R-Group Invs., Inc. v. Noddah, LLC

R-GROUP INVESTMENTS, INC., Appellant, v. NODDAH, LLC et al, Appellees.

No. 14 C 9717

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

September 30, 2015

Judge Virginia M. Kendall

MEMORANDUM OPINION AND ORDER

Appellant R-Group Investments, Inc. appeals the bankruptcy court's annulment of an automatic stay. The annulment of the automatic stay validated the sale of property previously owned by R-Group to Appellee WPA 3, LLC. The property was sold in foreclosure proceedings pursued by MB Financial Bank, R-Group's creditor who assigned its rights to Appellee Noddah, LLC. On appeal, R-Group argues that the Bankruptcy Court erred in granting Corona LLC's motion to reopen the bankruptcy and to annul the stay. R-Group further alleges that the Bankruptcy Court erred when it failed to acknowledge that movants lacked standing to annul the stay, that the stay should not have been allowed to proceed due to the doctrine of laches, and that the Bankruptcy Court did not have subject matter jurisdiction. Yet, in filing its appeal, R-Group failed to mention that it never moved to stay the sale of the property once the Bankruptcy Court annulled the automatic stay. The sale has now been confirmed by the state court, and as such, under the Bankruptcy Code the Court cannot disrupt that finalized sale and provide a remedy for the Appellant. As a result, the appeal is rendered moot because the Court has no availableremedy it can provide Appellant. For the reasons set forth below, the Court dismisses the appeal for lack of jurisdiction.

BACKGROUND

This bankruptcy appeal stems from an $800,000 loan R-Group obtained on February 25, 2005, from Interstate Bank ("Interstate") that was secured by property located at 1515 W. Haddon, Chicago, Illinois ("Property"). (Dkt. No. 1, Ex. 5.) R-Group defaulted on the Loan, and on September 24, 2007, Interstate filed for foreclosure in the Circuit Court of Cook County. (Dkt. No. 1, Ex. 11 at 26-31.) Fifteen months later, R-Group filed its first bankruptcy case on December 23, 2008. (Dkt. No. 67 at 10.) Some six weeks after the filing, the Bankruptcy Court dismissed R-Group's first bankruptcy case on February 9, 2009 on bad faith grounds, specifically, R-Group's failure to retain Chapter 11 counsel. (Dkt. No. 40, Ex. 11 at 79.) Further the Bankruptcy Court found that there was cause to modify the automatic stay because R-Group had also failed to pay real estate taxes. (Dkt. No. 40, Ex. 13 at 32.) On September 7, 2009, MB Financial Bank became the successor in interest to the Loan when it acquired Interstate's assets and continued to seek foreclosure on the Property in state court. (Dkt. No. 40, Ex. 3 at 18; Ex. 11 at 34-36.) On June 15, 2012, the state court entered a judgment of foreclosure and ordered the sale of the Property. (Dkt. No. 40, Ex. 11 at 34.) Pursuant to that order, MB Bank conducted a judicial sale ("Sheriff's Sale") on August 8, 2012. (Id. at 35.)

Merely seven minutes before the start of the Sheriff's Sale on August 8, 2012, Appellant filed its second bankruptcy case wherein MB Bank was the lone creditor. (Dkt. No. 1, Ex. 4 at 10-17.) Neither the Sheriff nor MB Bank was made aware that the second bankruptcy case had been filed and the sale went forward. The property was sold to 1515 W. Haddon GP2 ("Initial Buyer"). (Id. at 34-35.) MB Bank, upon learning of the bankruptcy case, moved for itsdismissal and sanctions against R-Group, alleging that R-Group had been involuntarily dissolved, had no operations, had failed to maintain the property, and had failed to pay property taxes on the property for many years. While that motion was pending before the Bankruptcy Court, R-Group moved to voluntarily dismiss its own second bankruptcy just ten weeks after having filed it. The Bankruptcy Court granted the voluntary dismissal on October 22, 2012 thus mooting MB Bank's motion. (Dkt. No. 40, Ex. 11 at 31.)

After the second bankruptcy was dismissed, MB Bank went back to the state court to seek confirmation of the sale. On September 5, 2013, the Initial Buyer contracted to transfer the rights to the certificate of sale of the Property from the Sheriff's Sale to WPA 3 and Corona. (Dkt. No. 40, Ex. 11 at 36.) After bouncing around the state court system from judge to judge for 20 months, in significant part due to R-Group's motions to change judges, on March 7, 2014, MB Bank finally amended its motion to confirm the Sheriff's sale. R-Group, however, once again moved to vacate the sale alleging that it should not be approved because it occurred during the ten weeks that its second bankruptcy case was pending, the same case that it had filed minutes before the sale without notice to the Sheriff or the purchaser, and the same case that it voluntarily moved to dismiss a few weeks later after receiving an opposing motion to dismiss for abuse and seeking sanctions. (Dkt. No. 40, Ex. 11 at 74.) In response, on August 7, 2014, Corona filed a motion to reopen the second bankruptcy case and to retroactively annul the automatic stay on behalf of the Initial Buyer. (Dkt. No. 40, Ex. 10 at 30.) WPA 3 later adopted Corona's position. (Dkt. No. 40, Ex. 10 at 52; Dkt. No. 67 at 59-61; Dkt. No. 40, Ex. 7 at 41-46.) As a result, the Bankruptcy Court reopened the second bankruptcy case on August 18, 2014. (Dkt. No. 24 at 4.) At this point, Noddah entered the fray as the assignee of MB Bank to support Corona's motion to annul the automatic stay. (Dkt. No. 40, Ex. 13 at 10.)

On October 22, 2014, having reviewed the motions before it, the Bankruptcy Court annulled the automatic stay, thereby validating the Sheriff's Sale. (Dkt. No. 40, Ex. 17 at 7-17.) The Bankruptcy Court determined that it was irrelevant whether the Initial Buyer, Corona or WPA 3, had standing because MB Bank, the lender, had standing. In concluding that the automatic stay should be annulled, the Bankruptcy Court found that had the second bankruptcy case not been dismissed on R-Group's own motion, MB Bank's request for relief from the stay would have been granted. (Id. at 7.) The Bankruptcy Court held that failing to annul the stay would result in the undoing of years of litigation and a sale that had occurred two years ago which would unduly harm MB Bank. Further, the Initial Buyer, who bought the property in good faith would also be harmed. Most importantly, the Bankruptcy Court determined that the second bankruptcy case should never have been filed and was only dismissed in light of R-Group facing a motion for sanctions based on the filing. Recognizing that MB Bank had a right to lawful exercise of its state court rights, and that the actions of R-Group had only delayed for seven years the adjudication of those rights, the Bankruptcy Court annulled the automatic stay and once again validated the Sheriff's sale. That sale was subsequently confirmed by the state court. Meanwhile, in spite of continually running to court to block the case from going forward in past, R-Group failed to file a motion for stay pending appeal either in the Bankruptcy Court of in the District Court. Instead, R-Group filed this appeal. With respect to the foreclosure proceedings, the state court confirmed the sale of the Property to the Initial Buyer on November 7, 2014. (Dkt. No. 52 at 22-25.) Finally, on November 10, 2014, the Sheriff of Cook County issued a deed for the Property to WPA 2 as assignee of WPA 3, who had purchased the Certificate of Sale from the Initial Buyer. (Dkt. No. 52 at 26-27.)

DISCUSSION

I. Appellees Had Standing

The Court concludes that the Bankruptcy Court properly found MB Bank and the other Appellees had standing to seek an annulment of the automatic stay. Pursuant to 11 U.S.C. § 362(d), only a "party in interest" may move to annul an automatic stay, however that term is not defined in the Bankruptcy Code. Whether a party is in interest under Section 362(d) is determined on a case-by-case basis in consideration of the interest and how the automatic stay affects that interest. See e.g., In re Sweports, Ltd., 476 B.R. 540, 542, (Bankr. N.D. Ill. 2012). A mortgagee who violated an automatic stay by enforcing its foreclosure judgment and proceeding with a sale has standing to seek annulment of that automatic stay. In re Grason, 486 B.R. 448, 460-61 (Bankr. C.D. Ill. 2013) (finding that although a purchaser of property sold at a foreclosure sale does not have standing to annul an automatic stay, the mortgagee who conducted the foreclosure sale would have standing to do so). MB Bank as successor in interest to the Loan sold the Property at the Sheriff's sale while the automatic stay was in place (albeit for seven minutes), and therefore had standing to seek annulment of the automatic stay as the mortgagee. The Court thus finds that the Bankruptcy Court correctly held that MB Bank had standing to move for an annulment of the automatic stay. ¹

R-Group asserts that neither Corona nor WPA 3 had standing because neither was the party that bid for the Property at the Sheriff's sale and neither was a bona fide purchaser of the Property. But as the Bankruptcy Court properly found, Corona and WPA 3 can join MB Bank's motion to annul the automatic stay that MB Bank had standing to file because only one party needs to have standing for all parties to have standing. See Bowsher v. Synar, 478 U.S. 714, 721(1986) (where appellees are a group, only one member of the group needs to sustain an injury to create standing). As support for its argument that MB Bank's standing does not also create standing for Corona and WPA 3, R-Group cites to In re National Indus. Chemical Co. for the principle that "a litigant must assert his own legal rights and interests." No 98 C 4081, 1998 WL 887065 at *4 (N.D. Ill. 1998). But that case dealt with one party who sought to annul an automatic stay rather than a group of parties in which one has standing; as such, it is not applicable to this case. (Id.) Accordingly, the Court finds that Appellees had...