The opinion of the court was delivered by: Hamill
The principal issue in this case is whether an assessment of rollback taxes made after the filing of a petition in bankruptcy violates the automatic stay arising under § 362 of the Bankruptcy Code, 11 U.S.C. § 362(a). Additional issues are (1) whether the county board's notice of intent to assess rollback taxes was fatally defective, (2) whether a cessation of farming constitutes a change in use sufficient to invoke rollback taxes when the taxpayer is in bankruptcy, and (3) whether Clinton Township is barred by principles of estoppel from assessing rollback taxes because it failed to raise its tax claim in the bankruptcy court when United Jersey Bank ("UJB") allegedly could have taken steps to protect its interests.
For the reasons to be discussed, I conclude that the rollback tax assessment itself does not violate the automatic stay. However, by reason of the stay, the township's lien for rollback taxes is void. Under the facts of this case, because there is no lien, the township cannot enforce collection of the rollback taxes unless the stay is annulled by the bankruptcy court. As to the additional issues, (1) the notice of intent to assess rollback taxes was not defective, (2) a cessation of farming while a taxpayer is in bankruptcy is a change in use that triggers rollback taxes, and (3) Clinton Township is not estopped from assessing rollback taxes by reason of its inaction in the bankruptcy court.
In April 1988 Alpha-Bella borrowed $1,225,000 from R.D.S. Realty Inc., securing the loan by a mortgage on the subject property. R.D.S. in turn borrowed $800,000 from plaintiff UJB, securing the loan by an assignment of its mortgage from Alpha-Bella. Alpha-Bella subsequently defaulted on the mortgage; UJB filed a foreclosure action in the Superior Court, and on May 24, 1990 a final judgment of foreclosure was entered in favor of UJB.
On January 14, 1991, the date scheduled for the sheriff's sale of the subject property, Alpha-Bella filed a petition in bankruptcy in the Bankruptcy Court for the District of New Jersey. The petition was filed under Chapter 11 of the Bankruptcy Code and was served upon Clinton Township. UJB filed a secured proof of claim in the bankruptcy proceeding indicating that Alpha-Bella was indebted to it in the amount of $1,085,742.01. In April 1993 the bankruptcy court vacated the automatic stay with respect to the subject property so as to permit UJB to proceed with the sheriff's sale. In the same order, the bankruptcy court converted the Chapter 11 reorganization proceeding to a Chapter 7 liquidation. The sheriff's sale took place, and a sheriff's deed was delivered on February 25, 1994, to Pipco Ashley, Inc., which appears to be a wholly owned subsidiary of UJB.
In October 1991 the tax assessor of Clinton Township inspected the property. He found that the parcel was densely overgrown and saw no farming activity. Although it had been assessed as farmland in the past, no application for farmland assessment was filed for the 1992 tax year, and so the property received a "regular" assessment as vacant land for the 1992 tax year.
Between January and July 1992, the assessor made additional inspections and saw no agricultural activity. On July 16, 1992, the Hunterdon County Board of Taxation issued a notice indicating that the Clinton Township assessor intended to levy rollback taxes on the property for the 1990 and 1991 tax years because there was "no agricultural activity." On August 14, 1992 the county board issued a judgment assessing rollback taxes on the property for the 1990 and 1991 tax years. The county board judgment indicated that the true value of the property for 1990 was $1,479,900 and for 1991 was $1,331,900.
In late September 1992 UJB timely filed a complaint in the Tax Court on behalf of Alpha-Bella challenging both the denial of farm qualified status and the value of the property as determined by the county board. The rollback taxes remain unpaid. *fn1
The township subsequently moved to dismiss the complaint, among other things, for lack of standing. In response to the motion, I issued a bench opinion concluding under Chemical Bank New Jersey, N.A. v. Absecon, 13 L. Ed. 2d 1(Tax 1992), that UJB, as assignee of the mortgagee, had standing to pursue the tax appeal on the property that secured the mortgage loan. At the same time, I declined to issue an order or permit the case to proceed pending an order from the bankruptcy court agreeing that the New Jersey Tax Court should determine the tax appeal, including the question whether the county board judgment imposing rollback taxes was void as violative of the automatic stay.
My concern was prompted by § 362(a)(1) and § 505(a)(1) of the Bankruptcy Code. Under § 362(a)(1), the Tax Court proceeding, if not authorized by the bankruptcy court, might have been void as the "continuation . . . of a proceeding against the debtor" in violation of the automatic stay. Maritime Elec. Co., Inc. v. United Jersey Bank, 959 F.2d 1194, 1206 (3rd Cir. 1991) ("automatic stay suspends any non-bankruptcy court's authority to continue judicial proceedings then pending against the debtor"; judicial actions and proceedings in violation of automatic stay are void ab initio); H & H Beverage Distributors v. Department of Revenue of Pa., 850 F.2d 165, 168, n.2 (3rd Cir.), cert. denied, 488 U.S. 994 (1988) ("e question whether H & H may pursue its state administrative tax remedies during the pendency of the automatic stay without permission of the bankruptcy court."); Matter of Cappadonna, 154 Bankr. 639 (Bankr. D.N.J. 1993) (foreclosure judgment entered by New Jersey trial court while automatic stay was in effect was void). Moreover, in view of the bankruptcy court's concurrent jurisdiction over the township's tax claim under 28 U.S.C. § 1334(b) and 28 U.S.C. § 157(a) and (b) and its power under 11 U.S.C. § 505(a)(1) to determine the "amount or legality" of the rollback tax assessment, either party could have sought removal of the case to federal court. 28 U.S.C. § 1452(a).
In December 1993 the bankruptcy court issued an order authorizing the New Jersey Tax Court to "fully dispose of the pending New Jersey State Court property tax appeal relating to the property, such proceeding to adjudicate all issues raised by that proceeding under the United States Bankruptcy Code . . . including but not limited to, the issue of . . . the effect of the automatic stay in this case [on] Clinton Township's filing of a notice of assessment of rollback taxes with the Hunterdon County Board of Taxation and the judgment of the Hunterdon County Board of Taxation affirming the assessment of rollback taxes on the property." The order continues that the bankruptcy court and all parties to the proceeding will be bound by a judgment of the New Jersey Tax Court or any appellate court reviewing the Tax Court's judgment.
As a result of the bankruptcy court's order authorizing (but not directing) this court, under the unique facts of this case, to decide all the bankruptcy issues raised in this tax appeal, I will address issues not generally discussed in a local property tax case. I do so because it would be futile to decide the state law issue, namely the value of the subject property for local property tax purposes, without first deciding whether the assessment is void as a result of the automatic stay. While it might be argued that the court should not address the further issue of the validity of the township's lien because the lien relates to the collectibility of the tax, not the validity of the assessment, I nevertheless will reach that issue. Under the peculiar facts of this case, the failure to do so would create a false impression that the township's taxes are not affected by the automatic stay, which in turn would most likely affect the outcome of the state law issues or needlessly prolong the litigation. In short, while this court normally would not decide bankruptcy law issues and cannot be compelled to do so by the bankruptcy court, in this case the bankruptcy court has authorized me to do so, and I am in full agreement because the state law issues that I must decide cannot be properly resolved without first deciding the entwined bankruptcy issues.
The first issue to be determined is whether the county board's notice of intent to invoke rollback taxes was defective. If it was, the validity of the assessment would be questionable and the bankruptcy issue might not have to be addressed.
Plaintiff argues that the notice was defective in failing to indicate the location, date, and time of the county board hearing, failing to show a mailing date, and failing to reflect service by certified mail, all in violation of N.J.S.A. 54:4-63.13. In response, defendant attaches a copy of the actual notice that was purportedly mailed to Alpha-Bella and was attached as an exhibit to plaintiff's complaint.
The copy complies in all respects with the statute, including certified mailing. It specifies the location, date and time of the hearing, identifies the property, specifies the years and amounts of the proposed assessments, identifies the assessor, and is signed by the county tax administrator. The copy of the notice attached to the complaint includes a handwritten notation reflecting the number of the certified mail receipt and the date July 16, 1992. The postmark on the certified mail receipt is illegible, but shows a delivery date of July 17, 1992, and the township maintains that the notice was mailed on July 16. The illegibility of the postmark date is not material because the date of actual delivery is indicated, and that date, July 17, 1992, amply complies with the requirement of N.J.S.A. 54:4-63.13 that a taxpayer receive at least 15 days advance notice of the hearing. (The hearing was scheduled for August 12, 1992.)
Plaintiff nevertheless argues that the contents of the notice actually sent to Alpha-Bella have not been verified. While that may be so, defendant maintains that the copy in the county board's files is the same as the notice sent to plaintiff. In the absence of any evidence to the contrary, defendant's assertion is plausible and will be accepted as true. Accordingly, as the notice of intent to invoke rollback taxes complied in all respects with N.J.S.A. 54:4-63.13, notice of the proposed assessment was properly given, and the assessment cannot be successfully challenged on that basis.
The automatic stay that arises under § 362(a) of the Bankruptcy Code ("Code") "'is one of the fundamental debtor protections provided by the bankruptcy laws.'" H & H Beverage Distributors v. Department of Revenue of Pa., supra, 850 F.2d at 166 (quoting from H.R. Rep. No. 595, 95th Cong., 1st Sess. 340 (1977), reprinted in 1978 U.S. Code Cong. & Admin. News 5787, 6296). "Its essential purpose is twofold: (1) to protect creditors and thereby promote the bankruptcy goal of equal treatment . . .; and (2) to give the debtor a breathing spell." H & H Beverage Distributors, supra, 850 F.2d at 166. "Section 362[(a)] provides for a broad stay of litigation, lien enforcement, and other actions, judicial or otherwise, which would affect or interfere with property of the estate, property of the debtor, or property in the custody of the estate." 2 Collier on Bankruptcy, § 362.01, at 362-8 to 362-9 (L. King ed. 1988). The stay applies to "all entities," including governmental units. Equibank, N.A. v. Wheeling-Pittsburg Steel Corp., 844 F.2d 80, 86 (3rd Cir. 1989). Exceptions to the stay are listed in § 362(b).
Under § 362(a)(4) the filing of a bankruptcy petition operates as a stay of "any act to create, perfect, or enforce any lien against property of the estate."
Plaintiff asserts that the county board judgment assessing rollback taxes was an "act to create . . . [a] lien against property of the estate" and is therefore barred under § 362(a)(4) because the stay went into effect on January 14, 1991, and the county board judgment was not issued until August 14, 1992. Additionally, according to plaintiff, the township's rollback tax lien is barred because, pursuant to N.J.S.A. 54:4-23.9 and N.J.S.A. 54:4-63.20, the lien would not have arisen until January 1, 1992, and § 362(a)(4) prevents any post-petition lien from arising against property of the estate.
In defense of the rollback tax assessment, the township maintains that, due to the fact that farmland assessment is a "tax deferral," the township had an interest in the property that arose before the petition in bankruptcy was filed and that the perfection of an interest in property that arises prior to bankruptcy is specifically excepted from the automatic stay under § 362(b)(3).
Although not addressed by either party, the first question is whether the county board proceeding that resulted in the imposition of rollback taxes is an administrative proceeding against the debtor that could have been commenced before the filing of the bankruptcy petition or was initiated to recover a claim against the debtor that arose before the filing of the bankruptcy petition. If so, the proceeding ...