Samuel's Temple Church of God in Christ v. Parade Place, LLC (In re Parade Place, LLC)

508 B.R. 863

In re: Parade Place, LLC, et al., Debtors.Samuel's Temple Church of God in Christ, Plaintiff,

v.Parade Place, LLC, Saadia Shapiro, Marla Shapiro, Valley National Bank, Defendants.

Case No. 13–13160 (MG) Jointly Administered

Adv. Pro. Case No. 13–01556 (MG)

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

Signed May 2, 2014

ROBERT G. LEINO, ESQ., Attorney for Samuel's Temple Church of God in Christ, 224 Riverside Drive, 6B, New York, New York 10025, By: Robert G. Leino, Esq.

KRISS & FEURSTEIN LLP, Attorneys for 75 125th Holdings LLC, 360 Lexington Avenue, Suite 1200, New York, NY 10017, By: Jerold Feurstein, Esq.

MEMORANDUM OPINION AND ORDER DENYING MOTION TO REARGUE

MARTIN GLENN, UNITED STATES BANKRUPTCY JUDGE

On January 27, 2014, this Court entered an Opinion and Order ¹ granting the motion of 75 125th Holdings LLC (“Holdings”),² substituting Holdings in place of Valley National Bank (“Valley”) as defendant in this adversary proceeding and dismissing the Adversary Complaint ³ as to Valley/Holdings. The plaintiff, Samuel's Temple Church of God in Christ (the “Church”), did not oppose the relief sought by Holdings. The Church subsequently retained new counsel and filed a Motion to Reargue,⁴ asking the Court to reconsider and vacate its Prior Opinion. The Church argues that (1) its former counsel inadvertently neglected to oppose the relief sought by Holdings; (2) substitution of Holdings as defendant was inappropriate because Holdings could have merely intervened; and (3) Holdings failed to establish that the Church's claims are barred by any of the doctrines of res judicata, collateral estoppel, Rooker–Feldman, and D'Oench (defined below).

For the reasons that follow, the Motion is DENIED. The Church has not identified an intervening change of controlling law, and the Motion does not rely on new evidence. Further, the Church has failed to show the need to correct clear error of law or prevent manifest injustice, or that the Court overlooked matters that would have altered its decision. But because the Church has identified claims against Valley not previously articulated to the Court, the Court clarifies that nothing in the Prior Opinion bars the Church from attempting to assert those claims in state court. This Court, however, will not exercise jurisdictionover claims solely between two non-debtors, with no conceivable effect on the bankruptcy estates in these proceedings.

I. BACKGROUND

Pending before the Court is the Church's Motion to Reargue, supported by the Affirmation of Robert G. Leino (ECF Doc. # 21–1) and a Memorandum of Law (the “Mem.,” ECF Doc. # 21–5). The Church requests that the Court reconsider and vacate its Prior Opinion granting the Holdings Motion. Holdings filed an opposition (the “Opposition,” ECF Doc. # 28), supported by a Memorandum of Law (the “Opp. Mem.,” ECF Doc. # 28–21).

The Church owned property located at 75 East 125th Street, New York, New York (the “Property”), before selling the Property to Parade Place, LLC (“Parade Place”) on August 17, 2006. Parade Place—a defendant in this adversary proceeding—planned to develop the Property, and purportedly granted the Church a 198–year lease. Parade Place subsequently transferred title of the Property to its affiliate 75 East 125th, LLC (“75 East”). Parade Place and 75 East (together, the “Debtors”) are Debtors in chapter 11 proceedings under joint administration.

On December 11, 2006, 75 East executed a commercial mortgage (the “Mortgage”) and note (the “Note”) encumbering the Property in favor of LibertyPointe Bank (“LibertyPointe”), in the principal amount of $1,950,000. Beginning on August 1, 2008, 75 East stopped making the required payments under the Note and Mortgage. On December 9, 2008, LibertyPointe commenced a foreclosure action in the Supreme Court of the State of New York, County of New York (the “State Court”), styled LibertyPointe Bank v. 75 East 125th LLC, et al., Supreme Court, New York County Index No. 116405/08 (the “Foreclosure Action”). The Church filed a Notice of Appearance in the Foreclosure Action, despite later claiming that it was never served with the complaint. ( See Memorandum Decision of State Court Denying Motion to Vacate (the “State Court Decision”), attached as Ex. 2 to Mot., at 2, 9.) The Church did not file an answer in that action. ( See id. at 2.)

On March 11, 2010, the New York State Banking Department closed LibertyPointe, and the Federal Deposit Insurance Corporation (“FDIC”) was appointed receiver for the failed bank. Contemporaneously, the FDIC entered into a Purchase and Assumption Agreement with Valley, transferring and assigning to Valley certain assets of LibertyPointe, including the Mortgage and Note. Valley then assigned the Mortgage and Note to VNB Corp. (“VNB”), which continued to prosecute the Foreclosure Action initiated by LibertyPointe.⁵

Although 75 East and its managing member Saadia Shapiro answered the complaint in the Foreclosure Action and stated counterclaims, they later failed to respond to a summary judgment motion filed by the LibertyPointe. On March 29, 2010, the State Court entered an order on default (the “Summary Judgment Order,” attached as Ex. 1 to the Motion) granting LibertyPointe's motion for summary judgment in the Foreclosure Action, striking 75 East's and Shapiro's answer, dismissing their counterclaims, and appointing a referee to compute the amount owed to LibertyPointe under the Note and Mortgage. Pursuant to the Summary Judgment Order, the caption of the Foreclosure Action was amended to include the Church as a defendant. (Summary Judgment Order at 3–4.)

The Church then moved in the State Court for an order vacating the Summary Judgment Order, for leave to conduct discovery, and to record its purported 198–year lease. The Church also sought leave to submit a late answer.

By written decision dated February 14, 2011, the State Court denied the Church's motions in their entirety and held that the Church had “failed to present a meritorious defense to [LibertyPointe's] complaint.” ⁶ (State Court Decision at 20.) Specifically, the State Court found that (1) LibertyPointe had standing to prosecute the Foreclosure Action; (2) by filing a Notice of Appearance, the Church belied its claim that it was not served with a summons and complaint; and (3) the Church's assertions that it was fraudulently induced to enter into a contract with 75 East and Shapiro had no bearing on LibertyPointe's right to foreclose. ( Id. at 14, 20.) The Church never appealed the State Court Decision, and the time to do so has since expired.⁷

On August 8, 2013, the State Court entered a Judgment of Foreclosure and Sale (the “JFS,” Opp. Ex. B–14, ECF Doc. # 28–17). Pursuant to the JFS, a Sheriff's foreclosure sale of the Property was scheduled for September 25, 2013. The Church did not file a notice of appeal from the JFS, but instead filed a proposed Order to Show Cause in the Foreclosure Action seeking an order (1) staying the foreclosure sale; (2) vacating the JFS; (3) granting the Church leave to file a late answer; and (4) declaring that the Church has the right to occupy the Property. ( See Holdings Motion ¶¶ 30–33.) 75 East filed a chapter 11 bankruptcy petition on September 23, 2013, followed shortly thereafter by Parade Place's petition on September 27, 2013. The foreclosure sale was stayed by virtue of these bankruptcy proceedings, and the Church's Order to Show Cause was never heard.

On October 23, 2013, the Church filed the Adversary Complaint in this Court. The Adversary Complaint names as defendants Parade Place, Saadia Shapiro, Marla Shapiro, Valley, and all successors-in-interest to those named defendants. In the Adversary Complaint, the Church asserts that Valley (1) knew that the Church maintained an interest in the Property and that a voidable deed existed between Parade Place and the Church; and (2) lacked standing to prosecute the Foreclosure Action. The Church sought an order declaring that Valley was not a valid holder in due course of the Mortgage and Note.

In November 2013, VNB assigned the Mortgage, Note, and JFS to Holdings. On January 22, 2014, Holdings filed the Holdings Motion in this Court, seeking (1) to substitute itself in place of Valley, or, in the alternative, for permission to intervene; and (2) an order dismissing the Adversary Complaint. The Church did not file a response to the Holdings Motion.⁸ The Court held a hearing on January 27, 2014, at which the Church's then-counsel stated on the record that the Church was not opposing the Holdings Motion. (Jan. 27, 2014 Tr. 12:14–15 (“As I said, my concern is with the debtor and the Shapiro's [sic]. I am not opposing the present motion.”).) Following the hearing, the Court entered the Prior Opinion, granting the Holdings Motion; Holdings was substituted as defendant in place of Valley and the Adversary Complaint against Holdings was dismissed with prejudice.

The Church filed this Motion on February 10, 2014, requesting that the Court reconsider and vacate the Prior Opinion. The Church first argues that substitution of Holdings as defendant was inappropriate where Holdings could have merely intervened. Second, the Church argues that Holdings failed to establish that the Church's claims are barred by res judicata. Third, the Church argues that its prior counsel inadvertently neglected to oppose the Holdings Motion. Fourth, the Church argues that collateral estoppel does not bar its claims. Fifth, the Church argues that the Rooker–Feldman doctrine does not apply to its claims. Finally, the Church argues that the D'Oench doctrine does not control here.

II. DISCUSSION

Local Bankruptcy Rule 9023–1(a) provides:

A motion for reargument of a court order determining a motion shall be served within fourteen (14) days after the entry of the Court's order determining the original motion, or in the case of a court order resulting in a judgment, within fourteen (14) days after the entry of the...