Buckskin Realty Inc. v. Windmont Homeowners Ass'n, Inc. (In re Buckskin Realty Inc.)

In re: Buckskin Realty Inc., Debtor.

Buckskin Realty Inc., Plaintiff, v. Windmont Homeowners Association, Inc., Eva Halpern, an individual,Allyson Phillips, an individual, Edward I. Kaplan, an individual,Young & Sommer, P.C., Cathy Hennessy, Defendants.

Case No. 1-13-40083-nhl

Adv. Pro. No.: 15-01004

UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF NEW YORK

September 23, 2016

Chapter 11

DECISION ON MOTIONS TO DISMISS

Appearances:

Frederick Cains

430 East 86th Street

New York, NY 10028

Attorney for Plaintiff

Greg D. Lubow

6026 Main Street

PO Box 839

Tannersville, NY 12485

Attorney for Defendant Windmont Homeowners

Association, Inc.

Barry G. Margolis

Abrams Garfinkel Margolis Bergson LLP

1430 Broadway

17th floor

New York, NY 10018

Attorney for Defendants Windmont Homeowners

Association, Inc.; Eva Halpern; Cathy Hennessy

Peter T. Shapiro

Lewis Brisbois Bisgaard & Smith LLP

77 Water Street

New York, NY 10005

Attorney for Defendants Allyson Phillips

and Young/Sommer LLC.

Deborah M. Isaacson

Rivkin Radler LLP

477 Madison Avenue

20th Floor

New York, NY 10022

Attorney for Defendant Edward I. Kaplan

NANCY HERSHEY LORD UNITED STATES BANKRUPTCY JUDGE

Plaintiff Buckskin Realty Inc. ("Buckskin"), as chapter 11 debtor-in-possession, brought this adversary proceeding seeking, inter alia, to vacate a state court foreclosure judgment and sale of two unimproved lots located in Greene County, New York, and retitle those lots to Buckskin's bankruptcy estate. The defendants are the Windmont Homeowners Association, Inc. (the "WHA"); Eva Halpern ("Halpern") and Cathy Hennessy ("Hennessy"), officers and directors of the WHA; Young/Sommer LLC,¹ a law firm, and one of its attorneys, Allyson Phillips ("Phillips"), who represented the WHA in state court foreclosure proceedings; and Edward Kaplan ("Kaplan"), the state court foreclosure referee (collectively, the "Defendants"). The Defendants filed separate motions to dismiss Buckskin's claims pursuant to Rule 12(b)(1) and (6) of the Federal Rules of Civil Procedure, and on preclusion grounds. For the reasons set forth below, the Court dismisses all causes of action in the Amended Complaint except for the portion of the ninth cause of action against the WHA based on 11 U.S.C. § 547.²

JURISDICTION

This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b), and the Eastern District of New York standing order of reference dated August 28, 1986, as amended by order dated December 5, 2012. This matter is a core proceeding under 28 U.S.C. § 157(b)(2). This decision constitutes the Court's findings of fact and conclusions of law to the extent required by Rule 7052 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules").

BACKGROUND

Buckskin is a for-profit corporation and the successor of the sponsor of Windmont, a private, gated community located in Windham, New York. Am. V. Compl., ECF No. 5.³ Relevant to this proceeding are two parcels (the "Lots") located within Windmont. Am. V. Compl., ECF No. 5. In or about July 2010, the Greene County Treasurer foreclosed on and obtained title to the Lots due to Buckskin's failure to pay its real property taxes. Am. V. Compl., ECF No. 5. Buckskin repurchased the Lots at the foreclosure sale in October 2010. Am. V. Compl., ECF No. 5. In April 2011, as a result of Buckskin's failure to pay common charge assessments due on the Lots, the WHA⁴ filed two verified notices of lien ("NOLs") against the Lots, which were in addition to a first NOL it had filed against the Lots in September 2008. Defs.' Mot. to Dismiss, ECF No. 15; Am. V. Compl., ECF No. 5. The total value of the NOLs was $17,169, inclusive of $2,000 in attorney's fees. Am. V. Compl., ECF No. 5. In August 2011, the WHA, represented by Young/Sommer LLC, filed a foreclosure action against Buckskin in New York State Supreme Court, Green County, seeking to foreclose on the NOLs. Defs.' Mot. to Dismiss, ECF No. 15. The state court entered a default judgment against Buckskin when it failed to answer or otherwise respond to the action. Defs.' Mot. to Dismiss, ECF No. 15. Buckskin's principal, Rey Olsen ("Olsen"), appeared on behalf of Buckskin and sought unsuccessfully to obtain an order denying the WHA's motion for default judgment. Defs.' Mot. to Dismiss, ECF No. 14. Subsequently, the WHA obtained a default judgment and judgment of foreclosure and sale against Buckskin, which was entered on October 12, 2012. Am. V. Compl., ECF No. 5.Days later, Buckskin moved to vacate the default judgment and judgment of foreclosure and sale, which motion was denied. Am. V. Compl., ECF No. 5. On January 8, 2013, shortly before Buckskin filed its bankruptcy petition, the WHA purchased the Lots for $58,389.11 at the scheduled foreclosure sale. Defs.' Mot. to Dismiss, ECF No. 15.

Buckskin's Amended Complaint is primarily an attack on the state court foreclosure judgment and sale. Buckskin argues that the foreclosure judgment is void because the WHA never registered as a condominium and thus lacked standing to file the NOLs and foreclose on the Lots. Am. V. Compl., ECF No. 5. Its subsequent supporting papers argue that the "Board of Directors of the Windmont Homeowners' Association, Inc." (the "Board"), the named plaintiff in state court, lacked standing to file NOLs and foreclose on the Lots because it "never had a legal existence." Pl.'s Opp'n Mot. Dismiss, ECF No. 21. Therefore, it alleges that the Board, as a "non-existent entity . . . had no legal authority to sue Buckskin or to obtain, through judicial process, title to real property." Id. Buckskin argues that the Board's alleged nonexistence renders the foreclosure judgment invalid and void. Id.

Buckskin additionally argues that the WHA, Halpern, and Hennessy fraudulently obtained the foreclosure judgment by misrepresenting to the state court that the WHA held liens against the property. According to Buckskin, those liens would have been extinguished by the 2010 foreclosure judgment in favor of Greene County. Am. V. Compl., ECF No. 5. Further, Buckskin contends that it, its counsel, and Olsen, never received the required notice of the WHA's foreclosure sale, and that foreclosure referee Kaplan improperly delegated to the WHA's counsel the responsibility of preparing and posting the notices of sale. Am. V. Compl., ECF No. 5. Buckskin also claims that Kaplan breached his fiduciary duty to Buckskin and engaged in a conspiracy to deprive Buckskin of the Lots. Am. V. Compl., ECF No. 5. Buckskin further arguesthat Young/Sommer LLC and Phillips failed to comply with various state laws prior to and during the foreclosure proceeding, and that they conspired with Halpern and Hennessey to deprive Buckskin of the Lots. Am. V. Compl., ECF No. 5. The Defendants move to dismiss the Amended Complaint on several grounds.

PROCEDURAL HISTORY

Buckskin filed a voluntary petition for chapter 11 relief on January 8, 2013, the same day as—but shortly after—the foreclosure sale. Am. V. Compl., ECF No. 5. Buckskin, and Olsen, acting as a pro se creditor, sought to have the petition deemed retroactively filed prior to the foreclosure sale, but this Court denied that request. See In re Buckskin Realty, Inc., 525 B.R. 4 (Bankr. E.D.N.Y. 2015). Buckskin and Olsen separately moved in Buckskin's chapter 11 case for relief similar to that sought here, but the Court denied the relief on the ground that Bankruptcy Rule 7001 required the claims to be brought by adversary proceeding. Id. at 7 n.1. This adversary proceeding followed.

LEGAL STANDARD

Under Rule 12(b)(1), the plaintiff bears the burden of proving subject matter jurisdiction by a preponderance of the evidence. Morrison v. Nat'l Austl. Bank Ltd., 547 F.3d 167, 170 (2d Cir. 2008), aff'd, 561 U.S. 247 (2010); Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000). "[J]urisdiction must be shown affirmatively." Shipping Fin. Servs. Corp. v. Drakos, 140 F.3d 129, 131 (2d Cir. 1998). Thus, while the facts alleged in the complaint are taken as true, favorable inferences drawn from those facts cannot be used to make the necessary jurisdictional showing. Morrison, 547 F.3d at 170; Shipping Fin. Servs. Corp., 140 F.3d at 131. If "subject matter jurisdiction is challenged under Rule 12(b)(1), evidentiary matter may be presented by affidavit or otherwise." Kamen v. Am. Tel. & Tel. Co., 791 F.2d 1006, 1011 (2d Cir.1986). Accordingly, in ruling on a motion pursuant to Rule 12(b)(1), the court is not limited to the facts in the complaint and may consider matters outside of the pleadings to resolve the jurisdictional issue. Zappia Middle E. Constr. Co. v. Emirate of Abu Dhabi, 215 F.3d 247, 253 (2d Cir. 2000). "A case is properly dismissed for lack of subject matter jurisdiction under Rule 12(b)(1) when the [federal] court lacks the statutory or constitutional power to adjudicate it." Makarova, 201 F.3d at 113.

Under Rule 12(b)(6), a plaintiff must plead sufficient facts "to state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is facially plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Complainants must allege enough facts to "nudge[ ] their claims across the line from conceivable to plausible." Twombly, 550 U.S. at 570. This plausibility standard "asks for more than a sheer possibility that a defendant has acted unlawfully." Iqbal, 556 U.S. at 678. "Where a complaint pleads facts that are 'merely consistent with' a defendant's liability, it 'stops short of the line between possibility and plausibility of entitlement to relief.'" Id. (quoting Twombly, 550 U.S. at 557).

In ruling on a Rule 12(b)(6) motion, the court may consider the complaint, documents attached to the complaint, documents incorporated into the complaint by reference, and matters subject to judicial notice. Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42,...