Court Opinion

ID: 2830918
Source: CourtListenerOpinion
Date Created: 2015-08-26 17:00:38.207115+00
Date Added: 2024-06-11T11:31:40.781825
License: Public Domain

NOT PRECEDENTIAL

                       UNITED STATES COURT OF APPEALS
                            FOR THE THIRD CIRCUIT
                                 ___________

                                      No. 14-4677
                                      ___________

              IN RE: JOAN FABRICS CORPORATION, ET AL., Debtors
                               FRED GODLEY,
                                       Appellant

                      ____________________________________

                     On Appeal from the United States District Court
                                for the District of Delaware
                                 (D.C. No. 1-14-cv-00774)
                     District Judge: Honorable Richard G. Andrews
                      ____________________________________

                    Submitted Pursuant to Third Circuit LAR 34.1(a)
                                    June 25, 2015

             Before: CHAGARES, KRAUSE and BARRY, Circuit Judges.

                            (Opinion filed: August 26, 2015)
                                     ___________

                                       OPINION*
                                      ___________

KRAUSE, Circuit Judge:

       In the midst of their Chapter 11 bankruptcy, Joan Fabrics Corp. and Madison

Avenue Designs, LLC (collectively, the “Debtors”) sold Appellant Fred Godley parcels

of real property (the “Properties”), pursuant to an order of the Bankruptcy Court (the
“Sale Order”) and an Asset Purchase Agreement (the “APA”). Four years later, after the

government of Rutherford County, North Carolina began enforcing an aged lien on the

Properties, Godley filed a motion with the Bankruptcy Court seeking to “enforce” the

Sale Order. In effect, Godley sought a declaration that he purchased the Properties free

and clear of the tax obligation at issue.

       The central issue we face is whether, under North Carolina law, a “business

personal property tax lien”1 must be recorded with a register of deeds to become “of

record.” Like the District and Bankruptcy Courts before us, we conclude it need not be,

and will therefore affirm in favor of Rutherford County.

I.     Background

       In March 2007, and in accordance with North Carolina law, the Debtors submitted

their business personal property tax listings to the Rutherford County tax assessor’s

office.2 The Debtors filed for bankruptcy one month later, and by July 2007, sold the

Properties to Godley. The Sale Order and APA provided that Godley was taking title to

the Properties subject to “[p]ermitted [e]ncumbrances,” which included “[e]asements,

       1
         “Business personal property includes machinery, equipment, computers,
furniture, fixtures, supplies, airplanes, farm machinery, and any other income-producing
personal property.” County Assessor, Rutherford County, North Carolina,
http://rutherfordcountync.gov/Departments/tax/countyassessor (last visited Aug. 14,
2015).
       2
        In North Carolina, businesses first submit their tax listings, and once the full
inventory of taxable property is known, the tax rate is set. See Spiers v. Davenport, 138
S.E.2d 762, 764 (N.C. 1964).

                                            2
liens, restrictions, encumbrances, encroachments, agreements and other matters of

record.” App. 110, 125.

       While the sale of the Properties closed in July 2007, the County did not issue a bill

for the taxes at issue until August 2007, and those taxes were never paid. As a result, in

2011, Rutherford County demanded payment, and later sent notice of its intention to

garnish rents from Godley’s tenants in order to satisfy the lien. In response, Godley filed

his Motion to Enforce the Sale Order, asking the Bankruptcy Court to hold that he

purchased the Properties free and clear of the lien, and requesting that Rutherford County

be held in contempt for its actions. The Bankruptcy Court denied the motion, finding that

Godley took the Properties subject to the 2007 tax obligation. On appeal, the District

Court affirmed the Bankruptcy Court’s holding. This appeal followed.

II.    Jurisdiction and Standard of Review

       The District Court had jurisdiction under 28 U.S.C. § 158(a). We have

jurisdiction pursuant to 28 U.S.C. §§ 158(d) and 1291. We review the status of the tax

lien—a pure question of law—de novo, see In re Shenango Group, Inc., 501 F.3d 338,

346 (3d Cir. 2007), and review the Bankruptcy Court’s denial of sanctions for an abuse of

discretion, see In re Miller, 730 F.3d 198, 203 (3d Cir. 2013).

III.   Discussion

       We dispose of this appeal by answering a single question: whether the 2007 tax

lien was of record at the time of the sale and therefore a permitted encumbrance under the

Sale Order and APA. Godley argues it was not, asserting that the failure to record the

                                         3
lien with the register of deeds means it was not of record, and thus unenforceable per the

terms of the APA. Rutherford County, meanwhile, maintains that the tax obligation (1)

arose prior to the sale of the Properties, and (2) was appropriately listed with the

County’s tax assessor’s office.

       Upon a careful review of North Carolina law, we conclude that the lien was both

owing and of record at the time of the sale. First, North Carolina law provides that “[a]ll

property subject to ad valorem taxation shall be listed annually.” N.C. Gen. Stat. § 105-

285(a). Second, “the obligation to pay ad valorem property taxes in the State of North

Carolina attaches at the time the property is listed, even though the amount of the tax has

not yet been determined.” In re Members Warehouse, Inc., 991 F.2d 116, 120 (4th Cir.

1993); see also N.C. Gen. Stat. § 105-355(a) (stating that a “lien for taxes levied . . . shall

attach to the parcel taxed on the date as of which property is to be listed”).3 Thus, the

taxes were owed and a lien attached by the time of Godley’s purchase. Third, North

Carolina law directs that those tax listings be recorded with the county tax assessor’s

office, not the register of deeds. See N.C. Gen. Stat. § 105-319(d) (“Listings and

assessments and any changes . . . shall be entered on the county tax records.”); id. § 105-

       3
         The Bankruptcy Court noted that a straightforward reading of § 105-355(a)
suggests that the lien became effective on the date on which the real property listing was
completed, whereas the Fourth Circuit’s interpretation in Members Warehouse suggests
the lien attached when the personal property listing was completed. See In re Joan
Fabrics Corp., 508 B.R. 881, 888 (Bankr. D. Del. 2014) (citing Members Warehouse
Inc., 991 F.2d at 118-19). We need not reach the question of which interpretation is
correct, as under either scenario, the taxes were owed prior to the sale.

                                          4
304(a) (“The person whose duty it is to list property must list it in the county in which the

place of taxation is located . . . .”); id. § 105-309(a) (“Each person whose duty it is to list

property for taxation shall file each year with the assessor a tax list or abstract . . . .”).4

       In sum, the Debtors submitted their business personal property tax listings to the

tax assessor’s office prior to the sale of the Properties, the obligation to pay the tax

attached prior to the sale, and the obligation was of record in the appropriate office.5

Accordingly, the District and Bankruptcy Courts correctly concluded that the tax lien was

a permitted encumbrance under the Sale Order and APA, and we will therefore affirm.6

       4
         Godley’s argument to the contrary relies on North Carolina’s recording
requirements for “[m]ortgages, easements and similar liens, restrictions and interests in
real property,” which are required to be recorded with the register of deeds. Appellant’s
Br. at 11 (citing N.C. Gen. Stat. §§ 47-20, 47-20.1). As the District Court correctly
concluded, however, by their plain terms, neither statute applies to the type of
encumbrance at issue here.
       5
         While not dispositive to our holding, we note that Godley had notice that he
would be responsible for 2007 taxes and failed to object, despite having the opportunity
to do so, pursuant to section 2(e) of the APA. Specifically, prior to the sale, Godley
obtained a title insurance report that stated he would be responsible for “Taxes for the
year 2007.” App. 1040. Moreover, North Carolina law presumed notice of the lien: “All
persons who have or who may acquire any interest in any real or personal property that
may be or may become subject to a lien for taxes are hereby charged with notice that
such property is or should be listed for taxation, that taxes are or may become a lien
thereon, and that if taxes are not paid the proceedings allowed by law may be taken
against such property. This notice shall be conclusively presumed, whether or not such
persons have actual notice.” N.C. Gen. Stat. § 105-348. Despite this actual and
constructive notice, Godley did not object prior to the sale.
       6
         Because Rutherford County did not violate the Sale Order, the Bankruptcy Court
did not abuse its discretion by declining to impose sanctions.

                                          5