Harlem Multifamily LLC v. Eight-115 Assocs., LLC (In re Eight-115 Assocs., LLC)

626 B.R. 383

IN RE: EIGHT-115 ASSOCIATES, LLC, Debtor.

Harlem Multifamily LLC, Plaintiff,

v.Eight-115 Associates, LLC, et al., Defendants.

Case No. 20-11812 (MG)

Adv. Proc. No. 20-01314 (MG)

United States Bankruptcy Court, S.D. New York.

Signed March 16, 2021

KATSKY KORINS LLP, Attorneys for Plaintiff Harlem Multifamily LLC, 605 Third Avenue, New York, NY 10158, By: Steven H. Newman, Esq., Robert Alan Abrams, Esq.

SCHWARTZ SLADKUS REICH GREENBERG ATLAS LLP, Attorneys for Defendant Daniel Reifer, 444 Madison Avenue, New York, NY 10022, By: Stephen Howard Orel, Esq., Jared Paioff, Esq.

KLESTADT WINTERS JURELLER SOUTHARD & STEVENS, LLP, Attorney for Yann Geron, Chapter 7 Trustee, 200 West 41st Street, 17th Floor, New York, NY 10036, By: Kathleen M. Aiello, Esq.

MEMORANDUM OPINION AND ORDER GRANTING MOTION FOR REMAND BASED ON MANDATORY ABSTENTION

MARTIN GLENN, UNITED STATES BANKRUPTCY JUDGE

This adversary proceeding arises from multiple alleged events of default under certain loans issued to Defendant Eight-115 Associates, LLC (the "Debtor"). Plaintiff Harlem Multifamily LLC (the "Lender") commenced a foreclosure proceeding against the Debtor and Defendant Daniel Reifer ("Reifer" or the "Guarantor"), as guarantor of the Debtor's obligations under the Loan Documents (defined below), by filing a summons and complaint in the New York Supreme Court, County of New York. After the bankruptcy case was filed, the Lender removed the foreclosure proceeding to the United States District Court for the Southern District of New York (the "District Court"), and upon removal, the District Court referred the proceeding to this Court pursuant to 28 U.S.C. § 157(a). Pursuant to a settlement between the Chapter 7 Trustee and the Lender (described below), the Debtor's real property is being marketed and will be sold in a section 363 sale rather than through foreclosure. The Lender's guaranty claim against Reifer to recover any deficiency after the property is sold, as to which only the Lender and Reifer are parties, remains to be adjudicated. The settlement also provides that the estate will share in any recovery on the Lender's claims against Reifer. The issue addressed in this Opinion is whether that litigation between the Lender and Reifer should take place in state court or in the bankruptcy court.

Reifer has moved for abstention and remand of the Lender's claim against Reifer as guarantor (the "Guaranty Claim") to the New York Supreme Court pursuant to 28 U.S.C. §§ 1452(b), 1334(c)(2) and 1334(c)(1) and Federal Rule of Bankruptcy Procedure 9027(d). ("Motion," ECF Doc. # 8-1.)¹ The Lender filed its opposition to the Motion. ("Opposition," ECF Doc. # 11.) Reifer filed his reply to the Opposition. ("Reply," ECF Doc. # 15.) On March 2, 2021, this Court held a hearing on the Motion (the "Hearing") and took the matter under submission. For the reasons that follow, the Court GRANTS the Motion only as to the Guaranty Claim and DENIES the Motion as to the rest of the adversary proceeding.

I. BACKGROUND

The background discussion is derived from the amended complaint, dated March 12, 2020, initially filed in the New York Supreme Court (the "Complaint," Motion, Ex. 1) and documents filed in this Court as part of the bankruptcy case.

A. The Debtor's Real Property

The Debtor is the fee owner of the following parcels of real property:

(i) 264 West 115th Street, New York, New York 10026 (Section 7, Block 1830, Lot 53) (10 Units);

(ii) 276 West 115th Street, New York, New York 10026 (Section 7, Block 1830, Lot 59) (8 Units);

(iii) 278 West 115th Street, New York, New York 10026 (Section 7, Block 1830, Lot 60) (10 units)

(iv) 2120 Frederick Douglass Boulevard, a/k/a 2120B Fredrick Douglass Boulevard, a/k/a 2120 8th Avenue, a/k/a 2120B 8th Avenue, New York, New York 10026 (Section 7, Block 1830, Lot 64) (9 Units);

(v) 2122 Frederick Douglass Boulevard, a/k/a 2122 8th Avenue, New York, New York 10026 (Section 7, Block 1830, Lot 163) (9 Units); and

(vi) 2124 Frederick Douglass Boulevard, a/k/a 2124 8th Avenue, New York, New York 10026 (Section 7, Block 1830, Lot 63) (9 Units); (collectively, the "Real Property ")

("Stipulation," Opposition, Ex. 1 ¶ II.A.) The real property is currently occupied by tenants under individual leases. (Id. ¶ II.B.)

B. The Loan Documents

In the Complaint, the "Loan Documents" are defined as consisting of the notes, mortgages, guaranties, loan violations affidavits and all other documents executed in connection with Signature Bank's first loan of $5,775,000 and second loan of $1,150,000 to the Debtor (collectively, the "Loans"). (Complaint ¶¶ 22, 31, 87, 89, 98.) Signature Bank assigned the Loan Documents to the Lender in December 2019. (Id. ¶¶ 32, 99.) Based upon certain alleged defaults, the Lender sought to foreclose on the property subject to the mortgages and collect full payment under the Loan Documents. (Id. ¶ 1.) Section 2.1.2 of the first and second mortgages, entitled "Events of Default-Automatic Acceleration," provides "[t]he Debt shall forthwith and automatically become due" upon the occurrence of an "Event of Default." (Id. ¶¶ 37, 104.) Section 2.2 of the first and second mortgages provides that "[u]pon the occurrence of any Event of Default, the Mortgagee may ... declare the entire unpaid Debt to be immediately due and payable[.]" (Id. ¶¶ 38, 106.)

The third cause of action in the Complaint asserts the Guaranty Claim based on Reifer's Limited Guaranty dated November 25, 2014 (the "First Loan Guaranty," Opposition, Ex. 6) and Reifer's Limited Guaranty dated November 4, 2016 (the "Second Loan Guaranty," Opposition, Ex. 7, and together with the First Loan Guaranty, the "Limited Guaranties"). The Guaranty Claim seeks payment from Reifer to the extent that the Sale Proceeds of the Real Property are not sufficient to indefeasibly pay Lender's claim under the Loan Documents in full. (Complaint ¶¶ 18, 137-139.)

Section 1.1 of each of the Limited Guaranties provides: "Guarantor hereby irrevocably and unconditionally guarantees to Lender and its successors and assigns the payment and performance of the Guaranteed Obligations as and when the same shall be due and payable, whether by lapse of time, by acceleration of maturity or otherwise. Guarantor hereby irrevocably and unconditionally covenants and agrees that it is liable for the Guaranteed Obligations as a primary obligor." (Limited Guaranties § 1.1.) Section 1.2 of each of the Limited Guaranties defines "Guaranteed Obligations" to mean, among other things, "all obligations or liabilities of Borrower to Lender under the Note, Mortgage and all other Loan Documents in the event the Mortgaged Property (as defined in the Mortgage), or any part thereof becomes part of a bankruptcy debtor's estate pursuant to any chapter of the U.S. Bankruptcy Code, 11 U.S.C. § 101, et seq. , as it may be amended due to the Borrower's filing for bankruptcy[.]" (Limited Guaranties § 1.2.)

Section 1.11 of the Limited Guaranties, titled "Waiver of Defenses," provides: "Guarantor hereby waives all defenses (other than payment) in the enforcement of this Guaranty, including the defense of the election of remedies." (Limited Guaranties § 1.11.)

C. The Bankruptcy

On August 6, 2020 (the "Petition Date"), the Debtor filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code. (ECF Main Case # 1.) On August 7, 2020, Yann Geron (the "Trustee") was appointed interim trustee of the Debtor's estate and thereafter qualified and is serving as permanent trustee. (Opposition ¶ 16.)

On November 3, 2020, the Lender timely filed, among other things, a notice of removal in the District Court ("Notice of Removal," ECF Doc. # 1-2 to 1-4),² and upon removal, the District Court referred the foreclosure proceeding to this Court pursuant to the Standing Order of Reference dated January 31, 2012 (ECF Doc. # 1-6).

On November 4, 2020, the Trustee filed a motion seeking approval of a stipulation between the Trustee and the Lender pursuant to sections 105, 361, 362, 363, 364, 502, 506 and 507 of the Bankruptcy Code, and Bankruptcy Rules 4001(a)(1) and (d), and 9019: (i) fixing the Lender's claim amount as well as the extent, validity and priority of its liens; (ii) establishing a mechanism for the disposition of estate property and the Lender's collateral; (iii) providing for a carve-out of the Lender's liens; (iv) establishing a sharing arrangement with respect to proceeds of certain claims against third parties; and (v) providing for related relief. ("9019 Motion," ECF Main Case Doc. # 25 ¶ 44.) Reifer filed an objection to the Motion. ("Reifer's Objection," ECF Main Case Doc. # 31.) The Trustee filed a reply to Reifer's Objection. ("Trustee's Reply," ECF Main Case Doc. # 38.) The Lender also filed a statement responding to Reifer's Objection. ("Lender's Statement," ECF Main Case Doc. # 39.) The Complaint originally contained claims against the City of New York (the "City"), including its Environmental Control Board. The City also asserted an objection at the November 30, 2020 hearing (the "November 30 Hearing"), but those claims were resolved in a revised draft stipulation submitted to the Court on December 1, 2020, the day after the November 30 Hearing. (See id. ¶ 22(a), (b).) On January 20, 2021, the Court "So-Ordered" the Stipulation, which provides in relevant part:

3. Allowance of The Lender's Claims and Liens .

....

(b) The Lender's claim under the Loan Documents is hereby permanently settled, fixed, liquidated and allowed in the sum of $11,000,000.00, as of August 31, 2020, plus all interest at the Default Rate accruing on and after September 1, 2020, plus any and all additional amounts (collectively, the "Claim Additions ") for fees, costs, expenses (including, without limitation, attorneys' fees and expenses), protective advances (including any "Lender Advances ", as defined below) incurred or accruing on or after September 1, 2020, or chargeable after September 1, 2020 with respect thereto (such aggregate amount

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