In re Flatbush Square, Inc., 508 B.R. 563

Background

Debtor Flatbush Square, Inc. filed Chapter 11 on October 3, 2013; CBO Inc. moved for relief from the automatic stay as to multiple Flatbush Avenue properties on December 17, 2013.
Debtor scheduled the Properties at $4,500,000; CBO submitted an appraisal valuing them at $3,000,000 and asserted secured claims (first and second mortgages plus advances) totaling about $4,951,708.41.
A prepetition state-court foreclosure judgment (and related statutory interest) produced a Foreclosure Judgment balance that exceeded the Debtor’s scheduled value, prompting CBO’s § 362(d) motion.
At the stay hearing the court found CBO met its burden under § 362(g) to show lack of equity and the Debtor failed to show the Properties were necessary for an effective reorganization; the automatic stay was lifted.
Debtor filed a timely Rule 59(e) motion to reconsider, arguing (1) CBO unlawfully retained possession in violation of turnover statutes (§ 542/§ 543), (2) CBO miscalculated indebtedness (paydowns/option), and (3) Debtor now has an appraisal showing equity.
The court treated the filing as a Rule 59(e) motion, reviewed the narrow grounds for reconsideration (intervening law, new evidence, clear error, manifest injustice), and denied reconsideration as raising arguments or evidence that could have been -- and were -- addressed previously.

Issues

Issue	Plaintiff's Argument (Debtor)	Defendant's Argument (CBO)	Held
Whether the January 29, 2014 order lifting the stay should be altered under Rule 59(e)	Motion timely; new facts (appraisal), statutory violations warrant reconsideration	No change in law or controlling overlooked facts; no newly available evidence in record	Denied — Rule 59(e) standards not met (no intervening law, new admissible evidence, or clear error)
Whether CBO’s prepetition/postpetition possession and alleged failure to turn over property under § 542 (or § 543) bars CBO from obtaining stay relief	CBO’s possession violated turnover; thus equitable defenses (unclean hands) bar stay relief	Possession was authorized by an Assignment of Leases; even if § 542 arguable, courts routinely grant stay relief despite creditor possession	Denied — possession under assignment and alleged turnover violation do not preclude seeking stay relief; unclean hands not shown to be directly related to relief sought
Whether the Properties have equity and are necessary for reorganization	Debtor contends appraisal will show equity and an option/plan will cure defaults	CBO points to foreclosure judgment plus interest and other secured amounts exceeding Debtor’s valuation; Debtor offered no evidence at original hearing	Denied — record showed no equity (CBO’s secured claims exceeded scheduled value); Debtor failed to show reasonable possibility of successful reorganization
Whether state-court Foreclosure Judgment amounts can be relitigated in bankruptcy	Debtor argues CBO overstated amounts, requests credits/paydown adjustments	CBO invokes finality of state-court judgment; court cites Rooker-Feldman/res judicata bar	Denied — federal court cannot relitigate prepetition state-court judgment; Debtor presented no admissible evidence to alter judgment amount

Key Cases Cited

United Sav. Ass’n of Tex. v. Timbers of Inwood Forest Assocs., 484 U.S. 365 (1988) (standard for necessity of property to effective reorganization)
Virgin Atlantic Airways, Ltd. v. National Mediation Board, 956 F.2d 1245 (2d Cir. 1992) (grounds for reconsideration)
Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280 (2005) (Rooker–Feldman doctrine and limits on federal review of state-court judgments)
Pegasus Agency v. Grammatikakis (In re Pegasus Agency), 101 F.3d 882 (2d Cir. 1996) (order lifting automatic stay is final and appealable)
Shrader v. CSX Transp., Inc., 70 F.3d 255 (2d Cir. 1995) (reconsideration requires overlooked controlling decisions/data)
Precision Instrument Mfg. Co. v. Automotive Maintenance Mach. Co., 324 U.S. 806 (1945) (doctrine of unclean hands requires nexus between misconduct and relief sought)