MERCER COUNTY BAR ASSOCIATION

1245 Whitehorse - Mercer Road, Suite 420

Hamilton, New Jersey 08619

609-585-6200

Course Title: BANKRUPTCY AND LANDLORD TENANT LAW: AN OVERVIEW ON

ISSUES AFFECTING COMMERCIAL AND RESIDENTIAL

LANDLORDS AND TENANTS

Location: Mercer County Community College

Date: October 29, 2014

Time: 8:00 a.m. to 10:00 p.m. (2.0 Credits)

Speakers: Hon. Christine M. Gravelle; Hon. F. Patrick McManimon; Kyle Eingorn, Esq.;

and Thomas S. Onder, Esq.

Agenda/Minutes of Instruction

8:00 – 8:05 Introduction (5 minutes)

8:05 – 8:15 General Overview of Landlord Tenant and Bankruptcy Courts and Interaction (10

minutes)

8:15 - 9:00 Landlord Tenant Court

Jurisdiction

Anti-Eviction Act

Security Deposit Act

Abandoned Property Act

Grounds for Eviction

Transferring Venue

Marini Hearings

Judgment and Warrant

(45 minutes)

9:00 – 9:45 Bankruptcy Court

Automatic Stay

Property of Estate

Consent Judgments

Abandonment/Surrender

Assumption/Rejection of Lease

Claims

Discharge Order

9:45 – 10:00 Q&A (15 minutes)

Mercer County Bar Association

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Bankruptcy Law and Landlord/Tenant

Wednesday, October 29, 2014

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HON. CHRISTINE M. GRAVELLE serves as a United States Bankruptcy Judge for the District of New Jersey and sits in the Trenton vicinage. Prior to joining the bench in 2013, Judge Gravelle was a partner at the law firm of Markowitz Gravelle, LLP in Lawrenceville, New Jersey, focusing on commercial litigation and bankruptcy.

She received her Juris Doctor as a magna cum laude graduate of Suffolk University Law School, Boston, MA and her undergraduate degree magna cum laude, from the University of Massachusetts, Amherst, MA.

Judge Gravelle served as President of the Mercer County Bar Association in 2011 after serving nine years as an officer and trustee for the Association. She was a member of the Lawyers Advisory Committee to the Board of Judges of the United States Bankruptcy Court, District of New Jersey from 2008-2013, chairing the committee in her last year of service. Judge Gravelle also served as a trustee of the Bankruptcy Section of the New Jersey State Bar Association. She served on the Board of Trustees of Central Jersey Legal Services as a member and officer.

HON. F. PATRICK Mc MANIMON, JSC

Honorable F. Patrick Mc Manimon, JSC has been assigned to the Law Division of Mercer County since September 1997 and is the Supervising Judge of the Special Civil Part. He sits in Trenton, New Jersey, and was originally appointed to the bench in 1992.

Judge McManimon is Chair of the Committee of Special Civil Part Supervising Judges and Vice Chair of the Supreme Court Committee on Special Civil Part Practice. He was a member of the Mercer County District Ethics Committee from 1980 to 1984, where he also served as Vice Chair and as a Special Presenter. He was a panelist at the Judicial College in 1992, 1994 and 2000.

Judge McManimon is a graduate of Villanova University and Duquesne University School of Law.

KYLE EINGORN, ESQ.

Kyle Eingorn is an associate with Dembo & Saldutti, LLP where he specializes in bankruptcy and commercial litigation. Mr. Eingorn began his legal career working for a Chapter 7 Bankruptcy Trustee while attending law school at night. Upon graduation, he continued as counsel for the Chapter 7 Trustee, as well as representing corporate and individual clients in bankruptcy, collection, landlord-tenant, and commercial litigation matters. Mr. Eingorn has interned for the Honorable Bill Mathesius, J.S.C. Ret. and the Honorable Douglas Arpert, U.S.M.J. He previously practiced law as an associate at Teich Groh in Trenton, NJ. A graduate of Franklin and Marshall College and Rutgers University School of Law, Mr. Eingorn is a member of the Mercer County Bar Association Bankruptcy Committee. Mr. Eingorn is admitted to practice in New Jersey and Pennsylvania.

THOMAS S. ONDER Shareholder tonder@stark-stark.com Princeton Phone – 609.219.7447 Fax – 609.895.7395 Practice Areas Litigation Bankruptcy & Creditor’s Rights Thomas S. Onder is a Shareholder and member of the Litigation and Bankruptcy & Creditor’s Rights Groups of Stark & Stark. Mr. Onder concentrates his practice in the areas of commercial litigation, commercial landlord disputes, secured transactions, and bankruptcy before federal and state courts in New York and New Jersey. Mr. Onder deals extensively with problems and opportunities created by business insolvencies, representing (both in bankruptcy cases and out-of-court) a wide variety of creditors. Mr. Onder is regularly involved in bankruptcy and non-bankruptcy forums representing commercial landlords, financial institutions, equipment leasors and trade creditors in a variety of matters, including the prosecution of commercial eviction and collection actions, pursuing promissory note and guaranties obligations for financial institutions, replevin actions for commercial equipment lease holders, and general creditor representation in Chapter 7 and 11 bankruptcy proceedings. Mr. Onder regularly represents a number of commercial landlords as creditors in Chapter 11 bankruptcy proceedings in both the District of New Jersey and the Southern District of New York for assumption/rejection of lease issues. Mr. Onder regularly writes on issues for commercial creditors. He has a regular monthly blog on commercial landlord issues for the New Jersey Law Blog in his "Landlord's Beware" series. A few of his most recent blogs include: Options to Purchase Commercial Property Strictly Adhered. Mr. Onder is Chair of the Bankruptcy section of the Mercer County Bar Association and is also a member of the International Council of Shopping Centers, Inc. Prior to joining Stark & Stark, Mr. Onder was a law clerk for United States Bankruptcy Judges Kathryn C. Ferguson and Raymond T. Lyons in Trenton, NJ. Prior to his clerkship, Mr. Onder was a legal editor for Collier on Bankruptcy and various commercial legal treatises at LexisNexis. In addition, Mr. Onder interned for United States Bankruptcy Arthur Gonzalez in the Southern District of New York, while in law school.

Education J.D. – Brooklyn Law School (2002) B.A. – English and Communications; Cleveland State University (1996) Professional Organizations • Mercer County Bar Association, Chair of the Bankruptcy Section Bar Admissions New Jersey New York United States District Court, Southern and Eastern Districts of New York United States District Court, District of New Jersey Publications • A new defense to preference litigation? An unordinary business defense. Commercial Law

League of America. Spring 2004. • Side-Stepping Landmines During a Tenant’s Bankruptcy. US 1. April 2004.

BANKRUPTCY AND LANDLORD TENANT LAW:

AN OVERVIEW ON ISSUES AFFECTING

COMMERCIAL AND RESIDENTIAL LANDLORDS AND TENANTS

MERCER COUNTY BAR ASSOCIATION PRESENTS:

Moderators and Presenters • Presenters:

– Honorable F. Patrick McManimon, Judge

Superior Court State of New Jersey – Honorable Christine Gravelle, Bankruptcy,

State of New Jersey – Kyle Eingorn, Associate, Dembo & Saldutti,

LLP – Thomas Onder, Shareholder, Stark & Stark

General Overview

•Landlord-tenant issues derived from state law rights •In New Jersey, landlord cannot effectuate “self-help” to evict either commercial or residential tenant, but must proceed with an eviction action to remove the tenant from premises

•NO dollar limitation for eviction actions

•The New Jersey Anti-Eviction Act, 2A:18-61.1 et seq. (the “Act”) applies to residential tenants, The New Jersey Summary Disposition Act, 2A:18-53 applies to commercial tenants

•Often, tenants will file for bankruptcy protection prior to, during or immediately after the eviction process commences. When the filing occurs is of particular attention for landlord and tenant rights

General Overview, cont’

•What is in the Bankruptcy Estate is of importance when an eviction matter looms. • 11 U.S.C. § 541 provides that all interests of the debtor as of the petition date are considered “property of the estate” – goes into the BANKRUPTCY POT - The Estate is is protected from actions •11 U.S.C. § 362 provides an automatic stay of actions • Some assets are exempt – 11 U.S.C. § 522 ( i.e. 401k) • Some assets can be removed from the bankruptcy estate by: 1) abandonment; 2) surrender; and/or 3) stay relief

Discussion

• Types of tenancies • How the eviction process works (grounds to

evict, notices, complaint, transferring venue, trial, enforcement)

• What happens when a tenant files for bankruptcy (types of bankruptcies, the automatic stay, assumption/rejection of leases, claims, post-bankruptcy issues) 5

Landlord Tenant Court Jurisdiction

• “Summary dispossess actions in the Special Civil Part are statutory proceedings intended to accord landlords an expeditious, inexpensive, uncomplicated and effective means of repossessing leased premises, thereby avoiding delays inherent in common law ejectment actions.” See, Lopez v. Martinez, 262 N.J. Super. 112, 117 (App. Div. 1992)

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Nature of the Real Property and Type of Tenancy

• Type of property (single family, mixed use, etc) is the landlord trying to dispossess a tenant from?

• Type of tenancy (month to month, term, etc.) does the landlord / tenant have?

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Lease Itself

• Lease is the governing document for the landlord/tenant relationship

• Lease can be amended, modified, assumed, assigned • Issues to review:

– What is the term of the lease? – How is rent defined? See, Parkway Inc. v Mable

Briggs Curry, 162 N.J. Super. 410 (Essex Cty. Ct 1978) – How is additional rent defined? Ivy Hill Parks Apts. v

Sidisin, 258 N.J. Super. 19 (App. Div. 1992)

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Security Deposits

• In the residential context, landlords must comply with the Security Deposit Act:

N.J.S.A. 46:8-19 through 46:8-26 • Failure to comply with Security Deposit Act

can subject the landlord to judgment of double the amount of the security deposit. See, Kang in Yi v Re/Max Fortune Properties, Inc. and Wong, 338 N.J. Super. 534 (App. Div. 2001)

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Eviction - Grounds • Anti-Eviction Act provides certain “Fault” grounds:

– Non-payment, – Disorderly conduct, – Violations of rules and regulations, – Willful or grossly negligent damage to the premises, – Violations of lease, – Failure to pay rent after increase, – Habitual late payment of rent, – Drug offenses, – Assaults/threats, – Civil violations, – Threats.

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Eviction – Grounds (con’t)

• Non-“Fault” grounds: – Compliance with various government conditions, – Permanent retirement of the unit for residential use, – Failure to accept proposed reasonable lease

changes, – Conversions to condominium and co-op ownership, – Personal occupancy by the owner, – Termination of employment by landlord.

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Notices

• Prior to proceeding with any eviction complaint, notices sometimes required • No notice required in nonpayment of rent

cases • In all other cases, a Notice to Quit, a Notice

to Cease and the Demand for Possession is required

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Notice to Cease

• A warning notice to the tenant to cease or stop either some conduct or correct some failures

• Required to be in writing and specify the tenants objectionable actions. See, RWB Newton Assoc. v. Gunn, 224, N.J. Super. 704 (App. Div.) 1988

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Notice to Quit

• This notice purports to terminate the tenancy

• N.J.S.A. 2A:18-61.2 • If a notice to quit is required by

statute or by the lease, but not served, the complaint would have to be dismissed

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Demand for Possession • Often called the notice of removal. If the demand for

possession is not served cases not involving payment, it deprives the court of jurisdiction, except nonpayment cases. See, Carteret Properties v Variety Donuts, Inc., 49 N.J. 116 (1967)

• As a matter of practice, the notice to quit and demand for possession are combined in the same notice

• However, the notice to quit and demand for possession are not the same. Providing one does not satisfy the requirement of the other. See, Schlesinger v Brown, 116 N.J. Super. 500 (Essex Cty. Ct. 1971), citing Bahr Realty Corp. v Becker, 49 N.J. Super. 585 (App. Div. 1958)

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The Summons and Complaint

• Venue – where the premises is located • Form summons and complaint can be found

on the New Jersey Court’s website: http://www.judiciary.state.nj.us/

• Service effectuated through court officer after filing – only by regular mail, done by court officer

• Generally, trial scheduled within 30 days

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Miscellaneous

• No discovery permitted. See R. 6:4-3. But see, Fromet Properties v. Buel, 294 N.J. Super. 601 (App. Div. 1996)

• Trial notices sent by the court • Adjournments to be made five days before

the scheduled hearing. See R. 6:4-7 • If a bankruptcy filing, PLEASE, Please

advise the Court

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Transferring Venue • To transfer action from the Landlord Tenant Part to the Law Division, R 6:4-1, the movant

must show one of the following nine (9) “Morocco” factors: – Importance to the public good of the issues presented (constitutional rights ); – Complexity of the issues - where discovery or pretrial procedures; – Amount in controversy; – Equitable relief ,such as guarding against retaliatory measures; – Clarification or re-examination of the substantive law involved (right of appeal); – Multiple actions for possession; – Class relief; – Uniformity of result (separate proceedings), or – Joining additional parties or claims in order to reach a final result.

See, Morrocco v. Felton, 112 N.J. Super. 226 (Law. Div. 1970) See Appellate Division in Bejoray, Inc. v. Academy House Child Development Center, A-5161-12T3, held tenant's request to transfer an eviction matter, when it asserted claims for negligent misrepresentation and breach of contract for damages and rescission of the lease, should have been granted. This case is very important for commercial landlords in New Jersey as it raises a number of issues that should be addressed prior to eviction action.

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Trial/Evidentiary Issues

• Non-payment cases – If you don’t pay you don’t stay – Rent must be: 1) due; 2) unpaid; and 3)

owing – All 3 factors must be proven. See, Levine

v Seidel, 118 N.J. Super. 225 (App Div 1976)

• “Marini” hearing – habitability issues. See, Marini v Ireland, 56 N.J. 130 (1970).

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Other Equitable Defense (Besides Marini)

• Latches, waiver and estoppel • Forfeiture • Other For general discussion and equitable defenses, See, A.P. Development Corp. v Band, 113,

N.J. 485 (1988)

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Judgment of Possession

• A judgment possession may be entered upon: – A default (non-appearance) (R. 6:6-3(b)) – By consent (R. 6:6-4) – Following a trial (R. 6:6-5) – On breach of the settlement (R. 6:7-1(d))

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Warrant for Removal

• Enforcement of a judgment of possession occurs through issuance of a warrant for removal (R. 6-7(1)(c)

• Landlord must apply for in writing within 30 days of the entry of the judgment of possession

• The 30 day period may be extended by court order or written agreement by the parties and filed with the clerk

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WHAT HAPPENS WHEN SOMEONE FILES FOR BANKRUPTCY?

• 11 U.S.C. § 362 provides an automatic stay of actions • 11 U.S.C. § 541 provides that all interests of the debtor as of the petition date are considered “property of the estate” • Some assets are exempt – 11 U.S.C. § 522 ( i.e. 401k) • Some assets can be removed from the bankruptcy estate by: 1) abandonment; 2) surrender; and/or 3) stay relief

Bankruptcy - The Automatic Stay

• 11 U.S.C 362 provides that there is an automatic stay of actions against property of the estate

• A tenancy is property of the estate, unless a Judgment of Possession has been entered. See, In re Great Feelings Spa, Inc., 275 B.R. 476 (Bankr. D.N.J. 2002); In re Dicamillo, 206 B.R. 64 (Bankr D.N.J. 1997).

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Bankruptcy - Automatic Stay

• The Automatic Stay can be : 1) Lifted; 2) Modified; and/or 3) Annulled to the petition date • If a lease is still property of the bankruptcy

estate, a landlord MUST obtain stay relief before proceeding with a landlord/tenant action

• Failure to obtain stay relief can subject a landlord to sanctions 25

Consent Judgments in Landlord/Tenant Court

• In re Seven Hills, Inc., 403 B.R. 327 (Bankr. D.N.J. 2009), Judge Kaplan held that a pre-bankruptcy consent judgment that was breached by the tenant did not invalidate the tenant’s option to renew

• If you are a landlord, is it better to just get a judgment of possession and request a warrant for removal, rather than enter a Consent Order?

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Automatic Stay – Does Not Apply

• Automatic Stay does not apply to nonresidential real property where the lease has been terminated or there has been an expiration of

the term. See, 11 U.S.C. 362 (b) (10) • Automatic Stay does not apply where a

judgment of possession is obtained prior to the bankruptcy. See, 11 U.S.C. 362 (b) (22)

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Abandonment/Surrender • However, property can Also come out of the estate by being abandoned or surrendered • Trustee or debtor does this by listing the same in a plan and/or filing a notice of abandonment • Once property is abandoned the Bankruptcy Court

has no jurisdiction over the property, as such, the parties may go back to landlord/ tenant court

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Assumption/Rejection of Lease • Under 11 U.S.C. 365, the debtor-in-possession and/or

trustee is entitled to assign any unexpired lease. • Bankruptcy Code requires the debtor trustee to timely

perform the obligations under unexpired lease of nonresidential property until assumption or rejection occurs. See, In re Montgomery Ward, 268 F. 3d (3d 2001)

• In a chapter 7 case, the trustee must assume or reject unexpired lease for residential property within 60 days after the filing of the case, or lease is deemed rejected

• In a Chapter 11 case, lease may be assumed or rejected prior to confirmation

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Assumption/Rejection of Lease

• For non-residential real property, the lease is deemed rejected if it is not assumed within 120 days of the filing of the petition or confirmation of the plan

• The 120 days can be extended for an additional 90 days for cause by the tenant/debtor

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Assumption/Rejection of Lease

• To assume the lease, landlord must be cured of all defaults within a reasonable period of time

• If the lease is deemed rejected, then it is removed from the actions of bankruptcy court and parties may proceed back to the state law rights in the Landlord Tenant Part

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Claims

• Landlords hold various claims within a bankruptcy proceeding

– A pre-petition claim for amounts due and owing. See 11 U.S.C 502

– Post-petition claims • See 11 U.S.C 503 (b)(1) • See 11 U.S.C 502(b)(6) • See 11 U.S.C 503 (b)(7)

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Post-Petition Claims

• Stub rent claim. See 11 U.S.C 503(b)(1). See, In re Goody’s Family Clothing, Inc., 392 B.R. 604 (Bankr. D. Del. 2008)

• Rejection damage claim. See 11 U.S.C 502(b)(6)

• Administrative claim. See 11 U.S.C 503(b)(7). See, In re Pelican Pool & Ski Center, Inc. 2009 WL 2244573

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Discharge Orders

• Discharge Order is an injunction from collection of pre-petition obligations due and owing.

• For tenancy, entry of the Discharge Order enjoins the landlord from seeking payment from tenant

• Discharge may be objected to prior to the statutory deadline

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For More Helpful Information • Legal Services:

http://www.lsnjlaw.org/english/placeilive/irentmyhome/tenantsrights/index.cfm

• Judiciary Website – Forms www. judiciary.state.nj.us www.njb.uscourts.gov/ • Kyle Eingorn, Esquire keingorn@dslawnj.com / tel: (856) 354-8866 • Thomas Onder, Esquire tonder@stark-stark.com / tel: (609) 219-7458

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