Palladino v. HSBC Bank USA, N.A.

502 F.Supp.3d 1336

Sebastian PALLADINO, Appellant,

v.HSBC BANK USA, N.A., Appellee.

No. 20-cv-2627

United States District Court, N.D. Illinois, Eastern Division.

Signed November 24, 2020

As Amended November 25, 2020

Sebastian Palladino, Naperville, IL, Pro Se.

Robert Brunner, Steven Gordon Trubac, Bryan Cave Leighton Paisner LLP, Chicago, IL, for Appellee.

Memorandum Opinion and Order

Elaine E. Bucklo, United States District Judge

Debtor Sebastian Palladino appeals from a judgment entered against him in the Bankruptcy Court for the Northern District of Illinois, which denied Mr. Palladino's motion to extend the automatic stay as to appellee HSBC Bank USA, N.A. ("HSBC") under 11 U.S.C. § 362(c)(3)(B) and granted HSBC's motion for in rem relief from the stay under 11 U.S.C. § 362(d)(4). For the reasons that follow, the decision of the Bankruptcy Court is affirmed.

I.

The instant bankruptcy proceeding relates to a property located at 917 Heathrow Lane in Naperville, Illinois (the "property"). In 2006, Mr. Palladino's then-wife, Marcella Palladino, signed a thirty-year promissory note for $313,500 secured by a mortgage on the property. ECF No. 15-1 at APP0103. Although he did not sign the note, Mr. Palladino is a co-mortgagor of the property, and currently resides there. Id. at APP1347–48. The Palladinos have made no payments on the property since 2007. Id. The property has been the subject of several legal actions, and a brief description of that legal history is warranted here.

In 2008, HSBC filed a foreclosure action on the property in Illinois state court. Id. at APP0868. The trial court awarded summary judgment to HSBC, but on appeal, Mr. Palladino challenged HSBC's standing, and the appeals court reversed, finding that there were genuine issues of material fact with respect to the assignment of the mortgage and note to HSBC and the authenticity of the note. Id. at APP0038–48. On remand, the trial court denied Mr. Palladino's renewed motion to dismiss for lack of standing. Id. at APP0469; APP0433. HSBC moved for summary judgment again, and briefing was completed in late February 2018. Id. at APP0510.

On March 15, 2018, before the summary judgment motion could be ruled upon, Mr. Palladino filed his first Chapter 13 bankruptcy petition. Id. at APP0191. The action of filing a bankruptcy petition generally automatically stays judicial actions against the debtor, 11 U.S.C. § 362(a), so the petition had the effect of staying the foreclosure action. The first bankruptcy action was quickly dismissed, however, because Mr. Palladino failed to file a Chapter 13 Plan and other required documentation. Id. at APP0194. Undeterred, Mr. Palladino filed a second Chapter 13 petition on April 18, 2018, but that action was also dismissed at the Trustee's recommendation after the Trustee argued that Mr. Palladino was proceeding in bad faith. Id. at APP0203, APP0200.

On November 6, 2018, Mr. Palladino filed a third Chapter 13 bankruptcy petition. Id. at APP0329. This time, substantive proceedings were held. Id. On January 22, 2019, the Bankruptcy Court granted relief from the automatic stay to HSBC and allowed it to proceed with its foreclosure action in Illinois court. Id. at APP0690. Ultimately, on May 24, 2019, the Bankruptcy Court denied confirmation of the Chapter 13 plan and dismissed the case with a 180-day bar to refiling, citing "bad faith." Id. at APP1355-56; APP0703.

With the automatic stay lifted, on February 8, 2019, the Illinois state court granted summary judgment on behalf of HSBC and entered a judgment of foreclosure. Id. at APP0979–80. On February 26, 2020, however, on the eve of the foreclosure sale, Mr. Palladino filed the instant bankruptcy petition, his fourth concerning the property. Id. at APP0012.

Mr. Palladino now appeals from an April 17, 2020 decision in the instant (fourth) bankruptcy case in which the Bankruptcy Court denied Mr. Palladino's motion to extend the automatic stay as to HSBC under 11 U.S.C. § 362(c)(3)(B) and granted HSBC's motion for in rem relief from the stay under 11 U.S.C. § 362(d)(4). Id. at APP0006.

Subsequent to filing the instant appeal, Mr. Palladino amended his schedules and submitted a revised plan removing HSBC as a creditor. See ECF No. 11 at 6; ECF No. 15 at 29. The amended plan was confirmed on June 12, 2020. Id.

II.

I review "a bankruptcy court's factual findings for clear error and its legal conclusions de novo. " In re Miss. Valley Livestock, Inc. , 745 F.3d 299, 302 (7th Cir. 2014). A factual finding is not clearly erroneous if it is " ‘plausible in light of the record viewed in its entirety,’ even if [the reviewing court] would have ‘ "weighed the evidence differently" and reached the opposite conclusion.’ " United Air Lines, Inc. v. Int'l Ass'n of Machinist & Aerospace Workers , 243 F.3d 349, 361 (7th Cir. 2001) (citing Air Line Pilots Ass'n Int'l v. United Air Lines, Inc. , 802 F.2d 886, 891 n.2 (7th Cir. 1986) ). Moreover, a "bankruptcy court's grant of relief from the automatic stay is reviewed for an abuse of discretion." Colon v. Option One Mortg. Corp. , 319 F.3d 912, 916 (7th Cir. 2003) ; In re Williams , 144 F.3d 544, 546 (7th Cir. 1998) ("[T]he bankruptcy court has discretion whether and to what extent it will grant relief from the stay, so our review is limited to whether the court abused that discretion.").

III.

As a threshold matter, Mr. Palladino argues that HSBC lacked standing to move for relief from the automatic stay in the bankruptcy action, making substantially similar arguments to those he advanced in the foreclosure action regarding HSBC's standing. Standing to move for relief from an automatic stay in bankruptcy court, however, is different than standing to foreclose. "Hearings to determine whether the stay should be lifted are meant to be summary in character." In re Vitreous Steel Prods. Co. , 911 F.2d 1223, 1232 (7th Cir. 1990). "A decision to modify the stay is ‘only a determination that the creditor's claim is sufficiently plausible to allow its prosecution elsewhere.’ " In re Spencer , 531 B.R. 208, 212 (Bankr. W.D. Wis. 2015), aff'd sub nom. Spencer v. Fed. Home Loan Mortg. Corp. , 246 F. Supp. 3d 1241 (W.D. Wis. 2017) (citation omitted). Thus, to establish standing to move for relief from the stay in the Seventh Circuit, a party in interest need only demonstrate a "colorable claim" to the property. In re Vitreous Steel , 911 F.2d at 1232, 1234 ; In re Spencer , 531 B.R. at 212.¹

Here, the district court did not err in concluding that HSBC had standing to move for relief from the stay. HSBC has obtained a judgment of foreclosure in the state court, and such judgments have been held sufficient to establish a "colorable claim" to the property. In re Spencer , 531 B.R. at 212–13 ; see also In re Boydstun , No. WO-19-020, 2020 WL 241492, at *5 (B.A.P. 10th Cir. Jan. 16, 2020) ("[Creditor's] documents (the Note, Mortgage, and assignments), taken with the final state court Foreclosure Judgment, demonstrated that [creditor] met the low threshold of proving it was a party in interest with a colorable claim for stay relief.").

Mr. Palladino also argues that HSBC was barred from moving for relief from the stay because it did not file a proof of claim in the fourth bankruptcy. See Fed. R. Bankr. P. 3002(a). But Section 362 requires only that a movant be a "party in interest"; nowhere does it specify that the party must also have filed a proof of claim. See 11 U.S.C. § 362(d). Accordingly, courts that have considered the issue have not required that a creditor file a proof of claim to establish standing to move for relief from an automatic stay. See In re D/C Distribution, LLC , 617 B.R. 600, 608-09 (Bankr. N.D. Ill. 2020) ; see also In re Quinteros , No. 19-00195, 2019 WL 5874609, at *11–14 (Bankr. D.D.C. Nov. 8, 2019) (" Rule 3002 does not say anything about whether a secured creditor is barred from seeking relief from the automatic stay if it fails to file a proof of claim."). For the foregoing reasons, the Bankruptcy Court did not err in concluding that HSBC had standing.

IV.

I turn to the merits—first, Mr. Palladino's challenge to the Bankruptcy Court's order denying his request to extend the automatic stay. Generally, as noted above, the filing of a bankruptcy petition automatically stays any judicial action against the debtor, enforcement of any judgment obtained against the debtor, or the enforcement of any lien against the debtor's property. 11 U.S.C. § 362(a). However if, as here, the debtor was part of another bankruptcy case that "was pending within the preceding 1-year period but was dismissed," the stay automatically terminates thirty days after filing. 11 U.S.C. § 362(c)(3)(A). The debtor may seek an extension of the stay if he "demonstrates that the filing of the later case is in good faith as to the creditors to be stayed." 11 U.S.C. § 362(c)(3)(B). The later case is presumptively not filed in good faith (1) "as to all creditors, if ... there has not been a substantial change in the financial or personal affairs of the debtor since the dismissal of the ... previous case," 11 U.S.C. § 362(c)(3)(C)(i)(III), or (2) "as to any creditor that commenced an action [for relief from the stay] in a previous case in which the individual was a debtor if, as of the date of dismissal of such case, that action was still pending or had been resolved by terminating, conditioning, or limiting the stay as to actions of such creditor," 11 U.S.C. § 362(c)(3)(C)(ii).

Here, the Bankruptcy Court denied Mr. Palladino's motion to extend the thirty-day automatic stay as to HSBC. It correctly determined that the petition was presumptively filed in bad faith as to HSBC because HSBC had opposed extension of the automatic stay in the third bankruptcy case, and that opposition was resolved by terminating the stay as to HSBC. See 11 U.S.C. § 362(c)(3)(C)(ii). Further, after a detailed discussion, the court determined that a second bad faith presumption applied as to all creditors...