G.L.A.D. Enters., LLC v. Deutsche Bank Nat'l Tr. Co. (In re G.L.A.D. Enters., LLC )

In re: G.L.A.D. ENTERPRISES, LLC, Debtor/Appellant.

G.L.A.D. ENTERPRISES, LLC, Plaintiff, v. DEUTSCHE BANK NATIONAL TRUST COMPANY, ET AL., Defendants.

No. 3:19cv1798 (MPS)

UNITED STATES DISTRICT COURT DISTRICT OF CONNECTICUT

May 29, 2020

MEMORANDUM OF DECISION

Appellant and bankruptcy debtor G.L.A.D. Enterprises, LLC appeals from orders by the United States Bankruptcy Court for the District of Connecticut (the "Bankruptcy Court") (1) dismissing its Chapter 7 bankruptcy case with prejudice and imposing a two-year filing bar and (2) abstaining from hearing its adversary proceeding. For the reasons set forth below, I affirm the Bankruptcy Court's order as to the Chapter 7 case, grant the appellees' motions to dismiss as to the appeal concerning the adversary proceeding (ECF Nos. 10, 11), and deny the appellant's motion to stay. (ECF No. 21.)

I. Background¹

On May 1, 2019, G.L.A.D. filed a Chapter 7 petition in the United States Bankruptcy Court. In re: G.L.A.D. Enterprises, No. 19-50604 (Bankr. D. Conn. 2019)(Manning., C.J.). The petition listed as assets real properties at 963 Fence Row Drive, Fairfield, Connecticut and 6 Ulbrick Lane, Westport, Connecticut, and an unrelated civil lawsuit. On July 10, 2019, the Chapter 7 trustee, Richard M. Coan, filed a Report of No Distribution, finding that there was

no property available for distribution from the estate over and above that exempted by law. Pursuant to Fed R Bank P 5009, I hereby certify that the estate of the above-named debtor(s) has been fully administered. I request that I be discharged from any further duties as trustee. Key information about this case as reported in schedules filed by the debtor(s) or otherwise found in the case record: This case was pending for 2 months. Assets Abandoned (without deducting any secured claims): $ 6900000.00, Assets Exempt: Not Available, Claims Scheduled: $ 7701600.21, Claims Asserted: Not Applicable, Claims scheduled to be discharged without payment (without deducting the value of collateral or debts excepted from discharge): $ 7701600.

No. 19-50604, ECF No. 23.

On July 18, 2019, after the Trustee's Report finding that there were no assets remaining in the bankruptcy estate, G.L.A.D. commenced an adversary proceeding against Deutsche Bank National Trust Company, as Indenture Trustee for American Home Mortgage Investment Trust 2006-1 (Deutsche Bank), Ocwen Loan Servicing nka PHH (PHH), Connecticut Attorneys Title Insurance (CATIC), attorney George Wolf, and the Trustee. See G.L.A.D. Enterprises LLC v. Deutsche Bank, et al., Case No. 19-05018 (Bankr. D. Conn. 2019)(Manning., C.J.). The complaint alleged fraud and misrepresentation as to the quitclaim and mortgages of the Fairfield and Westport properties listed in the Chapter 7 case and claimed that the mortgages were unenforceable.

On September 11, 2019, Deutsche Bank and PHH, CATIC, and George Wolf each filed motions to dismiss in the adversary proceeding. See No. 19-05018, ECF Nos. 25, 27, 31. As alternative relief, the appellees requested that the Bankruptcy Court abstain from hearing the adversary proceeding pursuant to 28 U.S.C. § 1334(c)(1) because the properties at issue were the subject of long-standing foreclosure actions in Connecticut state court -- a 2015 action as to the 6 Ulbrick Lane property, see Deutsche Bank National Trust Co. as Indenture v. Simpson, et al., FBT-CV15-6053107-S, and a 2016 action as to the 963 Fence Row property, see Deutsche Bank National Trust Co. as Indenture v. G.L.A.D. Enterprises, LLC et al., FBT-CV 16-6059644-S.

On September 17, 2019, the Bankruptcy Court held a pretrial conference at which it discussed the pending motions. See No. 19-05018, ECF Nos. 37, 45. During the conference, the Court learned that the debtor had ceased making payments on the properties as of May 2008. Id., ECF No. 45 at 27; ECF No. 25-1 (in the present action) at 201. The Court further learned that the debtor filed the Chapter 7 action on the same day that trial was scheduled to begin in one of the foreclosure actions. ECF No. 25-1 at 185, 192-93. The Court was further apprised that in December 2018, the debtor had filed a Chapter 7 action the day before trial was to begin in the foreclosure action of the Fence Row property. See Deutsche Bank v. G.L.A.D. Enterprises, LLC, FBT-CV-16-6059644-S, No. 192; see also ECF No. 25-1 at 195-96. At the end of the conference, the Court declared its intention to abstain from the adversary proceeding and to dismiss the Chapter 7 action as a bad faith filing and impose a filing ban. Id. at 205.

On October 28, 2019, the Bankruptcy Court issued a Memorandum of Decision in which it explained its decision permissively to abstain from the adversary proceeding under 28 U.S.C. § 1334(c)(1) and to dismiss the Chapter 7 case with prejudice and impose a filing bar. As to the adversary proceeding, the Bankruptcy Court stated in pertinent part:

Because the Trustee has abandoned the subject properties, the claims in the Adversary Proceeding, even if successful, have no effect on the efficient administration of the bankruptcy estate. Further, state law issues are completely dominant over bankruptcy issues in this Adversary Proceeding. The Complaint alleges that the notes and mortgages that are the subjects of the pending Foreclosure Actions were obtained by fraud and are unenforceable, and that the actions of the defendants constitute unfair trade practices. These same claims were raised and are directly at issue in the Foreclosure Actions. Under the specific circumstances of this case, the Superior Court is the more appropriate forum to adjudicate state law issues relating to the properties and any alleged fraud or unfair trade practices, which would have occurred but for the filing of the Debtor's cases. That the claims are based on the same facts and would require the same evidence and witnesses to prove or counter the claims weighs in favor of permissive abstention.... The Court will not interfere with the state court's ability to make a determination on the merits of the Foreclosure Actions. Connecticut law is well settled on foreclosure issues, and where Connecticut law is not settled, the state courts are the proper forums to determine such issues. To the extent that the Superior Court has determined that the Debtor's claims are without merit, any further relief the Debtor may seek should be sought in the state court.

Furthermore, the fact that there are currently two actions pending outside of this Court is a factor that weighs heavily in favor of permissive abstention. . . . The claims that have been brought in this Adversary Proceeding all relate to the Foreclosure Actions, which are not "core" proceedings because they concern issues that cannot be decided by the bankruptcy court. . . . Finally, the argument that the Debtor is forum shopping by commencing this Adversary Proceeding has merit; by filing the Complaint, the Debtor is essentially attempting to relitigate issues already presented or decided in the Foreclosure Actions, proceedings have been pending for more than four years. The Debtor cannot use this Court to prolong or avoid a final determination of these issues by the state court.

ECF No. 1-1 at 5-6. As to its decision to dismiss the Chapter 7 case with prejudice, the Bankruptcy Court stated in pertinent part that:

[t]he September 17, 2019 Pretrial Conference provided the Debtor with the opportunity to demonstrate that it filed this Chapter 7 case in good faith. At that Conference, the Court made clear its concerns about the motivation behind the filing of the Debtor's Chapter 7 case. The Debtor, who was represented by counsel, had several opportunities to explain its bankruptcy purpose; it failed to make any showing that this Chapter 7 case was filed in good faith.

Therefore, after a review of the record of the Debtor's bankruptcy case and after consideration of the representations made by the parties at the Pretrial Conference, the Debtor's Chapter 7 Case is dismissed as a bad faith filing. It is clear that the sole purpose of filing the Chapter 7 case was to continue to delay trial in the Foreclosure Actions. The Debtor cannot use this Court as a second opportunity to litigate issues resolved in, or ripe before, the Superior Court, or as a forum in which to employ dilatory tactics. Such actions are an abuse of the bankruptcy process which the Court cannot condone. . . .

[I]f 'cause' warrants, a court is authorized, pursuant to [11 U.S.C.] § 349(a), to dismiss a bankruptcy case with prejudice to refiling. . . . In light of Debtor's bad faith in filing this Chapter 7 Case, and in bringing an Adversary Proceeding that properly should have been brought by the Chapter 7 Trustee, the Court finds that cause exists to dismiss this case with prejudice and to bar the Debtor from filing for relief under any chapter of the Bankruptcy Code in any bankruptcy court for a period of not less than two (2) years from the date of entry of this Order.

Id. at 8-10 (quotation marks; citation omitted; emphasis in original). The memorandum of decision was filed on the docket in both the main bankruptcy case (No. 19-50604, ECF No. 30) and the adversary proceeding. (Case No.19-5018, ECF No. 40).

On November 7, 2019, G.L.A.D. filed a notice of appeal in the Chapter 7 case (Case No. 19-50604, ECF No. 34) and attached copies of the Bankruptcy Court's memorandum of decision. It did not file a notice of appeal in the adversary proceeding. (Case No.19-5018.)

On December 20, 2019, the appellees, Deutsche Bank, CATIC, and PHH, filed motions to dismiss in this case as to that portion of G.L.A.D.'s appeal pertaining to the adversary proceeding. (ECF Nos. 10, 11.) On February 13, 2020, the appellant filed a response (ECF No. 15) and on January 8, 2020, the appellees filed a reply. (ECF No. 16.) On February 25, 2020, the appellant filed a motion for stay (ECF No. 21) in which it requested that this Court impose a stay on all proceedings, noting that the...