ON APPEAL FROM AN ORDER OF THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF NEW JERSEY [Case No. 10-17235/JHW]
The opinion of the court was delivered by: Hon. Jerome B. Simandle
This action comes before the Court on an appeal from the Bankruptcy Court's issuance of an order on March 16, 2012 ("March 16, 2012 Order") [Docket Item 1-2] in Bankruptcy Action No. 10-17235 allowing certain proofs of claim pursuant to 11 U.S.C. §§ 502(a) and (b). Appellant, Sea Village Marina ("SVM"), operates a community of floating homes or houseboats in Egg Harbor Township, New Jersey. Conditions at the marina have deteriorated; the residents currently suffer from a lack of potable water, docks in disrepair, and homes that tilt at uneven angles because they rest on mud at low tides. SVM filed for bankruptcy under Chapter 11. The Bankruptcy Court's Order allows general unsecured claims from certain houseboat owners who lost value in their homes due to degraded conditions at the marina.
SVM has appealed the portions of the March 16, 2012 Order that granted general unsecured claims to five different SVM homeowners for loss of value in their homes. The aspects of the Order that SVM has appealed are: (1) Claim # 21 (Paul F. and Sharon Swiercynski), allowing a general unsecured claim in the amount of $45,250.00; (2) Claim # 23 (Maryanne and Dennis Rotella), allowing a general unsecured claim in the mount of $33,000.00; (3) Claim # 24 (Steve Smith), allowing a general unsecured claim in the amount of $37,450.00; (4) Claim # 25 (John B. Allen), allowing a general unsecured claim in the amount of $67,000.00; and (5) Claim # 27 (James A. Sanceciz), allowing a general unsecured claim in the amount of $33,000.00.
For the reasons explained herein, the Bankruptcy Court's Order will be vacated and the case will be remanded with instructions for the Bankruptcy Court to provide further explanation regarding the cause of action that serves as the basis for relief, the Claimants' showing of causation, and the Bankruptcy Court's calculation of damages.
II.A Related Case Before This Court
In 2009, SVM filed before this Court an in rem action, Sea Vill. Marina, LLC v. A 1980 Carlcraft Houseboat, Hull ID No. LMG37164M80d, Civil Action No. 09-3292 (JBS-AMD), 2009 WL 3379923 (D.N.J. Oct. 19, 2009), to obtain maritime liens against multiple houseboats whose owners had not paid dockage fees since 2007 ("the maritime lien litigation"). The owners were participating in a rent strike against SVM due to SVM's failure to provide certain necessary services, such as potable water. After first determining that subject matter jurisdiction was proper because the houseboats were vessels subject to maritime jurisdiction, the Court then determined that the maritime liens were proper because "some amount is reasonably owed by the vessel owners, even if it is small." Sea Vill. Marina, LLC v. A 1980 Carlcraft Houseboat, 09-3292 (JBS AMD), 2010 WL 338060, at *12 (D.N.J. Jan. 26, 2010).
At one of the hearings regarding the maritime liens, the Court became concerned that "the Verified Complaint contained claims for liens in amounts that were materially false, and that [SVM] submitted statements of account containing knowingly inflated amounts of indebtedness." Id. at *12. The Court ordered a show cause hearing to address these concerns. Before the show cause hearing occurred, SVM filed a voluntary petition for bankruptcy. The Court then issued an order staying the maritime lien case, including any pending motions for sanctions, pending developments in the Bankruptcy Court. The maritime lien case is still stayed.
The Swiercynskis, the Rotellas, Smith, Allen, and Sanceciz all filed claims in the SVM bankruptcy proceeding. The claims were similar. They stated that the creditor owns a floating home purchased and located at SVM. The claims then list affirmative defenses, which appear related to the maritime lien litigation, not the bankruptcy case. For example, the Claimants assert affirmative defenses that the floating homes are not vessels; that the court lacks subject matter jurisdiction; that plaintiff SVM did not rely upon the credit of the floating home; and that the materials and services provided by plaintiff SVM are not "necessaries" within the meaning of the Federal Maritime Lien Act. The claims also assert that SVM breached contracts with the Claimants. They assert that SVM defrauded the subject vessels and their owners by inducing the owners to purchase the vessels, inducing them not to sell the vessels when a resale market existed, and making false statements regarding plans to improve the marina's facilities. During the hearings upon these claims, a related theory of recovery appears to have emerged, namely, that the Debtor SVM breached its duty to these Claimants to maintain the marina premises in tenantable condition and good repair, causing loss of the value of the houseboats and, in some cases, inability to resell the Claimant's houseboat.
In support of their claims, several claimants included copies of this Court's Jan. 26, 2010 Opinion in the maritime lien case in which the Court ordered a show cause hearing to determine the veracity of SVM's statements regarding monies owed and in which the Court held that SVM's maritime liens against the houseboats were proper because the subject homeowners in that case owed some money to SVM in an amount to be determined. The only Claimant in the bankruptcy case whose vessel is also involved in the maritime lien case is John B. Allen, who filed Claim # 25.
SVM filed the Second Omnibus Objection of the Debtor and Debtor-in Possession to Certain Proofs of Claim and challenged the houseboat owners' claims. SVM argued that the homeowners had no basis to support their claims.
The Swiercynskis, the Rotellas, Smith, Allen, and Sanceciz then filed responses to SVM's objection. They noted that SVM had not fulfilled its promises to repair and maintain the marina. Many of the Claimants attached photographs showing conditions at the marina. Several homeowners, such as the Rotellas, also attached property listings for houseboats in other places, such as Seattle, Wash. or Sausalito, Cal. For one such listing, the Rotellas wrote a note, "NOTICE CONDITION OF DECKS ETC AND THE COST TO THE TENNANT [SIC] IS FAR LESS DON'T HAVE TO WAIT FOR REPAIRS MARINA PRISTINE." (Rotellas' Answer to Second Omnibus Objection, Tab 8, Appellate Record.) The Rotellas also attached a September 7, 1986 New York Times article, "Houseboats Emerge as a Cheaper Form of Housing." (Id.) Several Claimants noted improvements they had made to the boats and monthly expenses. For example, the Swiercynskis attached an excel chart listing expenses for docking, insurance, registration, sewer, repairs, and legal from 2005-2011. (Swiercynskis' Answer to Second Omnibus Objection, Tab 7, Appellate Record.)
Several Claimants also attached a survey conducted of Claimant Smith's home in which the surveyor found that Smith's home had lost almost all of its value. This survey was also referenced repeatedly at the hearing before the Bankruptcy Court. Because the survey is relevant ...