MARASEK et al v. U.S. BANK CUST FOR PRO CAPITAL I, LLC

Filing 25

MEMORANDUM OPINION filed. Signed by Judge Michael A. Shipp on 4/16/2015. (kas, )

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

In re JAN MARASEK and JOAN BYRON
MARAS EK

Bankruptcy Action No. 08-30919 (MBK)

JAN MARASEK, et al.,
Appellants,

ON APPEAL FROM THE
BANKRUPTCY COURT OF THE
DISTRICT OF NEW JERSEY

v.

Civil Action No. 14-5213 (MAS)
U.S. BANK CUST FOR PRO CAPITAL I,
LLC,

MEMORANDUM OPINION

Appellee.

SHIPP, District Judge
This matter comes before the Court on Appellants/Debtors Jan and Joan Marasek's
("Appellants") appeal from an order entered by the Bankruptcy Court for the District of New
Jersey on July 24, 2014 ("Order"). The Order granted Appellee U.S. Bank Cust for Pro Capital I
LLC's ("Appellee" or "Pro Capital") motion for relief from the automatic stay with respect to
property located at 463 Monmouth Road, Jackson, New Jersey (the "Property"), pursuant to 11
U.S.C. § 362(d), and denied Appellants' cross-motion to "Vacate, Void, Set Aside and Vitiate Pro
Capital's Tax Sale Certificate." (Bankruptcy Action No. 08-30919 ("BA"), ECF No. 428.) After
careful consideration, and for the reasons set forth below, the Court affirms the Bankruptcy Court's
Order.

I.

Background1
A.

Bankruptcy Proceeding

Appellants filed Chapter 13 Bankruptcy in October 2008. In their petition, Appellants
listed the Property as real estate being held by debtors as trustees under a declaration of trust and
quit claim deed, executed in 1982. Appellants failed to comply with their Chapter 13 plan to sell
or refinance the Property by June 2011, so the case was converted to a Chapter 7, and a Trustee
was appointed.
In September 2011, during the pendency of the bankruptcy, Appellee purchased a tax lien

secured by the Property at a municipal tax sale. Appellants did not pay real estate taxes on the
Property for some of 2010, and all of 2011, 2012, and 2013. (BA ECF No. 392.)2 These sums
have become part and parcel of the tax lien.

(Id.)

As of January 2014, Appellants owed

Appellee $36,600.74 to redeem the tax lien.3 (Id.) Once Appellee became aware of Appellants'
bankruptcy, it filed a motion for relief from the automatic stay in the Bankruptcy Court, and
Appellants filed a cross-motion seeking to "Vacate, Void, Set Aside and Vitiate Pro Capital's
Tax Sale Certificate." (BA ECF Nos. 392, 421.) The Bankruptcy Court annulled the automatic
stay nunc pro tune and denied Appellants' cross-motion. (BA ECF No. 428.)

1

The majority of the factual background provided herein is taken from Appellants' brief and
Appellee's opposition brief (ECF Nos. 15, 17) and is offered solely for contextual purposes.
Factual material that is relevant to the Court's decision is taken from those portions of the
Bankruptcy Court's docket that have been designated as the record for this appeal and are
identified by citation to the Bankruptcy Court's docket.
2

Appellants incorrectly identified the Motion for Relief from Stay in the Bankruptcy Court as
ECF No. 391 in their designation of records.
3

Appellee additionally indicates in its opposition brief (ECF No. 17) that Appellants have failed
to pay taxes for the first, second, and third quarters of 2014, for a total of $7 ,025.52 owed.
2

B.

Parties' Positions

On appeal, Appellants argue, first, that the Property is not owned by them but is owned
by a trust ("Marasek Trust"). Next, Appellants claim that there was fraudulent concealment by
Appellee and Appellee's counsel, because they did not disclose that certain members of Pro
Capital and certain attorneys from the law firm representing Appellee had pied guilty to
participation in a bid-rigging scheme in violation of the antitrust laws. Appellants argue that this
constituted fraud upon the Court and triggers the unclean hands doctrine. Third, Appellants
argue that Pro Capital violated the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C.
§ 1692, because Pro Capital never sent Appellants written verification of the debt. Additionally,

Appellants claim that U.S. Bankcorp (who, as Appellee notes, is not a party to the bankruptcy)
was unjustly enriched through its acquisition of tax sale certificates and a government bailout.
Appellee first points out the inconsistency of Appellants' claim that the Property is not
owned by them and instead owned by a trust. Appellee argues that if Appellants do not own the
Property then it should not have been included in an automatic stay to begin with, since the
Marasek Trust is not filing for bankruptcy. Appellee also points out that the source of its debt is
a tax lien, not a consumer debt, and as a result, the FDCPA is not applicable here.
Appellee argues that, pursuant to 11 U.S.C. § 362(d), the Bankruptcy Court properly
granted Pro Capital relief from the automatic stay. It asserts, with support, that a secured
creditor may be granted relief from a stay if there is a threat that the value of the Property may
decline and that the failure to provide for real property taxes can be a basis for finding lack of
adequate protection. Appellee asserts that it was appropriate for the Bankruptcy Court to relieve
it from the automatic stay because Appellants owe over $30,000 toward redeeming the tax sale
certificate, which has diminished the value of the Property. Although Appellee points out that

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the remaining accusations are not germane to this matter, it briefly addresses them and asserts
that any guilty pleas entered by Appellee or its agents covered a time period prior to 2009, two
years before this tax lien was purchased. Appellee also contends there was no duty to disclose
the guilty pleas and Appellants have provided no evidence that the tax lien was procured by
fraud.
II.

.Jurisdiction and Standard of Review

United States District Courts have jurisdiction to review appeals "from final judgments,
orders, and decrees ... of bankruptcy judges." 28 U.S.C. § 158(a)(l). District Courts review a
"bankruptcy court's legal determinations de novo [and] its factual findings for clear error." In re

United Healthcare Sys., Inc., 396 F.3d 247, 249 (3d Cir. 2005) (internal quotation marks
omitted). The Court is required to "break down mixed questions of law and fact, applying the
appropriate standard to each component." Meridian Bank v. Alten, 958 F.2d 1226, 1229 (3d Cir.
1992) (internal quotation marks omitted).

A factual finding "is 'clearly erroneous' when

although there is evidence to support it, the reviewing court on the entire evidence is left with the
definite and firm conviction that a mistake has been committed." United States v. U.S. Gypsum

Co., 333 U.S. 364, 395 (1948).
Whether to grant relief from an automatic stay is "a decision committed to the bankruptcy
court's discretion, and may be reversed only for abuse of that discretion." In re Myers, 491 F.3d
120, 128 (3d Cir. 2007); see also In re Rosen, 208 B.R. 345, 355 (D.N.J. 1997) ("A bankruptcy
court is granted discretion to determine whether to lift an automatic stay; such discretion is
reviewable on an abuse of discretion basis.") There is an abuse of discretion where the "court's
decision rests upon a clearly erroneous finding of fact, an errant conclusion of law, or an
improper application of law to fact," but a decision will not be overturned unless "no reasonable

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person would adopt the [lower] court's view." In re SGL Carbon Corp., 200 F.3d 154, 159 (3d
Cir. 1999) (internal quotation marks omitted)~ In re SemCrude, L.P., 428 B.R. 590, 593 (D. Del.
2010).

III.

Analysis
A.

Relief from Automatic Stay

Relief from a stay, "such as by terminating, annulling, modifying, or conditioning such
stay," may be provided "for cause, including the lack of adequate protection of an interest in
property of such party in interest." 11 U.S.C. § 362(d)(l). Courts do not apply a rigid test to
determine if "good cause" exists but instead employ a "balancing test in which the interests of
the Debtor's estate are weighed against the hardships that will be incurred by the movant." In re

Donington, Karcher, Salmond, Ronan & Rainone, P.A., 194 B.R. 750, 761 (D.N.J. 1996). "One
basis for cause may be where a secured creditor lacks adequate protection because there is a
threat the value of the property may decline." In re Rosen, 208 B.R. 345, 356 (D.N.J. 1997)
(citing In re Pinto, 191 B.R. 610, 612 (Bankr. D.N.J. 1996), abrogated on other grounds by In re

Mendez, 255 B.R. 143 (Bankr. D.N.J. 2000)); see also United Sav. Ass'n of Tex. v. Timbers of
Inwood Forest Assocs., Ltd., 484 U.S. 365, 370 (1988) ("[l]nterest is not adequately protected if
the security is depreciating during the term of the stay."). Another basis for finding lack of
adequate protection may be "'the failure 'to provide for real prope1ty taxes.'" In re Rosen, 208
B.R. at 356 (quoting Pinto, 191 B.R. at 612); see also In re Lane, 108 B.R. 6, 11 (Bankr. D.
Mass. 1989) (determining that the value of a creditor's interest in a property will begin to decline
if taxes on the property go unpaid).
The Third Circuit has determined that a "bankruptcy court's conclusion that [a party] had
adequate protection [is] a factual finding which [is] reviewed using the deferential clearly

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erroneous standard." In re Swedeland Dev. Grp., 16 F.3d 552, 558 (3d Cir. 1994); see also In re
Brown, 311 B.R. 409, 412-13 (E.D. Pa. 2004) ("Cause is an intentionally broad and flexible

concept which must be determined on a case-by-case basis.").
In this case, Appellants stopped paying real estate taxes on the Property at some point in

2010. The tax lien purchased by Appellee covers taxes on the Property for some of 2010, all of
2011, 2012, and 2013, and some of 2014. Appellants' failure to pay the taxes and accruing
interest will lead to a diminishment in the value of the Property, and Appellee may be
inadequately protected. Accordingly, applying the clearly erroneous standard to the Bankruptcy
Court's decision to annul the automatic stay, this Court finds no clear error, and thus no abuse of
discretion.

B.

Affirmative Defenses

In response to Appellee's motion for relief from the automatic stay, Appellants filed a

cross-motion with numerous assertions, which the Court construes as affirmative defenses to
Appellee's motion for relief. Although a hearing on relief from a stay is "not the appropriate
time at which to bring in other issues, such as counterclaims against the creditor," the nonmoving
party may "present[] evidence on the existence of claims which the court may consider in
exercising its discretion." In re Dennison, 50 B.R. 950, 954-55 (Banla. E.D. Pa. 1985) (internal
quotation marks omitted). A court may consider those defenses that "strike at the very heart of
the validity of the movant's secured claim." In re Souders, 75 B.R. 427, 432 (Banla. E.D. Pa.
1987), overruled on other grounds by FRG, Inc. v. Manley, 919 F.2d 850 (3d Cir. 1990); see also
In re Brown, 311 B.R. 409, 414 (E.D. Pa. 2004) ("[T]he filing of an adversary proceeding is

clearly not the only avenue for resolving [an] issue and the validity of a lien may also be a

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critical issue in stay modification proceedings that involve collateral that is property of a
bankmpt estate.").
When asserting an affirmative defense to relief from a stay, the burden is on the debtor to
present "sufficient evidence to convince [the court] that he will prevail in an action challenging
the validity of movant's title." Dennison, 50 B.R. at 955. If the debtor presents sufficient
evidence, the court can exercise its equitable powers to order that the stay remain in effect. Id.
However, "[ w]here the defenses asserted are merely a formless morass of self-serving
conclusory statements, or are not supported by evidence, they will not be considered." In re

Souders, 75 B.R. at 432 (internal quotation marks omitted).
In the instant case, Appellants asserted numerous claims including fraud upon the court,
unclean hands, violation of the FDCPA, and unjust enrichment. Appellants have not provided,
either in the first instance or on appeal, any evidence to convince the Court that they could
prevail on an action challenging the validity of Appellee's title. As a result, it was not an abuse
of discretion for the Bankmptcy Court to deny Appellants' cross-motion and request that any
affirmative defenses be brought by Appellants as claims in an adversary proceeding instead of as
a cross-motion in response to a request for relief from a stay.

C.

Motion for Reentry of Stay

Appellants additionally filed a motion before this Court requesting "A Protective Order
for

A

Stay

&

Defendant/Appellee

Injunction
Pending

Staying
the

and

Final

Restraining

Resolution

&

Any

Foreclosure

Exhaustion

Action

of Any

&

By
All

Plaintiff/Appellants' Appeals that May Ensue." (ECF No. 21.) The Court construes this as a
motion for reentry of the stay and an injunction on any foreclosure action pending the resolution

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of Appellants' appeals. Given that Appellants' motion goes to the merits of the appeal itself, it
will be dismissed in accordance with this Court's affirmance of the Bankruptcy Court's Order.

IV.

Conclusion
For the reasons set forth above, it is hereby ordered that the Bankruptcy Court's Order is

affirmed, and Appellants' motion is denied. An order consistent with this Memorandum Opinion
will be entered.
MICHAEL A. Sfnpp
UNITED STATES DISTRICT JUDGE

Dated: April /(j 72015

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