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