MOTORWORLD, INC. VS. WILLIAM BENKENDORFCATHERINE E. YOUNGMAN, ETC. VS. WILLIAM BENKENDORF,ET AL. (L-1947-11 AND L-2038-12, MORRIS COUNTY AND STATEWIDE) ( 2017 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
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Although it is posted on the internet, this opinion is binding only on the
parties in the case and its use in other cases is limited. R.1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-4350-13T4
MOTORWORLD, INC.,
Plaintiff-Respondent/
Cross-Appellant,
v.
WILLIAM BENKENDORF, GUDRUN
BENKENDORF, and BENKS LAND
SERVICES, INC.,
Defendants-Appellants/
Cross-Respondents.
___________________________________
CATHERINE E. YOUNGMAN, Chapter 7
Trustee for Carole Salkind,
Plaintiff-Respondent/
Cross-Appellant,
v.
WILLIAM BENKENDORF, GUDRUN
BENKENDORF, and BENKS LAND
SERVICES, INC.
Defendants-Appellants/
Cross-Respondents.
_______________________________________________________
Argued September 22, 2015 – Decided December 17, 2015
Remanded by Supreme Court March 30, 2017
Resubmitted April 17, 2017 – Decided May 30, 2017
Before Judges Fisher, Espinosa and Rothstadt.
On appeal from the Superior Court of New
Jersey, Law Division, Morris County, Docket
Nos. L-1947-11 and L-2038-12.
Bressler, Amery & Ross, attorneys for
appellants/cross-respondents (Diana C.
Manning and Benjamin J. DiLorenzo, on the
brief).
Forman Holt Eliades & Youngman LLC, attorneys
for respondents/cross-appellants (Andrew J.
Karas and Joseph M. Cerra, on the brief).
PER CURIAM
In our previous decision in this appeal, we determined that,
when releasing a debt, a creditor – Motorworld, Inc., a corporation
owned by a single stockholder, Carole Salkind – received reasonably
equivalent value when the parties who received the benefit of the
release – defendants William and Gudrun Benkendorf, and defendant
Benks Land Services, Inc. (collectively, Benks) – also released
their claims against Fox Development, Inc., and Giant Associates,
Inc., two corporations of which Carole Salkind was the sole
stockholder.1 In other words, because Benks gave something of
reasonably equivalent value to two of Salkind's solely-owned
corporations, we determined that the release of Benks' debt to a
third solely-owned corporation could not constitute a fraudulent
conveyance. The Supreme Court rejected our assessment, holding
that we "improperly ignored" Motorworld's corporate form and
1
Carole Salkind, in fact, solely owned nineteen such entities.
2 A-4350-13T4
erroneously treated Motorworld and its sole shareholder as
"interchangeable" for purposes of N.J.S.A. 25:2-27(a). Motorworld,
Inc. v. Benkendorf, __ N.J. __, __, __ (2017) (slip op. at 3, 26).
In reversing, the Court mandated our consideration of three issues
we previously found unnecessary to reach. The first and second
issues concern "the estoppel and statute of limitations defenses
asserted by defendants," and the third concerns "defendants'
challenge to the trial court's assessment of interest and
penalties." Id. at __ (slip op. at 27). We consider these three
arguments separately.
I
In the first of these points, Benks argues that Salkind's
bankruptcy trustee, who brought these two suits on behalf of
Motorworld, should be estopped from enforcing the promissory note
because Benks had relied on the note's cancellation for more than
three years and, in the meantime, "lost the ability to collect the
monies owed" by Fox and Giant, resulting in either Motorworld,
Salkind, or Salkind's creditors, receiving "a significant
windfall."
Promissory estoppel requires a showing of "(1) a clear and
definite promise; (2) made with the expectation that the promisee
will rely on it; (3) reasonable reliance; and (4) definite and
3 A-4350-13T4
substantial detriment." Toll Bros, Inc. v. Bd. of Chosen
Freeholders of the Cnty. Of Burlington, 194 N.J. 223, 253 (2008).
At the conclusion of a bench trial, the judge made findings that
Benks did not reasonably rely on the mutual exchange of the waiver
of claims because, during his testimony, William Benkendorf
expressed that he did not anticipate having any success if he
pursued Benks' claim against Fox and Giant. That finding, to which
we must defer, Rova Farms Resort, Inc. v. Inv'rs Ins. Co., 65 N.J.
474, 483-84 (1974); Stephenson v. Spiegle, 429 N.J. Super. 378,
382 (App. Div. 2013), is fatal to Benks' estoppel argument.
Moreover, we view the Supreme Court's opinion – in which the
corporate status of Motorworld was exalted over the equities that
heavily favored Benks' position – as requiring our rejection of
this alternative equitable basis for sustaining the release the
Supreme Court has now declared to be a fraudulent conveyance.
II
We also reject Benks' statute of limitations argument.
N.J.S.A. 25:2-31(b) requires that fraudulent conveyance claims be
commenced no later than "four years after the transfer was made
or the obligation was incurred." Here, the release in question was
executed on August 8, 2008, and the bankruptcy trustee's suit,
which sought avoidance of the release, was filed on August 8,
4 A-4350-13T4
2012.2 Notwithstanding the timeliness of the action when viewed
solely in light of N.J.S.A. 25:2-31(b), Benks argues the United
States Bankruptcy Code requires a different outcome.
Benks argues the time for commencing the action was
abbreviated by 11 U.S.C.A. § 546, which declares, through wording
recognized to be "somewhat confusing," Sears Petroleum & Transp.
Corp. v. Burgess Constr. Servs., 417 F. Supp. 2d 212, 225 (D.
Mass. 2006) – a sentiment with which we would concur – that an
action commenced by a trustee pursuant to its "avoiding powers"
"may not be commenced after the earlier of . . . (1) the later of
. . . (A) 2 years after the entry of the order for relief; or (B)
1 year after the appointment or election of the first trustee
. . .; or (2) the time the case is closed or dismissed." In
essence, this statute, which permits actions by trustees in the
exercise of their "avoiding powers," requires "the action be
brought within the earlier of two years after the trustee is
appointed or before the close of the bankruptcy proceeding." In
re Martin, 142 B.R. 260, 265 (Bankr. N.D. Ill. 1992). Stated
another way, "[i]f the state law limitations period governing a
fraudulent transfer action has not expired at the commencement of
a bankruptcy case, the trustee may bring the action pursuant to
2
The trustee's earlier action, which sought to recover the debt
owed by Benks to Motorworld, was commenced on July 6, 2011.
5 A-4350-13T4
[11 U.S.C.A. § 544(b)], provided that it is commenced within [11
U.S.C.A. § 546(a)] limitations period." 5 Collier on Bankruptcy ¶
546.02 (2014). Consequently, Benks argues this fraudulent
conveyance action is time-barred because it was not filed within
two years of the commencement of Carole Salkind's bankruptcy
action, which was filed on June 29, 2009.
In response, the bankruptcy trustee argues she timely filed
the two actions – one to recover on Benks' debt to Motorworld and
the other to set aside the release given by Motorworld to Benks –
because she had the authority granted by bankruptcy law in two
separate ways. First, a bankruptcy estate was created when Carole
Salkind filed her voluntary bankruptcy petition; that bankruptcy
estate included "all legal and equitable interests of the debtor
in property as of the commencement of the case," 11 U.S.C.A. §
541(a)(1), including "tangible or intangible property, causes of
action . . . and all other forms of property," United States v.
Whiting Pools, Inc., 462 U.S. 198, 205 n.9, 103 S. Ct. 2309, 2313
n.9, 76 L. Ed. 2d 515, 522 n.9 (1983). See generally Westmoreland
Human Opportunities, Inc. v. Walsh, 246 F.3d 233, 241-42 (3d Cir.
2001).
Second, a trustee acquires causes of action a debtor could
never bring but are permitted because the trustee is also viewed
as a fiduciary for the benefit of creditors. 11 U.S.C.A. § 544(b).
6 A-4350-13T4
In this regard, a trustee may bring a state cause of action to
recover on the estate's behalf if at least one creditor of the
estate possessed the right to bring the action prior to the
debtor's bankruptcy filing. Ibid. In short, a trustee may commence
an action on behalf of any holder of an allowable unsecured claim
against the debtor's estate.
The trustee claims she possessed the right to commence this
action pursuant to the first reservoir of rights – the right to
pursue any claim the debtor could also have commenced but for the
bankruptcy filing. The trustee argues she acted on behalf of the
estate of Carole Salkind and, derivatively, in Carole Salkind's
capacity as the sole shareholder of Motorworld, in seeking relief
in both actions against Benks. That is, the action was based on
the trustee's right to pursue any cause of action possessed by the
debtor. And, although it is true that Motorworld isn't a debtor
in bankruptcy, the trustee was authorized to commence an action
on behalf of Motorworld's sole shareholder, who is the debtor in
bankruptcy.3
3
The trustee acknowledges that "[w]hile the assets of the
underlying corporation do not become part of the debtor's estate,
the trustee acquires the debtor's equitable interest in the
corporation, and thus controls the assets of the corporation at
the exclusion of the debtor." In other words, though state law as
now interpreted in this context by the Supreme Court, warrants
strict adherence to the corporate form in determining the
7 A-4350-13T4
So viewed, the timeliness of the trustee's lawsuits here were
governed by 11 U.S.C.A. § 108(a), which looks to, among other
things irrelevant here, the time fixed by "applicable
nonbankruptcy law" and allows the trustee to commence the action
"only before the later of . . . (1) the end of such period,
. . .; or (2) two years after the order for relief." The
nonbankruptcy law applicable here is the four-year time-bar set
forth in N.J.S.A. 25:2-31(b). And, as noted earlier, the action
filed by the trustee on behalf of Motorworld to set aside the
release was filed on the fourth anniversary of the day the release
was executed; that makes the action timely and requires rejection
of Benks' argument.4
III
The trial judge, on the basis of the findings he made, entered
judgment in favor of Motorworld and against Benks in the amount
of $1,410,745.51. The judge provided no explanation for so
quantifying the award and appears to have merely accepted the
calculations provided by the trustee's attorney as to the amount
sufficiency of the trustee's fraudulent conveyance action,
Motorworld's corporate status has little meaning when considering
the trustee's right to commence the action.
4
We need not decide whether a claim brought by way of the second
reservoir of rights would be time-barred.
8 A-4350-13T4
due. Those calculations included interest on the $600,000
principal amount of the note, at the rate of twenty-four percent
since the default on March 1, 2009, as well as late payment
penalties at the rate of ten percent.
Perhaps, had the judge found – as the trustee argued – that
the release was inauthentic, there would be no cause to second
guess this award. But the judge rejected the trustee's arguments
about the legitimacy or dating of the release, and concluded that
Morris Salkind, who operated Motorworld and the other
corporations, actually intended to release the debt. That being
so, Benks' arguments that the imposition of the entire amount of
interest to which the creditor could have possibly be entitled,
together with all possible penalties, should be reconsidered. In
other words, the judge's award of compensatory damages was no
greater than it would have been if the release were found to be a
sham or fabrication.
It seems clear from the judge's findings that he believed the
parties to the debt fully intended to release the debt. Until the
trustee alleged and proved that the release, by operation of law,
could not be sustained, none of the parties to the transaction
actually believed Benks owed Motorworld anything. We, thus, remand
to the trial judge to reconsider the amount of the judgment in
light of this circumstance. We also direct the trial judge to
9 A-4350-13T4
reconsider whether the principal amount to which the trustee is
entitled should be $500,000 – the amount lent by Carole Salkind
to Motorworld, which lent it to Benks5 – or whether there are facts
that would support a finding that the principal amount due was the
$600,000 figure contained in the promissory note.
For all these reasons, we remand the matter to the trial
court for reconsideration of the amount of damages awarded. Nothing
else before us as a consequence of the Supreme Court's remand
requires further consideration or intervention.
Remanded. We do not retain jurisdiction.
5
In other words, the facts found by the judge strongly called
into question whether Benks was lent more than $500,000. Motorworld
had no assets or property until Carole Salkind lent it $500,000
for the purpose of making the loan to Benks. That begs the question
why the note called for the repayment of $600,000.
10 A-4350-13T4