506 B.R. 334
Bankr. E.D.N.Y.2014Background
- Lorraine Cunningham (Debtor) filed her third Chapter 13 petition on Dec. 2, 2011; she listed an incorrect address for secured creditor Rossrock Fund II LP on the creditor matrix.
- Rossrock held a mortgage on 3195 Fulton Avenue, Brooklyn, and had an active foreclosure proceeding; state court entered a foreclosure judgment on Dec. 9, 2011 (after the Dec. 2 petition).
- The Clerk's notices sent to Rossrock were returned; Debtor re-mailed a returned notice on Dec. 19, 2011 but omitted a suite/floor number; Rossrock credibly testified it never received that letter.
- The Chapter 13 case was dismissed Feb. 10, 2012 for failure to prosecute; a foreclosure sale occurred and Rossrock conveyed the property to an affiliate (RR REO) and then to a third party purchaser (Crush Holdings).
- Rossrock moved to reopen/vacate the dismissal under Rule 60 and to annul the automatic stay nunc pro tunc; the court held an evidentiary hearing on whether Rossrock received the Dec. 19 mailing.
Issues
| Issue | Plaintiff's Argument (Rossrock) | Defendant's Argument (Cunningham) | Held |
|---|---|---|---|
| Whether Rossrock had notice of the bankruptcy before the foreclosure sale | Debtor's Dec. 19 mailing (certificate of mailing) put Rossrock on notice | Rossrock never received the Dec. 19 letter; omission of suite/floor defeats presumption of delivery | Court found a weakened presumption of delivery rebutted by Rossrock's credible nonreceipt testimony — Rossrock had no notice until ~July 2012 |
| Whether the dismissal order should be vacated/reopened (Rule 60(b)(6)) | Reopening is warranted so Rossrock can seek retroactive stay relief because it lacked notice | Debtor opposed reopening; argues she attempted to notify Rossrock | Court granted relief under Rule 60(b)(6): extraordinary circumstances existed (creditor lacked notice and would be prejudiced); debtor at fault for incorrect address |
| Whether the automatic stay should be annulled nunc pro tunc to validate the foreclosure and transfers | Annulment appropriate because Rossrock lacked notice, would be prejudiced, debtor acted in bad faith, no equity and property not necessary for reorganization | Debtor argued she mailed notice and intended to include Rossrock in Chapter 13 | Court annulled the stay retroactively — weighed Soares/Stockwell factors and found they favor annulment (no equity, not necessary for reorg, debtor’s bad faith, creditor’s detrimental reliance) |
| Effect on purchaser (Crush Holdings) and transfers | Third-party purchaser expended funds and acted in good faith; annulling avoids relitigation and hardship | Debtor sought vacatur of foreclosure sale in state court | Court recognized purchaser’s detrimental reliance as supporting annulment and validated transfers via nunc pro tunc relief |
Key Cases Cited
- Liljeberg v. Health Servs. Acquisition Corp., 486 U.S. 847 (1988) (Rule 60(b)(6) extraordinary-circumstances standard)
- In re Emergency Beacon Corp., 666 F.2d 754 (2d Cir. 1981) (broad discretion under Rule 60(b)(6))
- Soares v. Brockton Credit Union, 107 F.3d 969 (1st Cir. 1997) (discretion to annul the automatic stay in appropriate circumstances)
- United Sav. Ass’n of Tex. v. Timbers of Inwood Forest Assoc., 484 U.S. 365 (1988) (property necessary for effective reorganization standard)
- Longardner & Assocs., Inc. v. Chappell, 855 F.2d 455 (7th Cir. 1988) (address defects can weaken presumption of mail delivery)