Justia Bankruptcy Opinion Summaries

Articles Posted in Supreme Court of New Jersey
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In 2005, U.S. Home Corporation entered into a contract to purchase two contiguous tracts of land, one of which was owned by West Pleasant-CPGT, Inc. Under the contract, West Pleasant and the other landowner were to gain certain approvals permitting development of the properties. Pursuant to the contract, U.S. Home paid advances to the landowners totaling over $1.5 million. As security for the advances, West Pleasant executed a mortgage and note on its property; the other landowner did not. When a contract dispute arose in 2006, U.S. Home sought to terminate the contract and get a return of its total advance. U.S. Home prevailed in arbitration and was awarded a judgment in the full amount of the advance, plus interest. The Appellate Division affirmed the judgment in 2009. When the judgment was not satisfied, U.S. Home commenced foreclosure actions against the properties. The foreclosure proceedings were stayed when West Pleasant and the other property owner filed for bankruptcy. In West Pleasant’s bankruptcy action, U.S. Home moved to dismiss and for relief from the automatic stay. West Pleasant and U.S. Home executed a Consent Order, in which West Pleasant dismissed its bankruptcy proceeding, waived a fair market valuation and its right to object to a sheriff’s sale of its property, and released U.S. Home from any claims in law or equity. U.S. Home never proceeded with any deficiency action against either landowner. Nonetheless, the landowners commenced the affirmative litigation that gave rise to this appeal, seeking a declaration that the arbitration award was fully satisfied, as well as compensation “in the amount of the excess fair market value of the properties obtained by defendant[] U.S. Home over the amount of its outstanding judgment.” The second property owner then assigned its rights to West Pleasant. After trial, the court valued the second property as worth almost $2.4 million and West Pleasant’s property as worth almost $2 million. The court ordered U.S. Home to pay the fair market value of the West Pleasant property, plus interest, and extinguished the arbitration award on the second property. On appeal, the Appellate Division determined that West Pleasant had waived its right to a fair market valuation on its property but that it was owed a fair market value credit for the second property. The Appellate Division remanded the matter to the trial court for recalculation of damages. The New Jersey Supreme Court reversed, finding use of fair market value credit by this debtor to obtain a money judgment against a creditor, in the absence of a deficiency claim threatened or pursued or any objection being raised at the time of the sheriff’s sales, was "inconsistent with sound foreclosure processes and, moreover, inequitable in the circumstances presented." The judgment of the Appellate Division was reversed and the matter remanded for further proceedings. View "West Pleasant-CPGT, Inc. v. U.S. Home Corporation" on Justia Law

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At issue in this case was whether a corporation's release of a debt constituted a constructively fraudulent transfer under the Uniform Fraudulent Transfer Act (UFTA). The debt that was released had previously been owed to the corporation by a landscaping business that was a creditor of two other corporations owned by the same shareholder. The other corporations debts to the landscaping business were extinguished in exchange for the release. The trial court concluded that the transfer was constructively fraudulent under N.J.S.A.25:2-27(a) because the corporation relinquished its sole asset without receiving reasonably equivalent value in return. An Appellate Division panel reversed that determination. The panel held that the transfer benefited the debtor corporation's sole shareholder because it extinguished the debts of two other corporations that she owned. The Appellate Division determined that the transfer was therefore made for reasonably equivalent value and that it was not constructively fraudulent under N.J.S.A.25:2-27(a). The New Jersey Supreme Court held that the Appellate Division panel improperly ignored the distinction between the corporation that was the debtor for purposes of N.J.S.A.25:2-27(a) and its shareholder, as well as the distinction between the debtor corporation and the other corporate entities that the shareholder owned. The Court concluded the evidence fully supported the trial court's determination the corporation did not receive reasonably equivalent value in exchange for the disputed transfer. Accordingly, the Appellate Division's judgment was reversed and the case remanded to the panel for its consideration of issues that it did not reach. View "Motorworld, Inc. v. Benkendorf" on Justia Law

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This appeal as of right arose from defendants' alleged breach of a settlement agreement executed by defendants and one of the plaintiffs in this action, Globe Motor Company (Globe), to resolve prior litigation between the parties. Shortly after defendants sent two checks totaling $75,000 to plaintiffs to settle the earlier action, a Trustee appointed to represent the estate of an insolvent Minnesota entity brought an adversary proceeding against plaintiffs. The Trustee demanded that plaintiffs disgorge the settlement funds, on the ground that those funds had belonged to the bankrupt entity, not to defendants, and that the transactions were therefore voidable under provisions of the United States Bankruptcy Code, 11 U.S.C.A. 544 and 548. Plaintiffs paid $22,500 to resolve the bankruptcy Trustee's claim. Plaintiffs filed this action against defendants, seeking to recover the money that they paid to settle the bankruptcy proceeding as well as attorneys' fees and costs. The motion judge entered summary judgment for plaintiffs on their breach of contract claim. An Appellate Division panel affirmed that determination, with one judge dissenting. After its review, the New Jersey Supreme Court held that the motion judge improperly granted summary judgment in plaintiffs' favor. The Court concluded that the record did not establish plaintiffs' right to judgment as a matter of law. The case was remanded for further proceedings. View "GlobeMotor Company v. Igdalev" on Justia Law