5200 ENTERPRISES LIMITED vs. City of New York
- Case Type:
- Case Status:
- 20-13753 (11th Circuit, Jan 05,2022) Published
- The U.S. Court of Appeals for the Eleventh Circuit (Circuit) both denied the motion to certify whether 5200 Enterprises Limited (Enterprises or DR) had stated a claim for continuing trespass under state law to the relevant jurisdiction's highest court--the N.Y. Court of Appeals--and affirmed the bankruptcy court order dismissing its complaint against New York City (NYC), as the DR's' trespass claim, even if valid, was time-barred under New York law and BAPCPA, properly applied retroactively, barred reconsideration of an ad valorem tax's amount or legality once this period had expired.
- Procedural context:
- In 2018, the DR, a single-asset real estate entity called 5200 Enterprises Limited, filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Middle District of Florida (BC or bankruptcy court). Long before, in 1986 to be precise, Enterprises had purchased a piece of property that it later learned had been contaminated sometime between 1940 and 1950 by its then-owner, NYC. Despite this fact, throughout the entirety of Enterprises’ ownership, NYC taxed the property according to its “best intended use," i.e. as a warehouse, rather than as an unusable contaminated lot. Rather than paying the taxes or properly challenging their validity, however, Enterprises ignored them, and the taxes had become liens.
Seeking to rid itself of these liens, Enterprises initiated an adversary proceeding against NYC in bankruptcy court. In its complaint, Enterprises (1) asserted a cause of action against NYC for “continuous trespass,” and (2) sought a declaratory judgment that NYC (a) is responsible for the hazardous waste on the property and the damage that it has caused and (b) improperly taxed the property according to its “best intended use” rather than as if it were worthless. NYC moved to dismiss the complaint for failure to state a claim under Federal Rule of Bankruptcy Procedure 7012(b) and Federal Rule of Civil Procedure 12(b)(6), arguing that the trespass claim failed both (1) because it was not cognizable under New York law and (2) because it was time barred, and further contending that the Bankruptcy Code precluded Enterprises’ challenge to the decades-old tax assessments because the period to contest them had expired under the applicable non-bankruptcy law. The bankruptcy court granted NYC's motion and dismissed the adversary proceeding with prejudice.
Thereafter, Enterprises sought certification to appeal directly to the Circuit on the ground that its complaint presented an issue of first impression under New York law. When NYC didn’t object, the district court certified the request, and a Circuit motions panel granted it. Once before the Circuit, Enterprises moved to stay the briefing schedule and to certify the continuing-trespass question to the New York Court of Appeals. The Circuit denied the motion to stay the briefing schedule and carried the motion to certify with the case.
- In the early 1900s, NYC used a Brooklyn powerhouse to provide electricity for its trolley system. In 1940, NYC took ownership of the power plant and removed a smokestack, placed it in the building's basement, on top of a mechanical system that was insulated with friable asbestos-containing material, and buried it under a concrete slab. Enterprises acquired the property in 1986. An asbestos inspection by the city revealed that the property was contaminated with PCBs. The property was placed on NYC's Registry of Inactive Hazardous Waste Disposal Sites, rendering it effectively worthless. The state began remediation in 2015. The discovery of the buried smokestack and friable asbestos-containing material postponed the project indefinitely, but at all times NYC continued to tax the property according to its “best intended use” as a warehouse, rather than assessing the property according to its present, contaminated condition. During the 30-plus years in which taxes were assessed on the property, Enterprises purported to challenge only one of those tax bills—and even then, it failed to prosecute the action by filing a Note of Issue.
- Kevin C. Newsom; Adalberto J. Jordan; and Edward E. Carnes
ABI Membership is required to access the full summary. Please Sign In using your ABI Member credentials. Not a Member yet? Join ABI now - it is absolutely worth it!