JOHN WILLIX v. CHARLES M. FORMAN
Filing
5
OPINION. Signed by Judge Claire C. Cecchi on 4/30/14. (gmd, )
NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
CHARLES M. FORMAN, in his capacity as
Chapter 7 Trustee,
Civil Action No.: 13-5291, 13-5293
(CCC)
Plaintiff,
OPINION
v.
JOHN WILLIX,
Defendant.
I
CECCHI, District Judge.
I.
INTRODUCTION
This matter comes before the Court on the motion of Defendant John Willix for leave to
appeal Bankruptcy Judge Gambardella’s June 20, 2013 denial of his motion to dismiss Plaintiff’s
claims. (Civil Action No. 13-5291, Docket No. 1).’ The Court held oral argument in this matter
on April 9, 2014. After full consideration of the parties’ submissions and arguments, Defendant’s
motion for leave to appeal is denied.
II.
BACKGROUND
Defendant John Willix was an investor in a Ponzi scheme carried on for over twenty years
by Chapter 7 debtors Daniel and Anastasia Sweet (collectively “the Sweets” or “Debtors”), See
Compi. at ¶ 8. According to the Complaint, Defendant became aware of difficulties surrounding
his investment with Debtors in early 2006. Compl. at ¶ 17.
Defendant’s substantive appeal was filed as Civil Action No. 13-5293. Because the Court denies Defendant leave
to file an interlocutory appeal, the merits of the substantive appeal will not be addressed.
On August 26, 2006, Defendant allegedly extracted a payment ofSl,303,672.50 from the
Sweets as a condition of a purported future investment, which never occurred. Compi. at ¶ 19-22.
On August 20. 2009, the Debtors filed a voluntary bankruptcy petition under Chapter 7 of the
Bankruptcy Code.
Plaintiff Charles M. Forman (“Plaintiff’ or “Trustee”) was appointed the
Chapter 7 trustee for the Debtors’ estate shortly thereafter. Compi. at ¶ 1-2. This action was filed
as an adversary proceeding in the Bankruptcy Court for the District of New Jersey on August 18,
2011. Plaintiff’s complaint alleges three counts of fraudulent transfer pursuant to 11 U.S.C.
§
544(b), N.J.S.A. 25 :2-25(a) and (b), and N.J.S.A. 25:2-27(a). Plaintiff seeks to avoid the payment
from the Debtors to the Defendant pursuant to 11 U.S.C.
§
544(b) and 548.
On October 18, 2011, Defendant filed his motion to dismiss the complaint for failure to
state a cause of action upon which relief could be granted pursuant to Fed. R. Bankr. P. 70 12(b)
(applying Fed. R. Civ. P. 12(b)(6)). Bankr. Op. at 7. Defendant argued that Plaintiffs claims were
barred by a statute of repose under the New Jersey version of the Uniform Fraudulent Transfer
Act, codified at N.J.S.A. 25:2-31. Bankr. Op. at 7. Relying on her earlier decision in PrincetonNew York Investors, Inc., 199 B.R. 285 (Banks. D.N.J. 1996) (Princeton I) and the District Court
decision affirming that opinion in First Union Nat’l Bank v. Gibbons, 219 B.R. 55 (D,N.J. 1998)
(Princeton II), Judge Gambardella denied the motion to dismiss on June 20, 2013. In doing so,
she held that Section 546(a) of the Bankruptcy Code preempted the New Jersey statute of repose,
extending the time for Plaintiff to bring his claims. Judge Gambardella also held that no leave of
the Bankruptcy Court was required for Defendant to seek an interlocutory appeal before this Court.
The central question before the Court on appeal is whether Section 546 of the Bankruptcy
Code preempts the statute of repose governing New Jersey’s version of the Uniform Fraudulent
Transfer Act. Under the statute of repose, a party has four years from the date of a transfer to bring
a claim. N.J.S.A. 25:2-31(b). Section 546, however, sets a different time limit. It allows a trustee
standing in place of a creditor to bring suit within two years of the order of relief. 11 U.S.C. 546(a).
In determining whether preemption of a state statute by federal law is warranted, the Court’s “sole
task” is to determine the intent of Congress. Witco Corp. v. Beekhuis, 38 F,3d 682, 687 (3d Cir.
1994). Preemption may be found either by Congress explicitly stating its intent, or by regulation
so pervasive it leaves no room for further state regulation. jç Absent such explicit or implicit
preemption, a court may nonetheless find preemption where it is either impossible to comply with
both federal and state regulations, or where the state law “stands as an obstacle to the
accomplishment and execution of the full purposes and objectives of Congress.” Id.
In her original Princeton decision, Judge Gambardella found that the New Jersey statute of
repose stood as an obstacle to congressional objectives inherent in the Bankruptcy Code. çç
Princeton I, 199 B.R. at 297. She held that
§ 546 was created with the intent to give the trustee
sufficient time to properly investigate and determine whether to assert claims under
§ 544. See
Princeton I, 199 B.R. at 298 (quoting In re Dry Wall Supply, 111 B.R. 933, 936 (D. Cob. 1990)).
Because of its strict limit, Judge Gambardella found that the New Jersey time bar would frustrate
that intent, and therefore preemption was warranted. Id. In affirming the Bankruptcy Court, Judge
Wolin similarly held that despite the Third Circuit’s general reluctance to find preemption, such a
finding was warranted in this situation. See Princeton II, 219 B.R. at 65 (finding that the statute of
repose would “have the effect of stripping Congress of its authority to execute and accomplish the
[Bankruptcy] Code’s objectives”). Id. Nearly every court that has confronted this issue has come
to the same conclusion, See, e.g. Dry Wall, 111 B.R. 933; see also Smith v. Am. Founders Fin.
Corp., 365 B.R. 647 (S.D. Tex. 2007); In re Leach, 380 B.R. 25 (Bankr. D.N.M. 2007); In re
Naturally Beautiful Nails, Inc., 243 B.R. 827 (M.D. Fla. 1999); In re Mahoney, Trocki & Assocs,,
3
Inc 111 B.R. 914 (Bankr. S.D. Cal. 1990).
III.
DISCUSSION
A.
Legal Standard
This Court has jurisdiction pursuant to 28 U.S.C. 158(a), as well as Federal Rules of
Bankruptcy Procedure 8001 and 8003. Although
§ 158 does not specify a standard to be used by
a district court in deciding whether to grant leave for an interlocutory appeal, reviewing courts
generally apply the standard governing interlocutory appeals to circuit courts, 28 U.S.C.
§ 1292(b).
See In reDwek, 09-cv-5046, 2010 WL 234938, at *2 (D.N.J. Jan. 15, 2010). Under
§ 1292(b),
leave for an interlocutory appeal may only be granted upon a showing that: (1) there exists a
controlling question of law, (2) as to which there is substantial ground for difference of opinion,
and (3) an immediate appeal may materially advance the ultimate termination of litigation. See 28
U.S.C.
§ 1292(b); Katz v. Carte Blanche Corp., 496 F.2d 747, 754 (3d Cir. 1974).
Even if the three requirements of § 1292(b) are met, a court has discretion over whether to
allow an interlocutory appeal. See In re Cendant Corp. Securities Lit., 166 F. Supp. 2d. 1, 13-14
(D.N.J. 2001). Because piecemeal litigation is disfavored, leave to appeal should only be granted
sparingly. Kapossy v. McGraw Hill, Inc., 942 F. Supp. 996, 1001 (D.N.J. 1996). Generally, such
leave will be granted only where a movant has demonstrated exceptional circumstances, See
477 B.R. 533, 537 (D.N.J. 2012) (çjjn Katz, 496
F.2d at 754).
B.
ControLling Question of Law
It is undisputed that the motion before the Court presents a controlling question of law. A
controlling question of law is one which, if erroneous. would be the basis for reversal on appeal.
Katz, 496 F.2d at 755. Were Defendant found to be correct on this pure question of law, Plaintiffs
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claims would be time barred, requiring a granting of the motion to dismiss, Therefore, Defendant
has satisfied the first factor for interlocutory review.
C.
Substantial Ground for Difference of Opinion
Defendant argues that the question before the Court is one about which a substantial ground
for difference of opinion exists. Def. Br. at 7. A substantial ground for difference of opinion exists
only where there is “genuine doubt as to the correct legal standard.” Kapossy, 942 F. Supp. At
1001. While such doubt may arise in a variety of circumstances, the Court finds that Defendant
has not created a “genuine doubt” in the Court’s mind as to the correct legal standard in this case.
Willix concedes that his argument is contrary to the overwhelming precedent in this
district and others. ç Def. Br. at 15-16 (citing cases from varying districts). Despite the existing
case law, Defendant contends that a substantial ground nonetheless exists.
Defendant first argues that a substantial ground for difference of opinion is present because
a conflict exists within the law. He argues that the decisions in In re Robbins, 91 B.R. 879 (Bankr.
W.D. Mo. 1988) and In re Phar-Mor. Inc. Sec. Litig., 178 B.R. 692 (W.D. Pa. 1995), create a split
of authority necessitating an interlocutory appeal. Def. Br. At 8, 19. However, counsel’s mere
argument that one precedent rather than another should control does not create substantial ground
for a difference of opinion. This is especially true when those conflicting decisions are from
outside this Court’s jurisdiction. y
Bçk&Co..LLCy.Fakjh, 275 F. Supp. 2d. 393, 397-98
(E.D.N,Y, 2003). The unrefuted law in this district is the law applied by Judge Gambardella in
this case.
Additionally, both Robbins and Phar-Mor are distinguishable from this matter. Robbins,
although dealing with the same law, relied on dicta from a Seventh Circuit opinion not properly
applicable in this case. Princeton I, 199 B.R. at 295-96. Phar-Mor, although from a court within
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the Third Circuit, declined to find preemption of a state nonclairn statute regarding probate. In its
decision, the Court relied on the inherent state interest (and corresponding lack of federal interest)
in controlling probate matters. Id. In passing a comprehensive Bankruptcy Code, Congress has
evidenced a much stronger intention to regulate bankruptcy. and thus the weaker state interest here
must give way. See Smith, 365 B.R. at 677. Because Robbins and Phar-Mor are neither applicable
nor controlling on this Court, their existence does not create a substantial ground for a difference
of opinion.
Next, Willix argues that although the strong weight of precedent goes against him, the
absence of circuit court rulings and the overall dearth of precedent on this issue minimize the
weight of the existing precedent. However, a question of first impression alone does not create
substantial grounds for a difference of opinion. See In re Futter Lumber Corp., 473 B.R. 20, 29
(E.D.N.Y. 2012). Moreover, in determining whether substantial ground exists, it is the duty of the
district judge to weigh the relative strength of the parties’ arguments. See In re Flor, 79 F.3d 281,
284 (2d Cir. 1996). Although it appears that no circuit court has ruled on the issue, decisions of
both the district and bankruptcy courts in this district, as well as several other districts throughout
the United States, have thoroughly analyzed the issue. Thus, sufficient reliable precedent exists to
find that there is no substantial ground for difference of opinion on this issue.
Finally, Defendant argues that
Princeton, and its progeny should not control the
disposition of this case because he makes a novel argument regarding the statutory language of
Section 546. Willix argues that unlike its counterpart Section l082 Section 546 is written in the
2
11 U.S.C 108 Reads: (a) If applicable nonbankruptcv law, an order entered in a nonbankruptcv proceeding. or an
agreement fixes a period within which the debtor may commence an action, and such penod has not expired before
the date of the filing of the petition, the trustee may commence such action only before the later of—
6
negative, setting only an outside limit of when a claim may be brought, rather than creating an
extension of otherwise applicable time limits. However, a mere disagreement with a court’s
statutory interpretation does not create sufficient grounds to merit an interlocutory appeal. $çç
re Poseidon Pool and Spa Recreational, Inc., 443 B.R. 271, 281 (E.D.N.Y. 2010) (an interlocutory
appeal is not appropriate where there is no claim that a court employed the wrong legal standard,
but merely an argument that the bankruptcy court came to the wrong conclusion). Virtually every
court to consider this issue has explicitly read Section 546 as an extension of time. In In re Dry
Wall Supply, the Court found that reading Section 546 as anything other than an extension of time
would “contravene the broad powers Congress has granted to the trustee to recover property for
the benefit of the estate.” Dry Wall, 111 B.R. at 937. In Princeton I and Princeton II, Judges
Gambardella and Wolin both explicitly found that Section 546 was designed to extend the period.
Although the Court did not specifically address the statutory language difference, its holding as to
the interpretation of the language carries significant weight. Therefore, although Defendant seeks
to have this Court interpret Section 546 in a new light, its suggestion of an alternate reading is not
sufficient to warrant interlocutory review.
Even were the Court to find that Willix has met all of the necessary requirements for a
potential interlocutory appeal, such review is still not warranted in this case. Interlocutory appeals
are generally only considered when warranted by exceptional circumstances.
Restaurants, 202 BR. 24, 26 (ft Del, 1996). Defendant has demonstrated no such circumstances
here. Other than the potential expedient resolution of his claims, Defendant has demonstrated no
(1) the end of such period, including any suspension of such period occurring on or after the
commencement of the case; or
(2) two years after the order for relief.
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reason why this Court should make an exception to the general rule of litigation proceeding by its
nonnal course.
IV.
CONCLUSION
Because Defendant has not sufficiently demonstrated that there is substantial ground for
difference of opinion on the law in this case or exceptional circumstances warranting special
treatment, interlocutory appeal is not warranted. Therefore, Defendant’s motion for leave to
appeal will be denied.
Because leave to appeal is denied, the Court will not consider the
substantive merits of Defendant’s appeal, and will close that case.
An appropriate Order
accompanies this Opinion.
CLAIRE C. CECCHI, U.S.D.J.
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