conclusion that the Debtor's interests in MTAC had been terminated pre-petition. Even so, mindful of the unique nature of property rights inherent in a cooperative housing corporation, it is apparent to this Court for the following reasons that all of Mr. McDaniel's rights in the Metropolis Towers Cooperative had been validly terminated pre-petition, and that as a result Judge Gindin did not err in ordering that the Automatic Stay be lifted.
"A cooperative apartment association is a unique form of property ownership which does not fit into common law classifications." Plaza Road Cooperative, Inc. v. Finn, 492 A.2d 1072, 1077 (N.J.Super.Ct. App. Div. 1985). An individual who owns a cooperative apartment has a property interest in the shares of capital stock they hold in the corporation, and a realty interest in the proprietary lease or occupancy agreement which gives them the right to occupy, lease, or sell the unit. Robertson, 147 B.R. at 367-68. Further,
These two property interests are intertwined, and the possession of one without the other is virtually worthless. In fact, the two interests are inseparable. A proprietary lease does not by itself create a possessory right to a cooperative apartment, but rather sets forth the rules by which an occupant must abide. Likewise, the mere ownership of shares in a cooperative association does not grant the shareholder possession of a cooperative apartment.Id.
When Appellant purchased shares in the Gregory Park Cooperative and signed the Occupancy Agreement, he was vested with essentially the same pair of property interests detailed in the Robertson case, i.e. the right to occupy the apartment, and the right to retain his shares in the cooperative corporation. Despite this fact, Judge Gindin's Opinion focused only on Appellant's realty interest in his apartment, and did not address his personal property interest in the cooperative shares.
Judge Gindin's decision to lift the Automatic Stay was premised on the legal conclusion that when Mr. McDaniel failed to pay his debts despite having received MTAC's default notices, his right to occupy the unit had been effectively terminated pursuant to the terms of the Occupancy Agreement. In light of Robertson, Appellant has correctly argued that a termination of his realty interest would, in-and-of itself, not have been a sufficient legal basis to justify lifting the Automatic Stay, because the mailed notices would not have been sufficient to terminate Appellant's personal property interest in his cooperative shares. Regardless of Judge Gindin's failure to address Appellant's former personal property interests in the cooperative, however, the Record demonstrates that both McDaniel's property interest and his realty interest in the property had been terminated pre-petition in accordance with the law of the State of New Jersey. For that reason the Court concludes that Robertson is largely inapposite, and that Judge Gindin reached the correct result in lifting the Automatic Stay.
The Court's conclusion turns on the critical legal distinction between Mr. McDaniel's case and the facts in Robertson; a distinction arising out of Gregory Park's Chapter 11 bankruptcy in July, 1998. During the Gregory Park proceeding, the cooperative objected to all personal property interests (i.e. shares in the cooperative) held by residents who were significantly in arrears in their payment of maintenance fees. The shareholders who were in arrears included Mr. McDaniel. Although given the opportunity to cure his debt to the cooperative, Mr. McDaniel did not do so. Because of his continuing failure to repay his substantial debt to the cooperative, the Bankruptcy Court entered an order terminating Mr. McDaniel's shareholder interest in Gregory Park.
When new shares in Metropolis Towers were issued to all Gregory Park shareholders who were in good standing, i.e. to those who had continued to pay their maintenance fees and had cured any previous arrearages, Mr. McDaniel did not receive any new shares. Accordingly, after the confirmation of the Gregory Park reorganization plan in November, 1999, Mr. McDaniel had been divested of his shares of stock in the cooperative by order of the Bankruptcy Court.
Mr. McDaniel's case is factually distinct from Robertson because of this termination and re-issuance of shares by the Gregory Park Bankruptcy Court. In Robertson, the debtor's interest in her cooperative apartmentwas not terminated prior to the filing of a bankruptcy petition, even though her proprietary lease had been canceled for failure to pay maintenance fees. Judge Winfield concluded that although the cooperative could terminate the right to occupy the unit, it could not cancel the shares of stock held by the Debtor without some sort of independent proceeding. Robertson, 147 B.R. at 368. Because the Debtor still had an interest in the shares of stock she held, Judge Winfield allowed the Chapter 13 action to proceed so that the debt could be repaid and the value of the stock retained by the Debtor. Id. at 369. Here, as inRobertson, Mr. McDaniel's rights under the Occupancy Agreement were first terminated by the cooperative for his failure to pay his maintenance fees. Critically distinct from Robertson, however, by Order of the Gregory Park Bankruptcy Court, all of Mr. McDaniel's rights in the shares of the cooperative were also terminated when the shares themselves were canceled.
The Court is mindful that the property and realty interests in a cooperative are intertwined, and that the possession of one without the other is virtually worthless. Unfortunately for Mr. McDaniel, prior to filing his Chapter 13 petition he had been divested of both interests; Mr. McDaniel's interest in his shares of the former Gregory Park Cooperative was terminated by Gregory Park's Chapter 11 reorganization, and his interest under the Occupancy Agreement with Gregory Park was terminated for failure to remain current on his maintenance payments. These events divested Mr. McDaniel of all rights in his unit at Metropolis Towers prior to the filing of his Chapter 13 petition. Accordingly, Judge Gindin was correct in lifting the Automatic Stay. For that reason, Judge Gindin's July 17, 2001 Opinion and August, 15, 2001 Order lifting the Automatic Stay are hereby affirmed.
CONCLUSION
For the foregoing reasons, the July 17, 2001 decision of the Bankruptcy Court is affirmed.
An appropriate Order follows.