Gaskill v. Citi Mortgage, Inc. (071804)

SYLLABUS
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the
convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the
interest of brevity, portions of any opinion may not have been summarized).
Robert D. Gaskill v. Citi Mortgage, Inc. (A-51-13) (071804)
Argued April 13, 2015 -- Decided May 28, 2015.
(NOTE: The Court did not write a plenary opinion in this case. Instead, the Court affirms the judgment of
the Appellate Division substantially for the reasons expressed in Judge Cuff’s written opinion, which is
published at 428 N.J. Super. 234 (App. Div. 2012).)
In this appeal arising from plaintiffs’ complaint to cancel and discharge a judgment lien held by defendant
following the conclusion of bankruptcy proceedings, the Court considers the application of N.J.S.A. 2A:16-49.1.
The statute allows a debtor, whose debts have been discharged in bankruptcy, to apply to the state court that entered
a judgment for an order directing that it be canceled and discharged.
In 1997, the Superior Court entered a default judgment against plaintiffs and in favor of defendant. As a
result of the judgment, defendant was able to obtain a lien on all of plaintiffs’ real property in New Jersey. Four
years later, plaintiffs instituted a Chapter 7 bankruptcy proceeding. Because plaintiffs listed the law firm that had
represented defendant, rather than defendant itself, in their Chapter 7 petition, the bankruptcy court did not provide
defendant with notice of the bankruptcy proceeding. The bankruptcy court subsequently discharged plaintiffs’ debt
and closed the Chapter 7 case. Defendant did not attempt to levy on plaintiffs’ property at any time prior to the
bankruptcy filing, nor did it seek to enforce the lien once the bankruptcy was discharged.
More than three years later, plaintiffs filed this action under N.J.S.A. 2A:16-49.1, which requires the debtor
to wait at least a year following a bankruptcy discharge before seeking the cancellation of a judgment lien. The trial
court granted defendant’s subsequent motion for summary judgment and dismissed plaintiffs’ claim, finding that
because defendant had not received notice of the bankruptcy proceeding, due process principles would be violated if
the lien was canceled prior to the expiration of a year following the date upon which defendant learned of the
bankruptcy proceeding. Consequently, the trial court equitably tolled the one-year period prescribed by the statute.
In a published decision, the Appellate Division affirmed the trial court’s determination. The panel agreed
that defendant had not received the required notice of the bankruptcy petition or the bankruptcy discharge. The
panel held that N.J.S.A. 2A:16-49.1 was drafted on the assumption that any creditor subject to its terms had received
notice of the bankruptcy proceeding and that the tolling of the one-year waiting period prescribed by the statute was
appropriate. This Court granted certification. 217 N.J. 52 (2014).
HELD: The judgment of the Appellate Division is AFFIRMED substantially for the reasons expressed in Judge
Cuff’s opinion.
1. The Court notes that plaintiffs’ reliance on Judd v. Wolfe, 78 F.3d 110 (3d Cir. 1996) is misplaced, as Judd addresses
a procedural question of federal bankruptcy law distinct from the issue raised by this appeal. In Judd, the Third Circuit
did not consider the effect of a debtor’s failure to provide notice to a creditor of a Chapter 7 bankruptcy petition on the
debtor’s right to cancel a judgment lien under state statutory law. Instead, the court there considered the procedural
requirements imposed by federal bankruptcy law, following the closing of a bankruptcy case, on a debtor who has
failed to list a claim on the schedule of creditors submitted in a Chapter 7 no-asset case. The Third Circuit held that
such a debtor is not required to file a motion to reopen the bankruptcy case in order to discharge the debt that had been
omitted from the schedule, unless one or more of the exceptions enumerated in 11 U.S.C.A. § 523 applied. The Third
Circuit further acknowledged that, in a bankruptcy case that does involve assets, the debt of an unnoticed creditor is not
discharged unless that creditor received notice in time to file proof of claim. (pp. 4-5)
2. The circumstances of this case stand in contrast to the no-asset setting of Judd, in which action taken by the creditor
in the bankruptcy proceedings would have been futile even if it had received timely notice of the bankruptcy petition
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and the subsequent discharge. As the trial court and Appellate Division noted, had defendant here received notice of
the bankruptcy petition and discharge, it would have been in a position to enforce its lien during the year following the
bankruptcy discharge, as permitted by N.J.S.A. 2A:16-49.1. Timely notice would have enabled the creditor to take
action within the time limit imposed by the statute to protect its interest in the real property at issue. Accordingly, the
Third Circuit’s holding in Judd does not address the due process argument that was raised by the debtor in this case.
The Court agrees with the Appellate Division that such notice is required before a debtor may invoke the protection of
N.J.S.A. 2A:16-49.1 and that equitable tolling was an appropriate remedy in the circumstances of this case. (pp. 6-8)
CHIEF JUSTICE RABNER; JUSTICES LaVECCHIA, PATTERSON, and FERNANDEZ-VINA;
and JUDGE FUENTES (temporarily assigned) join in this opinion. JUSTICES ALBIN and SOLOMON did
not participate.
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SUPREME COURT OF NEW JERSEY
A-51 September Term 2013
071804
ROBERT D. GASKILL and
KATHLEEN GASKILL, h/w,
Plaintiffs-Appellants,
v.
CITI MORTGAGE, INC., f/k/a
CITICORP MORTGAGE, INC.,
Defendant-Respondent.
Argued April 13, 2015 – Decided May 28, 2015
On certification to the Superior Court,
Appellate Division, whose opinion is
reported at 428 N.J. Super. 234 (App. Div.
2012).
Joseph M. Pinto argued the cause for
appellants (Polino and Pinto, attorneys).
Mary Lynn McCaffrey argued the cause for
respondent (Isabel L. Becker, attorney).
PER CURIAM.
This appeal arises from plaintiffs’ complaint to cancel and
discharge a creditor’s judgment lien held by defendant Citi
Mortgage, Inc. (Citi), following the conclusion of bankruptcy
proceedings conducted pursuant to Chapter 7 of the United States
Bankruptcy Code (Chapter 7), 11 U.S.C.A. §§ 701-784. In 1997,
the Superior Court entered a default judgment in favor of Citi
against plaintiffs, and by virtue of its docketing of that
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judgment, Citi obtained a lien on all of plaintiffs’ real
property in New Jersey. Four years later, plaintiffs instituted
a Chapter 7 bankruptcy proceeding in the United States
Bankruptcy Court. Because plaintiffs listed the law firm that
had represented Citi, rather than Citi itself, in their Chapter
7 petition, the bankruptcy court did not provide notice of the
proceeding to Citi. After the bankruptcy trustee abandoned two
of plaintiffs’ New Jersey properties, the bankruptcy court
discharged plaintiffs’ debt and closed their Chapter 7 case.
Citi did not attempt to levy on plaintiffs’ property at any time
prior to the bankruptcy filing and did not seek to enforce its
lien in the wake of plaintiffs’ bankruptcy discharge.
More than three years after the bankruptcy discharge,
plaintiffs filed this action under N.J.S.A. 2A:16-49.1. That
statute permits a debtor, whose debts have been discharged in
bankruptcy, to apply to the state court that has entered a
judgment against the debtor, or has docketed the judgment, for
an order directing the judgment to be canceled and discharged.
N.J.S.A. 2A:16-49.1. The statute requires the debtor to wait at
least a year following his or her bankruptcy discharge before
seeking the cancellation and discharge of the judgment lien.
Ibid. Pursuant to N.J.S.A. 2A:16-49.1, plaintiffs sought an
order cancelling Citi’s judgment lien on the two properties.
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The trial court granted Citi’s motion for summary judgment
and dismissed plaintiffs’ claim. The court acknowledged that a
judgment creditor, such as Citi, who has not levied on the
debtor’s property prior to the debtor’s filing of a bankruptcy
petition, may enforce its valid lien following the bankruptcy
discharge, but must do so within the year following the
discharge. The court explained that if Citi did not enforce its
lien within that period, its lien could be canceled pursuant to
N.J.S.A. 2A:16-49.1. The trial court found, however, that Citi
had not received notice of plaintiffs’ Chapter 7 bankruptcy
proceeding. It accordingly ruled that due process principles
would be violated if Citi’s judgment lien was canceled prior to
the expiration of a year following the date upon which Citi
belatedly learned of the bankruptcy proceedings and plaintiffs’
attempt to cancel its lien. Consequently, the trial court
equitably tolled the one-year period prescribed by the statute.
In a published opinion, the Appellate Division affirmed the
determination of the trial court. Gaskill v. Citi Mortg., Inc.,
428 N.J. Super. 234, 237 (App. Div. 2012). The panel concluded
that the Citi judgment lien was subject to discharge or release
in plaintiffs’ bankruptcy proceedings and was consequently
subject to cancellation pursuant to N.J.S.A. 2A:16-49.1. Id. at
242-43. The panel agreed with the trial court that Citi had not
received the required actual notice of the bankruptcy petition
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or the bankruptcy discharge obtained by plaintiffs. Id. at 245-
46. It held that N.J.S.A. 2A:16-49.1 was drafted on the
assumption that any creditor subject to its terms had received
notice of the bankruptcy proceeding. Ibid. The panel ruled
that the trial court’s remedy of equitable tolling of the one-
year waiting period prescribed by N.J.S.A. 2A:16-49.1 was
proper. Id. at 245. We granted certification. 217 N.J. 52(2014).
We affirm, substantially for the reasons stated by the
Appellate Division. We add only brief comments with respect to
the decision of the United States Court of Appeals for the Third
Circuit in Judd v. Wolfe, 78 F.3d 110 (3d Cir. 1996), upon which
plaintiffs substantially rely in their argument before this
Court. For the reasons that follow, we consider Judd to address
a procedural question of federal bankruptcy law that is distinct
from the issue raised by this appeal and accordingly find that
it does not support plaintiffs’ argument.
In Judd, the Third Circuit did not consider the issue
raised by this case: the effect of a debtor’s failure to
provide notice to a creditor of a Chapter 7 bankruptcy petition
on the debtor’s right to cancel a judgment lien under state
statutory law. Instead, the court considered the procedural
requirements imposed by federal bankruptcy law, following the
closing of the bankruptcy case, on a debtor who has failed to
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list a claim on the schedule of creditors submitted in a Chapter
7 no-asset case in which no bar date has been set. Id. at 111.
The Third Circuit held that such a debtor is not required to
file a motion to reopen the bankruptcy case, pursuant to 11
U.S.C.A. § 350(b), in order to discharge the debt that had been
omitted from the schedule, unless one or more of the statutory
exceptions to discharge applied. Ibid.1
In support of its holding, the Third Circuit pointed to the
text of 11 U.S.C.A. § 727(b), which provides that “[e]xcept as
provided in section 523 of this title, a discharge . . .
discharges the debtor from all debts that arose before the date
of the order for relief under this chapter.” 11 U.S.C.A. §
727(b); Judd, supra, 78 F.3d at 113-14. The court explained
that 11 U.S.C.A. § 523 provides that the only situation in which
a debt is not discharged is if it was “‘[n]either listed nor
scheduled . . . in time to permit . . . timely filing of a proof
of claim.’” Judd, supra, 78 F.3d at 114 (quoting 11 U.S.C.A. §
1 Subsections (a)(2), (a)(4), and (a)(6) of 11 U.S.C.A. § 523exempt from discharge “debts incurred by false pretenses, false
representation or actual fraud . . . (523(a)(2)); debts incurred
by fraud or defalcation while acting as a fiduciary . . .
(523(a)(4)); and debts for willful and malicious injury . . .
(523(a)(6)).” Id. at 114 (internal quotation marks omitted).
The Third Circuit explained that “[i]f the debt at issue is not
a debt described under section 523(a)(2), (4) or (6), the debt
has been discharged by virtue of section 727(b), whether or not
it was listed. If, however, the debt is a debt that falls under
sections 523(a)(2), (4) or (6), the debt is not discharged by
virtue of section 523(a)(3)(B).” Id. at 115.
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523(a)(3)(A)). The Third Circuit further noted that “[b]ecause
[the case before it] is a ‘no-asset’ Chapter 7 case, the time
for filing a claim has not, and never will, expire unless some
exempt assets are discovered; thus, section 523(a)(3)(A) cannot
be applied” to prevent the discharge of an unlisted debt in a
no-asset case. Ibid. The court held that such an unscheduled
debt is discharged even if that discharge may disadvantage or
prejudice the unlisted creditor. See id. at 113 n.6, 115, 116
n.13. “In a case where there are no assets to distribute,” the
creditor’s “right to file a proof of claim is a hollow one,”
because “[a]n omitted creditor who would not have received
anything even if he had been originally scheduled, [is] not . .
. harmed by omission from the bankrupt’s schedules and the lack
of notice to file a proof of claim.” Id. at 115. Accordingly,
the Third Circuit reasoned, the failure to give notice to the
creditor in the bankruptcy proceeding could not affect that
creditor’s position, because there were no assets in any event.
Ibid.
The Third Circuit acknowledged, however, that in a
bankruptcy case that involves assets, the debt of an unnoticed
creditor is not discharged unless that creditor received notice
in time to file a proof of claim. See id. at 114-15. Moreover,
any intentional tort debt is not discharged unless the creditor
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received notice in time to file a complaint pursuant to 11
U.S.C.A. § 523(c). See id. at 114 n.9.
The circumstances of this case stand in contrast to the no-
asset setting of Judd, in which action taken by the creditor in
the bankruptcy proceedings would have been futile even if it had
received timely notice of the bankruptcy petition and the
subsequent discharge. As noted by the trial court and the
Appellate Division, had Citi received notice of the bankruptcy
petition and discharge in this case, it would have been in a
position to enforce its lien during the year following the
bankruptcy discharge, as permitted by N.J.S.A. 2A:16-49.1.
Gaskill, supra, 428 N.J. Super. at 243-44. The notice that was
omitted in this case would not have been meaningless, as it was
in the no-asset, no-bar date setting of Judd. Instead, timely
notice would have enabled the creditor to take action within the
time limitation of N.J.S.A. 2A:16-49.1 to protect its interest
in the real property at issue.
Accordingly, the Third Circuit’s holding in Judd does not
address the due process argument that was raised by the debtor
in this case: whether notice to a creditor of a Chapter 7
bankruptcy proceeding and discharge constitutes a prerequisite
to the cancellation and discharge of a judgment under N.J.S.A.
2A:16-49.1. We concur with the Appellate Division’s conclusion
that such notice is required before a debtor may invoke the
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protection of N.J.S.A. 2A:16-49.1, and that equitable tolling
was an appropriate remedy in the circumstances of this case.
The judgment of the Appellate Division is affirmed.
CHIEF JUSTICE RABNER; JUSTICES LaVECCHIA, PATTERSON, and
FERNANDEZ-VINA; and JUDGE FUENTES (temporarily assigned) join in
this opinion. JUSTICES ALBIN and SOLOMON did not participate.
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SUPREME COURT OF NEW JERSEY
NO. A-51 SEPTEMBER TERM 2013
ON CERTIFICATION TO Appellate Division, Superior Court
ROBERT D. GASKILL and
KATHLEEN GASKILL, h/w,
Plaintiffs-Appellants,
v.
CITI MORTGAGE, INC., f/k/a
CITICORP MORTGAGE, INC.,
Defendant-Respondent.
DECIDED May 28, 2015
Chief Justice Rabner PRESIDING
OPINION BY Per Curiam
CONCURRING/DISSENTING OPINIONS BY
DISSENTING OPINION BY
CHECKLIST AFFIRMED
CHIEF JUSTICE RABNER X
JUSTICE LaVECCHIA X
JUSTICE PATTERSON X
JUSTICE FERNANDEZ-VINA X
JUDGE FUENTES (t/a) X
TOTALS 5