3939 WPR Funding LLC v. Campbell (In re Campbell)
539 B.R. 66
S.D.N.Y.2015Background
- Debtor Marcia Campbell owned a Bronx mixed-use property secured by a $400,000 mortgage and note originally with Flushing Savings Bank; she defaulted by missing payments beginning October 1, 2012.
- The mortgage/note changed hands (Flushing → Hayden Asset IX → 3939 WPR Funding LLC), and Campbell filed Chapter 13 on December 8, 2013, staying a pending foreclosure.
- WPR Funding filed a Proof of Claim (Feb. 5, 2014) seeking pre-petition default interest of $79,009.70, calculated under the mortgage’s default rate (24%).
- Campbell objected, alleging lack of notice of acceleration (citing Judge Gropper’s Northwest Airlines decision) and other equitable/usury arguments; the disputed default interest was central to plan confirmation.
- Bankruptcy Judge Gropper held hearings, announced he would decide default-interest issues on the existing record, and on July 29, 2014 denied WPR’s claim for pre-petition default interest because the record lacked evidence of affirmative notice of acceleration.
- WPR moved for reconsideration, seeking to supplement the record with a Default Letter allegedly mailed pre-petition; the bankruptcy court denied reconsideration (Jan. 9, 2015). The district court affirmed both orders.
Issues
| Issue | Plaintiff's Argument (WPR) | Defendant's Argument (Campbell) | Held |
|---|---|---|---|
| 1. Entitlement to pre-petition default interest | Mortgage expressly allowed default interest; claim is prima facie valid under Fed. R. Bankr. P. 3001(f) | Default interest not payable because creditor did not effect and notify mortgagor of acceleration as required by loan documents | Court held default interest unavailable: loan permitted default interest only upon demand/acceleration and record lacked evidence of notice of acceleration |
| 2. Whether notice of acceleration was required and/or given | Initially argued notice not required; on reconsideration sought to introduce a Default Letter showing notice was mailed | Argued no notice was received and cited precedent requiring affirmative notice when acceleration is optional | Court concluded mortgage made acceleration optional and thus affirmative notice was required; no evidence in the record proved notice was given |
| 3. Whether bankruptcy court erred in deciding notice issue sua sponte on the record | Argued court should not have relied on loan documents or decided issue without summary-judgment-style proceedings | Campbell objected early and repeatedly; court made clear it would decide default-interest question on the record | Court properly resolved the legal issue on the existing record after giving parties notice and opportunity; no error in considering the loan documents |
| 4. Denial of motion for reconsideration to admit Default Letter | Sought reconsideration to prevent manifest injustice by adding new evidence (Default Letter) proving notice | Argued WPR had ample opportunity to place evidence in the record earlier and had previously taken the position that notice was not required | Court did not abuse discretion: reconsideration is not a vehicle for new evidence or a second bite; WPR waived the argument and failed to show manifest injustice |
Key Cases Cited
- Ionosphere Clubs, Inc. v. Shugrue, 922 F.2d 984 (2d Cir. 1990) (standard of appellate review for bankruptcy court conclusions of law and fact)
- Lionel Corp. v. Modern Continental/ICF, 29 F.3d 88 (2d Cir. 1994) (issues not raised in bankruptcy court are waived on appeal)
- Kolel Beth Yechiel Mechil of Tartikov, Inc. v. YLL Irrevocable Trust, 729 F.3d 99 (2d Cir. 2013) (standards for granting reconsideration under Rule 59(e))
- Wells Fargo Bank, N.A. v. Burke, 94 A.D.3d 980 (N.Y. App. Div. 2012) (when acceleration is optional, holder must take affirmative action and provide notice to mortgagor)