Herman v. Pruess (In re Herman)

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IN RE: KATHLEEN HERMAN Debtor.

KATHLEEN HERMAN, Appellant, v. KRISTA M. PRUESS, as TRUSTEE Appellee.

No. 22 Civ. 5624 (NSR)

United States District Court, S.D. New York

April 24, 2023

OPINION & ORDER

NELSON S. ROMAN, UNITED STATES DISTRICT JUDGE

This pro se appeal arises from the Bankruptcy Court's June 8, 2022 Order (ECF No. 1, hereinafter “Bankruptcy Court Order”) dismissing Appellant Kathleen Herman's (“Herman” or “Appellant”) motion to reconsider the dismissal of her Chapter 13 bankruptcy petition before the United States Bankruptcy Court for the Southern District of New York, Case No. 20-35143 (CGM). Herman brings this appeal against the Chapter 13 Trustee, Krista M. Preuss (hereinafter, “Appellant” or “Trustee”).

Herman filed the instant appeal on July 1, 2022. (ECF No. 1.) For the following reasons, the Bankruptcy Court's Order is AFFIRMED in its entirety.

BACKGROUND

The following facts are derived from the Court's review of the underlying Bankruptcy Court docket. (See Case No. 20-35143, hereinafter “Bankruptcy Court Docket”).

Herman an individual residing in Pleasant Valley, NY, filed a Chapter 13 petition in the Bankruptcy Court for the Southern District of New York on February 3, 2020. (Bankruptcy Court Docket, ECF No. 1.) Under her proposed Chapter 13 plan Herman agreed to pay $200 a month for 36 months to cure mortgage arrears in connection with her two properties in New York and Florida. (Id. at ECF No. 9 (“Model Chapter 13 Plan”); id. at ECF No. 20 (“Amended Model Chapter 13 Plan”)). At the time that she filed her Chapter 13 petition and throughout the underlying bankruptcy proceeding, Herman was represented by Julius Rivera, Esq. (“Mr. Rivera”).

In connection with the Chapter 13 proceeding, on August 17 2020, the Court granted Herman's request to participate in the Loss Mitigation Program^[1] with her creditors with respect to her New York property, and Mr. Rivera represented Herman in that program. (See id., ECF Nos. 29, 34.) However, in November 2021, the Court terminated Loss Mitigation after no agreement was reached between Herman and her creditors. (Id., ECF Nos. 122, 123.) The Court thereafter lifted the stay of foreclosure on the New York property on November 10, 2021. (Id. at ECF No. 124.) In addition, following a hearing on November 23, 2021, the Bankruptcy Court granted Mr. Rivera's request for additional professional compensation in the amount of $7,923.00 in connection with his representation of Herman in the Loss Mitigation program. (Id., ECF No. 125.) At that point, Mr. Rivera had already filed an initial administrative claim for legal fees in the amount of $4,550.00 (Id.) In the Bankruptcy Court's November 24, 2021 order granting Mr. Rivera's application for additional allowance of compensation, the Bankruptcy Court ordered that the “Chapter 13 Trustee pay the fees awarded to debtors counsel, Julius A. Rivera Jr., to the extent available, from the funds on hand.” (Id.)

A Chapter 13 confirmation hearing was initially scheduled for March 24, 2020 (see id. at ECF No. 4) but was continually adjourned until (See id., ECF Nos. 18, 22, 41, 47, 60, 61, 69, 73, 87, 89, 98, 109, 116, 128, 132, 133.) The confirmation hearing was finally scheduled for April 5, 2022. (See id., ECF Nos. 133, 134.)

The claims in Herman's Chapter 13 petition were as follows:

Claim No. 1: Julius Rivera, Esq

$4,550.0 (Administrative Attorneys' fees)

Claim No. 2: Nationstar Mortgage, LLC

$56,657.89 (Secured)

$2,041.90 (Mortgage Arrears)

Claim No. 3: Verizon

$55.19 (unsecured)

Claim No. 4: Federal Home

$290,347.70 (Secured)

$5,644.86 (Mortgage Arrears)

Claim No. 5: Julius Rivera, Esq.

$7,923.00 (Administrative Attorneys' fees)

See Bankruptcy Court Docket, Claims Register; see also C. A. No. 22cv5624, ECF No. 17-1.

Over the course of the bankruptcy proceeding, Herman managed to pay $5,200, but she missed an installment in February 2022 because she was out of work due to the COVID-19 pandemic, and because she was recovering from a non-elective hip surgery. Soon after Herman missed payment, the Trustee moved to dismiss the plan on March 2, 2022, arguing that the plan was not adequately funded. (See Bankruptcy Court Docket, ECF Nos. 135, 136.) In the Trustee's application to move for dismissal, the Trustee argued that the Chapter 13 plan was not adequately funded “as a result of a post-confirmation fee application granted in favor of Julius Rivera, Esq.” (Id., ECF No. 135, ¶ 2.) In addition, the Trustee argued that Herman failed to submit timely payments as required under 11 USC § 1325(a)(6) was $200.00 in arrears. (Id., ECF No. 135, ¶ 3.) Mr. Rivera did not oppose the motion to dismiss on Herman's behalf, and the motion to dismiss was granted, following a very brief hearing on April 5, 2022. (See id., ECF Nos. 138, 158.) In the order granting dismissal, the Bankruptcy Court states that the “Debtor's proposed chapter 13 plan is not feasible as it is not adequately funded to provide full repayment of the secured claims as required by 11 U.S.C. 1325(a)(5),” and therefore, there was cause for dismissal of the Chapter 13 case. (Id., ECF No. 138.) The Chapter 13 plan was therefore never confirmed.

After the motion to dismiss was granted, Herman fired her counsel. Herman then moved, pro se, to reconsider the dismissal of the case on May 9, 2022, which the Bankruptcy Court denied on June 8, 2022, following a hearing on June 7, 2022. (See id., ECF Nos. 140, 146, 151.) As indicated during the June 7, 2022 hearing, the Bankruptcy Court denied reconsideration of the motion to dismiss after finding that Herman did not state any new facts that would alter the decision to grant dismissal, and that dismissal had been granted without opposition by her counsel. (See id., ECF No. 151 at 8-10.) The Bankruptcy Court suggested to Herman that she should “start all over again” and pursue another Chapter 13 plan in light of her changed financial outlook. (See id., ECF No. 151 at 10.) The Bankruptcy Court also indicated that because Herman's Chapter 13 plan was not confirmed, Herman should receive her money in the Chapter 13 fund, minus Trustee fees, via check. (See id., ECF No. 151 at 11.) However, Herman and her housemate, Mr. Ghiazza, indicated on the record that they did not receive a check over mail, but would confirm with Trustee's counsel. (See id., ECF No. 151 at 12.)

Herman filed the instant appeal on July 1, 2022. (See C. A. No. 22-cv-5624, ECF No. 1.). Herman filed her opening brief on August 1, 2022 (See id., ECF No. 8. (“Appellant Br.”)) and reply brief on November 7, 2022. (See id., ECF No. 25 (“Reply Br.”)) Trustee filed her opposition on September 23, 2022 (See id., ECF No. 17 (“Appellee Br.”)).

STANDARD OF REVIEW

A district court hearing an appeal from a bankruptcy court reviews the bankruptcy court's findings of fact under the “clearly erroneous” standard, See Fed.R.Bankr.P. 8013, while its conclusions of law are reviewed under the de novo standard. See In re Bennett Funding Group, Inc., 146 F.3d 136, 137 (2d Cir. 1998). Under de novo review, the Court affords no deference to the Bankruptcy Court's decision and decides the question as if no decision had been previously rendered. See In re Reilly, 245 B.R. 768, 772 (2d Cir. BAP), aff'd, 242 F.3d 367 (2d Cir. 2000) (“A de novo review allows us to decide the issue as if no decision had been previously rendered . . . . No deference is given to the Bankruptcy Court's decision.”) (quoting In re Miner, 229 B.R. 561, 565 (2d Cir. BAP 1999)).

By contrast, review for clear error is much more deferential to the bankruptcy court's findings. Clear error exists “when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.” Dist. Lodge 26, Int'l Ass 'n of Machinists & Aerospace Workers, AFL-CIO v. United Techs. Corp., 610 F.3d 44, 51 (2d Cir. 2010) (quoting United States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948)). While the lower court's findings of fact are not conclusive on appeal, the party that seeks to overturn them bears a heavy burden. “To be clearly erroneous, a decision must strike [us] as more than just maybe or probably wrong; it must . . . strike [us] as wrong with the force of a five-week-old, unrefrigerated dead fish.” In re Reilly, 245 B.R. at 772 (quoting In re Miner, 229 B.R. at 565). “Particular deference is given to a bankruptcy court's findings on credibility.” In re Portaluppi, 609 F. App.'x 30, 31 (2d Cir. 2015) (citing In re CBI Holding Co., 529 F.3d 432, 450 (2d Cir. 2008)).

The court reviews mixed questions of law and fact either de novo or under the clearly erroneous standard depending on whether the question is predominantly legal or factual. Bay Harbour Mgmt., L.C. v. Lehman Bros. Holdings Inc., 415 B.R. 77, 83 (S.D.N.Y. 2009) (internal quotation and citation omitted); In re Gordon, 577 B.R. 38, 49 (S.D.N.Y. 2017) (“Bankruptcy courts have the discretion to decide an issue without holding an evidentiary hearing, and a district court can reverse such a decision only if it amounts to an abuse of discretion.”).

District courts should liberally construe a pro se litigant's submissions and interpret them “to raise the strongest arguments that they suggest.” Pabon v. Wright, 459 F.3d 241, 248 (2d Cir. 2006) (citing Burgos v. Hopkins, 14 F.3d 787, 790 (2d Cir. 1994)).

DISCUSSION

Construing the pro se arguments liberally, Herman appeals the denial of her motion to reconsider the dismissal of her Chapter 13 petition on the following basis: (i) that the Court erroneously dismissed her Chapter 13 petition because her plan was viable; and (ii) the Bankruptcy Court erroneously granted Mr. Rivera's professional fees, which depleted the ...