Cedar Creek Fibers,LLC

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
FAYETTEVILLE DIVISION
IN RE:
CEDAR CREEK FIBERS, LLC
DEBTOR
CASE NO.
03-00838-8-ATS
ORDER DENYING MOTION TO ENJOIN PROCEEDINGS
The matter before the court is the chapter 7 trustee’s motion to
stay foreclosure and enjoin state court proceedings. A hearing took
place in Raleigh, North Carolina on July 13, 2005.
Cedar Creek Fibers, LLC filed a petition for relief under
chapter 7 of the Bankruptcy Code on January 29, 2003, and Shawna Y.
Staton was appointed trustee. On the petition date, the debtor owned
real property in Fayetteville, North Carolina, as well as some
machinery located inside its plant. The personal property was sold
free and clear of liens pursuant to an order entered on May 10, 2004,
and the real property was sold free and clear of liens pursuant to an
order entered June 10, 2004. The order of June 10, 2004, specifically
provided that any encumbrances on the real property would attach solely
to the sale proceeds of the personal property.
On June 17, 2005, the trustee filed an emergency motion to stay
foreclosure and enjoin state court proceedings, contending that the
Cumberland County Tax Office was threatening to foreclose on the real
property unless the property taxes for 2003 and 2004 were paid by June
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1 To the extent there is any uncertainty about the meaning of the
order dated June 10, 2004, all tax liens, whether arising from real or
personal property taxes owed, were stripped from the real property and
attach solely to the sale proceeds.
2
30, 2005. The trustee also indicated that she was challenging the tax
valuation of the real property to determine the amount of taxes due at
the time of the sale, and that she intended to remove the valuation
proceedings to the bankruptcy court. The trustee’s motion requests a
stay of the threatened foreclosure proceedings and an injunction of the
state court proceedings related to the property value.
The Cumberland County Tax Department opposes the motion, noting
first that it has not threatened or initiated a foreclosure action, and
that it is prohibited from taking any action to collect the taxes while
the trustee’s appeal related to the property value is pending. The Tax
Department also acknowledges that its lien is on the proceeds of the
personal property, and not on the real property.1 Based on the
representations that no foreclosure is pending or contemplated, the
trustee’s motion to stay foreclosure proceedings will be denied.
The second piece of the trustee’s motion is somewhat more complex.
The trustee retained special counsel to challenge the appraised value
of the real property with the Cumberland County Board of Equalization
and Review. Though the appraised value was lowered somewhat in that
proceeding (from over $5 million to over $4 million), the trustee
contends that the value is still significantly inflated and she filed
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2 After one year of marketing the property, the trustee was only
able to realize $580,000 in the sale approved by the court on June 10,
2004.
3
an appeal to the North Carolina Property Tax Commission.2 Based on a
letter received from the state tax commission, the trustee is concerned
that the appeal will not be resolved for some time, resulting in a
substantial delay in the administration of the estate. In addition,
there are other proceedings to take place in this court that squarely
address the question of valuation of the real property, and the trustee
believes the possibility exists that this court and the state tax
commission will reach inconsistent verdicts on the issue.
The Cumberland County Tax Department does not question this
court’s jurisdiction to determine the value of the property, but raises
the issue of comity. It contends that the North Carolina Property Tax
Commission specializes in resolving exactly the matters in question,
and further points out that the trustee elected the state forum by
appealing the Cumberland County Board of Equalization and Review’s
determination to the tax commission.
The court agrees that this matter needs to be resolved promptly
so that the estate may be administered. On the other hand, the North
Carolina Property Tax Commission is the appropriate forum for the
determination of the property value for the purpose of tax assessment.
The trustee’s motion will be denied, but the parties are to make
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3 Nothing in this order precludes the trustee from filing an
objection to the claim of the Cumberland County Tax Department or a
motion pursuant to 11 U.S.C. § 505; however, the court will not
consider any objection or motion directly related to this issue until
it appears that the state forum will not proceed expeditiously.
4
efforts to expedite the proceedings before the tax commission.3 The
court will expect a report from the parties as to the likelihood that
the proceedings will be hastened in the state forum. If it appears
that the matter will be delayed, this court will consider exercising
its jurisdiction over these issues pursuant to 11 U.S.C. § 505.
Based on the foregoing, the trustee’s motion to stay foreclosure
and enjoin state court proceedings is DENIED.
SO ORDERED.
DATED: July 14, 2005
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