In re Richmond

513 B.R. 34

In re: Eric H. Richmond, Debtor.

Case No. 14–41678 (CEC)

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

Signed July 17, 2014

Eric H. Richmond, 227 4th Avenue, Brooklyn, New York 11215, Pro-se Debtor.

Glenn P. Warmuth, Esq., Stim & Warmuth, P.C., 2 Eighth Street, Farmingville, New York 11738, Counsel for P.B. # 7 LLC.

Chapter 13

DECISION

CARLA E. CRAIG, Chief United States Bankruptcy Judge

This matter comes before the Court on the motion of P.B. # 7 LLC (“P.B.”) to lift the automatic stay, pursuant to 11 U.S.C. § 362(d)(4). This chapter 13 case was filed shortly after the automatic stay was vacated in the single asset real estate chapter 11 case of 231 Fourth Avenue Lyceum (“Lyceum”), to permit P.B. to pursue foreclosure on real property located at 227–231 4th Avenue, Brooklyn, New York (the “Property”). Eric Richmond, the debtor in this chapter 13 case (the “Debtor”), is the principal and sole shareholder of Lyceum, and is a defendant in P.B.'s foreclosure action. The Debtor's and Lyceum's bankruptcy cases were each filed to stay P.B.'s foreclosure of the Property. Because the Property is not property of this debtor's estate, the Debtor may not modify P.B.'s claim secured by the Property in this case, and therefore, the continuation of the stay, as to the Property, serves no legitimate purpose. Moreover, in this case, the Debtor again seeks to collaterally attack the state court judgment of foreclosure with respect to the Property, which, as this Court has already ruled in Lyceum's bankruptcy case, is precluded by principles of res judicata and the Rooker–Feldman doctrine. For these reasons, relief from the automatic stay to permit P.B. to exercise its rights and remedies under applicable law, with respect to the Property, is warranted under § 362(d)(4) on the grounds that this case was filed as part of a scheme to delay, hinder, or defraud P.B. Stay relief is not granted as to any deficiency claim against the Debtor.

JURISDICTION

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

BACKGROUND

Lyceum's chapter 11 bankruptcy case, which was filed on April 11, 2013, is pending before this Court. (13–42125–CEC.) ¹ P.B. held a mortgage and note on the Property, which is Lyceum's principal asset. Lyceum defaulted on the note and on September 28, 2012, P.B. obtained a judgment of foreclosure and sale against both Lyceum and the Debtor (the “Foreclosure Judgment”). On the eve of the scheduled foreclosure sale of the Property, Lyceum filed its bankruptcy petition. (Affirmation in Support, 14–41678–CEC, ECF No. 9 at ¶ 7.) In Lyceum's bankruptcy case, the Court granted a motion by P.B. to lift the automatic stay with respect to the Property. In re 231 Fourth Ave. Lyceum, LLC, 506 B.R. 196, 203 (Bankr.E.D.N.Y.2014). The decision to lift the automatic stay was based upon the fact that Lyceum's proposed plan of reorganization was not feasible and that Lyceum was barred from attacking the Foreclosure Judgment in bankruptcy court by reason of the Rooker–Feldman Doctrine and principles of res judicata. Id. at 206–208. Lyceum filed a motion to reargue or renew, seeking reconsideration of the decision to lift the stay, Mot. to Reargue or Renew, 13–42125–CEC, ECF No. 92, which was denied by decision and order dated July 17, 2014.

After the stay was lifted, P.B. sought permission from the state court to file a notice of sale. (Affirmation in Support, 14–41678–CEC, ECF No. 9 at ¶ 6.) One day before the return date of P.B.'s motion in state court, the Debtor commenced this bankruptcy case.

The Debtor's chapter 13 petition does not list the Property in the schedules. P.B. is listed as a secured creditor based upon the Debtor's liability on a guarantee of the obligation secured by the property, though it does not appear the P.B.'s guarantee claim against the Debtor is secured. (Schedule A, 14–41678–CEC, ECF No. 11 at 5; Schedule D, 14–41678–CEC, ECF No. 1 at 4.) ² The Debtor's schedules list, as assets, stock ownership in Lyceum and Brooklyn Lyceum, Inc., a lessee of the Property. (Schedule B, 14–41678–CEC, ECF No. 11 at 7.)

On April 9, 2014, P.B. filed a motion seeking relief from the automatic stay pursuant to § 364(d)(4) and an affirmation in support (respectively, the “Motion for Relief” and the “Affirmation”). (Motion for Relief from Stay, 14–41678–CEC, ECF No. 8; Affirmation in Support, 14–41678–CEC, ECF No. 9.) On May 13, 2014, the Debtor filed an affirmation in opposition to the Motion for Relief (the “Opposition”). (Affirmation in Opposition, 14–41678–CEC, ECF No. 15.) On May 16, P.B. filed an affirmation in reply and further support (the “Reply Affirmation”, and collectively, the Motion for Relief, the Affirmation, and the Reply Affirmation being the “Motion”. (Affirmation in Reply and Further Support, 14–41678–CEC, ECF No. 16.) A hearing was held on May 20, 2014. On July 15, 2014, almost two months after the record on the Motion was closed, the Debtor filed an affirmation in further opposition, (Affirmation in Further Opposition, 14–41678–CEC, ECF No. 48.) This untimely filing is not part of the record on the Motion, and in any event raises no new factual or legal arguments.

DISCUSSION

Upon the filing of a bankruptcy petition, the automatic stay provided by the Bankruptcy Code stays “the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case under this title.” 11 U.S.C. § 362(a)(2). Because the Debtor is a named defendant in P.B.'s foreclosure action, and because the Debtor has a contingent liability under the Foreclosure Judgment, the automatic stay extends to any act to enforce the Foreclosure Judgment.³ (Affirmation in Support, 13–42125–CEC, ECF No. 18–5.)

P.B. seeks relief from the automatic stay pursuant to § 362(d)(4), which provides for stay relief:

[W]ith respect to a stay of an act against real property under subsection (a), by a creditor whose claim is secured by an interest in such real property, if the court finds that the filing of the petition was part of a scheme to delay, hinder, or defraud creditors that involved either—

(A) transfer of all or part ownership of, or other interest in, such real property without the consent of the secured creditor or court approval; or

(B) multiple bankruptcy filings affecting such real property.

11 U.S.C. § 362(d)(4). This provision, if applicable, would permit in rem relief from the stay as to P.B.'s interest in the Property, “such that any and all future filings by any person or entity with an interest in the Property will not operate as an automatic stay ... for a period of two years after the date of the entry of such an order,” provided that the order is recorded in compliance with applicable state laws governing notices of interest or liens in real property. In re Montalvo, 416 B.R. 381, 386 (Bankr.E.D.N.Y.2009). There is no evidence that the Debtor or Lyceum have engaged in transfers of interests in the Property under § 362(d)(4)(A). To grant relief under § 362(d)(4)(B), therefore, the Court must find that the Debtor's chapter 13 bankruptcy filing is part of a scheme to hinder, delay or defraud P.B. Id. A bankruptcy court can “infer an intent to hinder, delay, and defraud creditors from the fact of serial filings alone” without holding an evidentiary hearing. In re Procel, 467 B.R. 297, 308 (S.D.N.Y.2012) (quoting In re Blair, No. 09–76150, 2009 WL 5203738, at *4–5 (Bankr.E.D.N.Y. Dec. 21, 2009)).

The extent of the efforts by a debtor to prosecute his bankruptcy case and the “[t]he timing and sequencing of the filings” are important factors in determining whether a debtor has engaged in “a scheme to delay, hinder, and defraud.” Montalvo, 416 B.R. at 387. Here, Lyceum's chapter 11 filing, timed to stop P.B.'s foreclosure sale, was followed by the Debtor's chapter 13 filing, shortly after the stay was lifted in Lyceum's case. Both the Debtor's and Lyceum's filings were on the eve of significant events in the foreclosure action. Lyceum filed its case on the eve of a foreclosure sale and the Debtor's case was filed on the eve of the return date of P.B.'s motion in state court to file a notice of foreclosure sale. The timing of both filings permits an inference that the Debtor is attempting to hinder or delay P.B.'s efforts to enforce the Foreclosure Judgment.

The Debtor's conduct in prosecuting this bankruptcy case and Lyceum's case also weighs in favor of granting relief under § 362(d)(4). In Lyceum's case, the Court determined that Lyceum's proposed plan of reorganization was not feasible, as Lyceum utterly failed to show that it could meet its obligations under the proposed plan. Lyceum, 506 B.R. at 203. Lyceum also argued that the Foreclosure Judgment is invalid, claiming that the state court did not have jurisdiction to enter such a judgment. Id. at 206. In the decision lifting the stay in Lyceum's case, the Court rejected that argument and, in addition, held that the Rooker–Feldman Doctrine and principles of res judicata prohibited the Court from reviewing the validityof the Foreclosure Judgment. Id. at 206–208.

Undeterred, the Debtor has filed a chapter 13 bankruptcy case and once again seeks to challenge the validity of the Foreclosure Judgment. In the Debtor's opposition to the Motion for Relief, he once again asserts that Rooker–Feldman does not apply to the Foreclosure Judgment. (Affirmation in Opposition, 14–41678–CEC, ECF No. 15 at 2–3.) These arguments are also raised in opposition to the chapter 13 trustee's motion to dismiss. (Affirmation in Opposition, 14–41678–CEC, ECF No. 30.) In response to the Motion for Relief,...