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IN RE LOEWS CINEPLEX ENTERTAINMENT CORPORATION

April 22, 2004.

IN RE LOEWS CINEPLEX ENTERTAINMENT CORPORATION, Debtor; LOEWS CINEPLEX ENTERTAINMENT CORPORATION, Appellant, — against — BOROUGH OF MOUNTAINSIDE, NEW JERSEY, Appellee


The opinion of the court was delivered by: HAROLD BAER, JR., District Judge

OPINION & ORDER

Debtor-appellant, Loews Cineplex Entertainment Corp. ("Loews"), appeals from the September 29, 2003 decision of the Hon. Allan L. Gropper of the United States Bankruptcy Court for the Southern District of New York ("Bankruptcy Court"), which assessed the value of a property leased by the debtor — appellants and the corresponding tax obligation for tax years 1999 and 2000. For the reasons set forth below, the Bankruptcy Court decision is affirmed.

I BACKGROUND

  This case involves the appeal of the real property tax assessment for the tax years 1999 and 2000 of a property located at 1021 Route 22 East, Borough of Mountainside, Union County, New Jersey ("the subject property"), which is leased by Loews. The subject property is an irregular 10.173 acre parcel that is improved with a 54,675 square foot ten auditoria multiplex movie theater with seating capacity of 3,023 that was constructed in 1996. Under the terms of its lease, Loews is required to pay all real estate taxes on the subject property.

  The tax assessor for the Borough of Mountainside ("the Borough"), Eldo Magnani, Jr., originally assessed the subject property at $7,155,000, which the parties stipulated resulted in fair market value of $13,044,667 for tax year 1999 and $13,691,159 for tax year 2000. The taxpayer, Loews, filed an appeal with the Union County Board of Taxation on March 31, 1999, in which it sought a decrease in the assessment and the Borough filed a cross — appeal on April 19, 1999 in which it sought an increase in the assessment. By agreement of the parties, the appeal and cross — appeal were consolidated in New Jersey State Tax Court and were scheduled for trial on April 11, 2001. Both parties retained experts, who each assessed the subject property. Loews' expert, Maurice J. Stack, II, who relied on the cost approach valuation methodology, opined that the market value for the subject property was $10,370,000 for tax year 1999 and $10,675,000 for tax year 2000. The Borough's expert, Michael R. Buchalski, who relied on the same valuation methodology, but corroborated his findings with two other valuation techniques, believed that the subject property was properly valued at $20,500,000 for both tax years.

  On March 9, 2001, Loews*fn1 parent corporation filed for bankruptcy under Chapter 11 of the Bankruptcy Code and the tax proceedings were stayed pursuant to 11 U.S.C. § 362. Ultimately, the parties agreed to transfer the tax dispute to the Bankruptcy Court. The Bankruptcy Court held an evidentiary hearing on April 4 and 25, 2003, in which it heard testimony from the parties9 experts and the Borough's tax assessor, and reviewed the parties' submissions and expert reports. On September 29, 2003, the Bankruptcy Court rendered a decision in which it concluded that the fair market value of the property was $20,000,000 for tax year 1999 and $20, 200,000 for tax year 2000.1 In re: Loews Cineplex Entm't Corp., Nos. 01-40346 through 01-40582 (ALG), slip op., (Bankr. S.D.N.Y. Sept. 29, 2003). Loews filed the instant appeal, challenging the Bankruptcy Court's valuation of the subject property.

  II. DISCUSSION

 A. Standard of Review

  The Federal Rules of Bankruptcy Procedure provide that "[o]n an appeal the district court . . . may affirm, modify, or reverse a bankruptcy judge's judgment, order, or decree." F.R.Bankr.P. 8013. A bankruptcy court's conclusions of law are reviewed de novo. hire Ionosphere Clubs. Inc., 922 F.2d 984,988 (2d Cir. 1990). "Findings of fact . . . shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses." F.R.Bankr.P. 8013. Under this "clearly erroneous" standard of review of factual findings, the bankruptcy court decision may only be reversed when the district court is "left with the definite and firm conviction that a mistake has been committed." BP Energy Co. v. Bethlehem Steel Corp., No. 02 Civ. 6419, 2002 WL 31548723, at *2 (S.D.N.Y. Nov. 15, 2002) (quotation marks and citation omitted). With this standard in mind, I turn to Loews' arguments on appeal.

 B. The Bankruptcy Court Decision

  Loews' arguments for reversal of the Bankruptcy Court decision can be distilled to three main points, which I address seriatim.

 
1. The Bankruptcy Court Properly Determined that the Original Assessment Was Not Entitled to a Presumption of Correctness
  Loews asserts that the Bankruptcy Court's determination that the original assessment was not entitled to a presumption of correctness was clearly erroneous. Loews9 argument on this score is undercut by the fact that Loews itself argued, both here and in the Bankruptcy Court, that the original assessment was incorrect. Nonetheless, I consider this argument in reviewing the Bankruptcy Court's conclusions with respect to the or iginal assessment and the valuation of the subject property.

  Under New Jersey law, "a municipality's original tax assessment is entitled to a presumption of validity," which can only be rebutted by cogent evidence. Pantasote Co. v. City of Passaic, 100 N.J. 408,412,413 (1985). This "so — called presumption ha[s] no artificial probative force once substantial evidence to the contrary [has been] adduced," Ford Motor Co. v. Township of Edison, 127 N.J. 290, 313 (1992) (alteration in original) (internal quotation marks omitted) (quoting Samuel Hird & Sons. Inc. v. City of Garfield 87 N.J. Super. 65, 74 (App. Div. 1965)), and no such presumption attaches where the original assessment is shown to be inaccurate or unreliable, id. Here, the Bankruptcy Court determined that the original assessment could not be presumed correct because it was based on data obtained from third — party sources, which did not include actual construction costs or details from the lease for the subject property. In re: Loews Cineplex Entm't Corp., slip op. at 15. Indeed, according to Magnani's testimony before the Bankruptcy Court, his original assessment — which was conducted in 1996 when the multiplex movie theater was still under construction — was based only on estimated construction costs obtained from building permits and estimated fair market value for the land. He did not examine the lease for the subject property, obtain any actual construction costs, or adjust the assessment at any point after 1996 to calculate the subject property's value for the tax years in question. On this record, it cannot be said that the Bankruptcy Court's conclusion that such an assessment was not entitled to a presumption of correctness was clearly erroneous. To the contrary, it appears that the original assessment was indeed unreliable, thus extinguishing any presumption of correctness. Pantasote. 100 N.J. at 417 (holding that the original assessment is not presumed to be correct when it "has been overcome by cogent evidence, or there are sufficient collateral grounds, such as an assessment totally unrelated to true value . . . ").

  Loews further argues that in rejecting the original assessment, the Bankruptcy Court did not make specific findings as to its unreliability. There is, however, no such requirement under New Jersey law. Instead, case law merely provides that the reviewing court must independently establish value when it concludes that the original assessment is unreliable. Id.("When an original assessment is unreliable, the Tax Court may not invoke its presumptive correctness and must establish value . . ."); accord Entenmann's Inc. v. Totowa Borough, 18 N.J. Tax 540, 544 (Tax Ct. 2000); Newport Center v. Jersey City, 17 NJ. Tax 405, 429 (Tax Ct. 1998). Moreover, the Bankruptcy Court did cite specific reasons for ...


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