MICHAEL KAPLAN, Bankruptcy JudgePage 2
I. INTRODUCTION
In this Adversary Proceeding, Plaintiff, Nancy Isaacson ("Plaintiff"), Chapter 7 Trustee for the Bankruptcy Estate of Debtor Rachelle Castiglione ("Debtor" or "Mrs. Castiglione"), seeks to avoid the September 15, 2005 transfer of Debtor's interest in real property located at 222 Madison Avenue, Hasbrouck Heights, New Jersey (the "Property") to her husband, Defendant Joseph Castiglione ("Mr. Castiglione") as a fraudulent transfer pursuant to §§ 544 and 548 of the Bankruptcy Code and applicable state law. Trustee also seeks to avoid, pursuant to 11 U.S.C. § 550, the subsequent mediate transfer by Mr. Castiglione of an interest in the Property to Defendant, Superior Mortgage Corp. ("Superior") by his conveyance of a mortgage lien to Superior on the same date, September 15, 2005. The Motion for Summary Judgment (the "Motion") addresses only the initial transfer of Debtor's interest in the Property to Mr. Castiglione. For the reasons set forth below, the Court grants Plaintiff's Motion.
II. JURISDICTION
This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and the Standing Order of Reference issued by the United States District Court for the District of New Jersey on July 13, 1984. This is a "core proceeding" pursuant to 28 U.S.C. § 157(b)(2)(I). Venue is proper in this Court pursuant to 28 U.S.C. § 1409(a).
III. UNDISPUTED FACTS
The Court notes that L.Civ. R. 56.1 of the District Court, made applicable herein pursuant to D. N.J. LBR 1001-1, requires the filing of separate statements of material facts as to which there exists or does not exist a genuine issue. The Court has adopted and incorporated in its opinion certain non-controverted facts set forth in the Certification of Nancy Isaacson ("Isaacson Cert.") and Certification of Thomas A. Waldman ("Waldman Cert."), and Exhibits annexed thereto, as well as the Plaintiff's statement of undisputed material facts. No other party filed a statement of undisputed facts and none assert any factual disputes.
1. Debtor filed a voluntary petition ("Chapter 7 Petition") for relief under Title 11, Chapter 7 of the United States Code (the "Bankruptcy Code") on October 15, 2005 (the "Petition Date"). (Isaacson Cert. ¶ 3.)
2. On or about November 10, 2005, Plaintiff was appointed as Chapter 7 Trustee pursuant to 11 U.S.C. § 701. (Isaacson Cert. ¶ 1).
3. Defendant Joseph Castiglione ("Mr. Castiglione") is the husband of Mrs. Castiglione and resides at 222 Madison Avenue, Hasbrouck Heights, New Jersey (the "Property"). (Isaacson Cert. ¶ 5).
4. By Deed dated November 19, 2004 between Mr. Castiglione, Grantor, and Mr. and Mrs. Castiglione, husband and wife, Grantee, Mr. Castiglione conveyed an interest in the Property to Mrs. Castiglione and he and Mrs. Castiglione became the record owners of the Property. (Issacson Cert. at ¶ 6 and Exhibit B thereto). The transaction was undertaken as part of a refinance of the existing mortgage.
5. On or about August 24, 2005 Mr. Castiglione applied to Defendant Superior Mortgage Corp. ("Superior") for a mortgage loan to refinance the Property. (Waldman Cert. at ¶ 4(a) and Exhibit C thereto).
6. In connection with the underwriting process for Mr. Castiglione's mortgage loan application, Superior obtained an appraisal of the Property. The appraisal obtained by Superior indicates that the estimated value of the Property as of August 24, 2005 was $387,500.00. (Waldman Cert. at ¶ 4(a) and Exhibit D thereto).
7. Superior approved Mr. Castiglione's application for a mortgage loan to refinance the Property subject to certain conditions, including a requirement that Mrs. Castiglione execute a quitclaim deed to remove her as a record owner of the Property and to vest title to the Property only in Mr. Castiglione. (Waldman Cert. at ¶ 4(c) and Exhibit E thereto).
8. On or about September 15, 2005, approximately one month before the Petition Date, in connection with his refinance of the Property through Superior, Mr. Castiglione became the sole record owner of the Property by virtue of a deed between Mr. Castiglione and Mrs. Castiglione, Grantor and Mr. Castiglione, Grantee, by which Mrs. Castiglione's interest in the property was transferred to Mr. Castiglione ("the Transfer"). The September 15, 2005 deed indicates on its face that it was prepared by Mrs. Castiglione. (Isaacson Cert. at ¶ 7 and Exhibit C thereto).
9. A closing of the mortgage loan refinance transaction between Mr. Castiglione and Superior took place on the same day, September 15, 2005. According to the HUD-1 Form Settlement Statement prepared in connection with the closing of the loan transaction, the total of then-existing mortgage liens against the Property, which liens were paid from the Superior loan proceeds were $244,699.57. Thus, as of the date prior to the Transfer the value of the equity in the Property was $142,800.43, one half of which belonged to Mrs. Castiglione. (Waldman Cert. ¶ 4(d) and Exhibit F thereto).
10. Mrs. Castiglione received less than reasonably equivalent value in exchange for her interest in the Property, as the consideration stated in the September 15, 2005 deed for the transfer of her interest in the Property is $1.00. (Isaacson Cert. ¶ 7 and Exhibit B thereto).
11. As of the Petition Date, at least one of Mrs. Castiglione's creditors, The Bank of New York, had instituted suit against her in the Superior Court of New Jersey, Docket No. L-5772-05. (Isaacson Cert. at ¶ 4 and Exhibit A thereto).
12. As of the date of Transfer, approximately one month prior to the Petition Date, Mrs. Castiglione was either insolvent or she became insolvent as a result of the transfer. As disclosed in her Chapter 7 Petition, approximately one month after the transfer of her interest in the property, Mrs. Castiglione's assets totaled $18,400.00 while her total liabilities were $93,373.89. (Isaacson Cert. at ¶ 4 and Exhibit A thereto).
13. Prior to January 26, 2000, legal title to the Property was held by Mr. Castiglione's first wife, Sherry Castiglione ("Sherry"). On January 14, 1992, Mr. Castiglione executed a deed (the "Deed") as Grantor by which he conveyed to Sherry any interest he may have had in the Property by virtue of their marriage. The Deed was intended to divest Mr. Castiglione of any present or future interest in the property in favor of the couple's children, so that the property would vest in the children by intestate succession upon Sherry's death. (Waldman Cert. ¶ 7(a) and Exhibit I thereto).
14. Sherry died intestate on April 18, 1995 and Mr. Castiglione was appointed as the administrator of her estate by the Bergen County Surrogate's Court on April 24, 1995. (Waldman Cert. ¶ 8 and Exhibits K and L thereto). As a result of Sherry's illness and death, and Mr. Castiglione's increased responsibility for their children, the family suffered financially, and in January 2000, he sought to refinance the property in order to reduce the household expenses, restore financial stability and save the house for the children. (Joseph Castiglione Cert., filed June 12, 2007, ¶¶ 4-7).
15. On January 26, 2000, Mr. Castiglione, acting as the administrator of Sherry's estate, transferred title to the Property from the Sherry's estate to himself. On the same date he mortgaged the property to Eastern Mortgage. (Waldman Cert. ¶ 7(b), and Exhibit J thereto). Thereafter, on May 24, 2002, Mr. Castiglione married the Debtor, and she resided at the Property with Mr. Castiglione and his children. The November 19, 2004 transfer of the Property and subsequent refinance transactions and September 15, 2005 transfer, referenced in paragraphs four through eight above then ensued.
IV. SUMMARY JUDGMENT STANDARD
Summary judgment is appropriate where "there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). "In deciding a motion for summary judgment, the judge's function is to determine if there is a genuine issue for trial." Josey v. John R. Hollingsworth Corp., 996 F.2d 632, 637 (3d Cir. 1993). The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. Huang v. BP Amoco Corp., 271 F.3d 560, 564 (3d Cir. 2001), citing Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the moving party establishes the absence of a genuine issue of material fact, however, the burden shifts to the non-moving party to "do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986) (citations omitted). A party may not defeat a motion for summary judgment unless it sets forth specific facts, in a form that "would be admissible in evidence," establishing the existence of a genuine issue of material fact for trial. Fed.R.Civ.P. 56(e) (providing that in response to a summary judgment motion the "adverse party may not rest upon the mere allegations or denials of [its] pleading, but the adverse party's response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial");See also Fireman's Ins. Co. of Newark, N.J. v. DuFresne, 676 F.2d 965, 969 (3d Cir. 1982); Olympic Junior, Inc. v. David Crystal, Inc., 463 F.2d 1141, 1146 (3d Cir. 1972). In determining whether a factual dispute warranting trial exists, the court must view the record evidence and the summary judgment submissions in the light most favorable to the non-movant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986).
1. Mr. Castiglione's Interest in the Property.
The Trustee previously filed a similar motion seeking summary judgment against Mr. Castiglione. In opposition to Trustee's motion, Mr. Castiglione argued that due to the prior chain of title to the Property, by operation of state law, title to the Property vested automatically in the children of his first marriage and thus, he never acquired legal title to the Property. Indeed, Mr. Castiglione contended that as a result of his 1992 renunciation of all legal and equitable interests, and the automatic vesting of title in his children, there was no possibility of a fraudulent transfer because the interest in the Property that he had obtained by the deed to himself (executed as administrator of Sherry's estate, with such interest subsequently transferred to the Debtor and then transferred back to him) was void and, thus, had no value.
The Court denied the Trustee's earlier motion for summary judgment, without prejudice to the Trustee's right to renew the motion if able to establish, as both a matter of fact and law, that Mr. Castiglione possessed valid legal title to the Property on November 19, 2004. The Trustee now asserts that under applicable state law, Mr. Castiglione did in fact acquire good and valuable legal title to the Property, and that under the facts and circumstances presented, as a matter of law, a fraudulent transfer occurred entitling the Trustee to a recovery. Specifically, the Trustee asserts that New Jersey statutory law grants an administrator of an intestate decedent's estate the same power over the decedent's real property as the absolute owner of such property. N.J.S.A. 3B:10-30, provides:
Until termination of his appointment a personal representative has the same power over the title to property of the estate that an absolute owner would have, in trust however, for the benefit of the creditors and others interested in the estate. This power may be exercised without notice, hearing, or order of the court.
In both the initial and present motions for summary judgment, the Court determined that there were material issues of fact as to the Debtor's intent with respect to the September 15, 2005, transfer of the Property, thus precluding a grant of summary judgment on Plaintiff's causes of action seeking to avoid the transfer as having been undertaken with actual intent to hinder, delay or defraud creditors. No such material issues of fact arise, however, with respect to Plaintiff's claims under constructive fraudulent transfer theories.
Mr. Castiglione maintains that he never acquired an interest in the real property as a result of the Deed whereby Mr. Castiglione extinguished all interest he might have had or could have had in the property in the future. Specifically, the Deed contained the following language:
Grantor, Joseph Castiglione, is the husband of Grantor/Grantee, Sherry Castiglione. The Grantor, Joseph Castiglione, specifically intends by this deed to grant, convey, transfer, release, extinguish, and alienate to the Grantee therein, any and all present or future estate, right, title and interest, legal or equitable, and right of possession, whether vested, inchoate, or contingent, and, in particular (but not in limitation thereof), any vested inchoate or possible future estate or curtesy under N.J.S.A. 37:2-18 and 3A:35-5, rights concerning the principal matrimonial residence under N.J.S.A. 3B:28-3, or other interests arising from court decisions, public, or the marital relationship which said Grantor, Joseph Castiglione, has therein.
The Court views Mr. Castiglione's interest in the Property to be separate from his power over the Property. A power is not property or a property right or interest, and it is not an estate. It is a personal privilege or capacity, or a mere authority. See Burlington County Trust Co. v. Di Castelcicala, 2 N.J. 214 (1949). A power is a liberty or an authority which operates upon a vested estate or a vested interest, not being derived out of such estate or interest but overreaching or superseding it. Id. Powers are granted. In contrast, interests arise by mere operation of circumstances and status.
It is undisputed that Mr. Castiglione and his first wife sought to extinguish all present and future interests he had in the Property, arising out of their marraige. However, when Sherry died intestate, Mr. Castiglione, as general administrator of her estate, acquired power over the Property pursuant to N.J.S.A. 3B:10-2, which provides, in pertinent part, that "If any person dies intestate, administration of the intestate's estate shall be granted to the surviving spouse or domestic partner of the intestate, if he or she will accept the administration, . . . ". As part of this statutory scheme, N.J.S.A. 3B:13-23 grants to every fiduciary, including administrators, the power in the exercise of good faith and reasonable discretion, to, among other things, sell or mortgage property of the estate. These statutory powers arise as a result of Mr. Castiglione's appointment by the Bergen County Surrogate as administrator of Sherry's estate, and are wholly separate and apart from the interests renounced back in 1992. If Sherry desired to prevent Mr. Castiglione from having any power over the Property, she could have executed a will and named a separate executor to handle the probate matters. Alternatively, Mr. Castiglione could have opted not to assume the responsibilities as administrator and the Surrogate would have been required under the law to appoint another relative or third party. Defendant's contention that he had renounced the very powers which he voluntarily sought and assumed as the administrator of the estate is both inconsistent and illogical. This Court finds it manifestly evident that Mr. Castiglione possessed the legal ability to transfer title to the Property-first to himself in 2000 and then to the Debtor in 2004. Whether in doing so, he exercised reasonable fiduciary care towards the interests of his children is an issue for another court and another day.
As noted by the Trustee, N.J.S.A 3B:10-30 provides Mr. Castiglione, as administrator of Sherry's estate, with the power to preserve assets for the minor Castiglione children. Towards that end, Defendant initiated serial mortgage refinances and admittedly transferred title to the Property in order to consummate the transactions. Mr. Castiglione, in his certification previously filed with the Court, states that his refinances of the Property were necessary to reduce household expenses and preserve the Property for the benefit of the children. Mr. Castiglione further acknowledges in his certification that the transfers were mandated by the mortgage institutions as part of the refinance obligations. N.J.S.A. 3B:13-23(q) grants administrators the power "to execute and deliver agreements, assignments, bills of sale, contracts, deeds, notes, receipts and any other instrument necessary or appropriate for the administration of the estate or trust;". Thus, Mr. Castiglione was well within his power as administrator to execute any and all deeds to the Property, making the transfer of the Property to and from Mrs. Castiglione valid transfers of property, subject to avoidance by the trustee. However, all parties must likewise accept the intended and unintended legal consequences of the transfers-one of which is to make the transfer subject to attack by a trustee in bankruptcy.
N.J.S.A. 3B:14-36 provides, in pertinent part, that "any sale or encumbrance to the fiduciary, his spouse, . . ., or any transaction which is affected by a substantial conflict of interest on the part of the fiduciary, is voidable by any person interested in the estate." It is not before this Court, nor for this Court to determine the merits of Mr. Castiglione's conduct or whether the transfers of the Property give rise to claims by other persons interested in the estate of the deceased. The sole issue before the Court is whether the transfer from the Debtor is fraudulent and, therefore, voidable by the Trustee whose interests are limited to the bankruptcy, not the decedent's estate.
2. Fraudulent Transfer of the Property.
Whether under New Jersey's Uniform Fraudulent Transfer Act or under the Bankruptcy Code provision governing fraudulent transfers, a transfer made may be avoided as fraudulent either if it was made with actual fraudulent intent [N.J.S.A. 25:2-25(a) and 11 U.S.C. § 548(a)(1)(A)], or if it was made under circumstances that render it constructively fraudulent [N.J.S.A. 25:2-27(a) and 11 U.S.C. § 548(a)(1)(B)]. As discussed elsewhere, this Court finds sufficient issues of material fact regarding the Debtor's state of mind in undertaking the September 15, 2005 transaction, so as to preclude a grant of summary judgment as to fraudulent intent. However, there are sufficient undisputed facts in the matter at bar to establish constructive fraud under either N.J.S.A. 2:25-27(a) or 11 U.S.C. § 548(a)(1)(B).
The transfer of the Debtor's one-half interest in the Property was made just one month before the filing of Debtor's Chapter 7 petition. Additionally, it is undisputed that the Debtor did not receive reasonably equivalent value for the transfer (the stated consideration for the transfer in the deed was $1.00, and as the Trustee has demonstrated that the value of Ms. Castiglione's interest was one-half of the couple's $142,800.43 equity in the Property). Finally, according to the debts set forth on schedule "F" of her Chapter 7 Petition, filed just one month after the transfer, Ms. Castiglione was either insolvent at the time of the transfer or became insolvent as a result of the transfer. Accordingly, the Court grants summary judgment on Counts One and Two of the Complaint with respect to the element of constructive fraud and applicable state law.