938 F.3d 473
3rd Cir.2019Background:
- Hacklers failed to pay property taxes on a New Jersey parcel; NJ tax sales auction the tax lien by bidding the interest rate, not the property price.
- Phoenix Funding won the tax certificate (paid delinquent taxes and a premium); after two years it initiated a strict tax foreclosure; Phoenix assigned the certificate to Arianna.
- On October 6, 2016, final judgment vested title in Arianna; on December 14, 2016 (within 90 days) the Hacklers filed Chapter 13 listing the property at $335,000 and opened an adversary proceeding to avoid the transfer as a preference under 11 U.S.C. § 547(b).
- Arianna argued federalism/state-title interests (relying on BFP and the Tax Injunction Act) barred § 547 avoidance; Hacklers argued the transfer met § 547(b) elements.
- The Bankruptcy Court voided the transfer; the District Court affirmed; Arianna appealed to the Third Circuit.
- The Third Circuit affirmed: the transfer satisfied § 547(b) and federalism/TIA arguments did not overcome the Code’s plain text.
Issues:
| Issue | Plaintiff's Argument (Hackler) | Defendant's Argument (Arianna) | Held |
|---|---|---|---|
| Whether a NJ tax-foreclosure transfer is avoidable as a preference under §547(b) | Transfer meets §547(b) elements; should be avoidable | State-conducted tax-foreclosure should not be a avoidable preference; federal courts must defer to state title stability | Transfer met §547(b) and was properly voided |
| Whether BFP v. RTC (interpreting §548) precludes §547 avoidance of tax foreclosures | BFP is inapplicable: it interprets §548 and mortgage foreclosures; NJ tax-sale mechanics differ | BFP’s federalism concerns compel non-interference with state foreclosures and titles | BFP is tied to §548 and mortgage foreclosures; it does not bar voiding NJ tax-foreclosure as a preference |
| Whether the Tax Injunction Act bars federal courts from voiding a tax-foreclosure transfer | TIA does not prevent bankruptcy courts from enforcing specific Bankruptcy Code powers (avoidance) | Voiding the transfer interferes with state tax collection and is barred by TIA | TIA does not bar §547 avoidance; Bankruptcy Code’s specific powers override TIA |
Key Cases Cited
- BFP v. Resolution Trust Corp., 511 U.S. 531 (1994) (held noncollusive mortgage-foreclosure sales constitute reasonably equivalent value under §548; emphasized limits to mortgage-foreclosure context)
- Simon v. Cebrick, 53 F.3d 17 (3d Cir. 1995) (addressed Tax Injunction Act and effect of preventing private foreclosure on tax collection)
- In re Hechinger Inv. Co. of Del., 335 F.3d 243 (3d Cir. 2003) (recognized that TIA does not prevent bankruptcy courts from enforcing specific Bankruptcy Code provisions)
- In re Grandote Country Club Co., 252 F.3d 1146 (10th Cir. 2001) (analyzed whether tax-sale procedures supplying competitive public bidding bear on §548’s reasonably equivalent value inquiry)
- In re Smith, 811 F.3d 228 (7th Cir. 2016) (held Illinois tax-sale mechanics precluded applying BFP because sale price did not reflect property value)