United States District Court, S.D. New York
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.
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.
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 its decision, namely
that the information Magnani relied upon was deficient, and thus even
if Loews were correct in its statement of the law, its argument
would nevertheless fail.
2. The Bankruptcy Court Property Valued the Subject Property and
Made Sufficient Findings
Loews' principle argument on appeal and at oral argument is that the
Bankruptcy Court did not make specific findings of fact and conclusions
of law in determining the value of the subject property for tax years
1999 and 2000. I find that the Bankruptcy Court did indeed fulfill its
obligations under New Jersey law and made the requisite findings and
New Jersey law instructs that when the reviewing court rejects the
original assessment, it "must then turn to a consideration of the
evidence adduced on behalf of both parties and conclude the matter based
on a fair preponderance of the evidence." Ford Motor Co., 127
N.J. at 312 (quoting Pennwalt Corp. v. Township of Holmdel,
4 N.J. Tax 51, 55 (Tax Ct. 1982)). The reviewing court need only make "an
independent determination of true value" when it rejects the conclusions
offered by the parties' experts. Id. (quoting Pennwalt Corp., 4
N J. Tax at 55). In so doing, the reviewing court may draw upon any portion of the
experts9 testimony or reports that it deems credible. Union Drydock
& Repair v. Hoboken City, 19 N.J. Tax 207, 214 (Tax Ct. 2000);
City of Newark v. 1013 Corp., 1 N.J. Tax 107, 113 (Tax Ct.
1980): see also Jablin v. Northvale Borough, 13 N.J. Tax 103,
107 (App. Div. 1991) (deciding that the court may draw upon "the evidence
before it and the data at its disposal"). The reviewing court, sitting as
fact finder, can soundly determine the weight to be given to any
expert testimony, Borough of Wildwood Crest v. Smith.
235 N.J. Super 404, 406 (App. Div. 1988), which it can reject in whole
or part, Emmis Broad. Corp. of N.Y. v. East Rutherford Borough,
16 N.J. Tax 29, 35 (App. Div. 1996).
In its sixteen page Memorandum of Decision, the Bankruptcy Court
reviewed the valuation methodology of both parties' experts and made
specific conclusions as to which portions of the expert testimony and
reports were credible and reliable. For example, the Bankruptcy Court
decided that Loews' expert's use of a Floor Area Ratio analysis, which
values only a portion of the property in question, i.e., maximum building
area, reduced the reliability of his valuation of the subject property.
In re: Loews Cineplex Entm't Corp., slip op. at 8. The
Bankruptcy Court concluded that the comparison properties used by the
Loews' expert tended to have larger building areas than required by a
movie theater, which greatly increased the estimated value per square
foot of the subject property and skewed the assessment by producing a
significantly lower valuation. Id.
In contrast, the Bankruptcy Court found that the Borough's expert used
a more reliable analysis in that he compared the total square footage,
his comparables were more analogous to the subject property, his
depreciation calculations were more reasonable, and he used actual cost
data. Id. at 9. The Bankruptcy Court further decided that the
Borough's expert properly factored a ten percent entrepreneurial profit
into his valuation approach and corroborated his findings with two other
valuation methodologies, which lent his valuation greater credence. Id.
at 10-11, 12, 12-13. Thus, the Bankruptcy Judge who had the
benefit of observing all the witnesses during two days of testimony and
had the opportunity to direct questions to the witnesses did his
job as required under New Jersey law.
The cases Loews relies upon do not compel a different result. Loews
cites Rossi v. Upper Pittsgrove Township, 12 N.J. Tax 235, 240
(Tax Ct. 1992) to support its argument that the Bankruptcy Court must
make "independent findings of fact and conclusions of law" when reviewing a county tax board judgment. This language, however, is
excerpted from the Rossi court's discussion of whether it could
consider facts that occurred after the county tax board's hearing. In
rejecting the defendant's argument that such evidence was precluded, the
court emphasized that under it was obligated to "consider all competent
evidence" and arrive at its own determination as to the applicable facts
and law. Id, In so holding, the Rossi court relied
upon an earlier decision of the New Jersey Supreme Court, Pantasote
Co., 100 N.J. at 417, which stands for the proposition that a tax
court must independently value a property where it concludes that the
original assessment is not presumptively valid. Similarly, the New Jersey
Supreme Court's discussion in Ford Motor Co., 127 N.J. 290 of
the Tax Court's obligation to make an independent valuation stemmed from
the fact that the tax court had rejected the original assessment, but
declined to determine the property's value after a sixteen day trial. On
those facts, the Ford court held that the tax court should have
made an assessment of value. Id. at 313.
These decisions fail to address the issue of specific findings of fact
and conclusions of law as posed by Loews and cannot be read to invalidate
the Bankruptcy Court's decision. Instead, they instruct the Bankruptcy
Court to make an independent determination of value upon its rejection of
the original assessment, which it did, relying on those portions of the
experts' testimony and reports it deemed credible.
3. The Bankruptcy Court Did Not Improperly Rely Upon a Post
Finally, Loews argues that the Bankruptcy Court improperly relied upon
a post assessment event in determining the value of the subject
property. While Loews suggested at oral argument that this error pervaded
the Bankruptcy Court's entire decision, it has cited only one specific
post assessment fact. In brief and at oral argument, Loews
contended that the Bankruptcy Court violated a fundamental principle of
New Jersey law when it relied upon the fact that Loews signed a lease
while it was in Chapter 11. Loews argues that the Bankruptcy Court's
reliance on this fact to support the addition of a ten percent
entrepreneurial profit under the cost approach valuation was
Given that Loews has cited authority that instructs the reviewing court to consider all available evidence in its
valuation. E.g. Rossi, 12 N.J. Tax at 240 (ruling that the tax court was
obliged to consider "all competent evidence and not only that which was
presented to the county board," which included evidence of activity that
occurred subsequent to the county board's hearing). Nevertheless, as the
Borough notes, subsequent events may be used to corroborate an
independently formed conclusion. Borough of Fort Lee v. Invesco
Holding Corp., 3 N.J. Tax 332, 342 (Tax Ct. 1981), aff'd in
part, rev'd in part on other grounds, 6 N.J. Tax 255 (App. Div.
1983) ("While the use of subsequent events as direct evidence of value is
not appropriate, a valuation predicated upon subsequent events may, in an
appropriate situation, be utilized to corroborate an opinion
independently arrived at and based on facts known or reasonably
ascertainable as of the critical date."); see also City of Atlantic
City v. Boardwalk Regency Corp., 19 N.J. Tax 164, 184 (App. Div.
2000) (holding that the use of post assessment sales data can be
permissibly used to corroborate a valuation based on pre
assessmentdata). As described by the tax court in Lamm Assoc. v. Borough
of West Caldwell, 1 known or reasonably foreseeable as of the assessment
date with subsequent events deemed relevant only if they are
corroborative or consistent with the reasoning and approach utilized."
This is precisely the method and reasoning employed by the Bankruptcy
Court. The Bankruptcy Court independently decided that a ten percent
entrepreneurial profit was appropriate and used the fact that Loews'
assumed the lease while in bankruptcy proceedings along with
other data, such as the subject property's physical location to
corroborate that determination. There was no error.
For the foregoing reasons, the Bankruptcy Court's decision is affirmed.
The Clerk of the Court is instructed to close this case and any pending
motions and remove this case from my docket.
THIS CONSITUTES THE DECISION AND ORDER OF THE COURT.