In Re: High Flow Funding LLC
7:23-cv-08815
S.D.N.Y.Apr 14, 2025Background
- High Flow Funding LLC leased heavy construction equipment to Iconic Properties NY, Inc., with Frank S. Sorbello signing as personal guarantor for the lease.
- Sorbello later filed for Chapter 13 bankruptcy, which triggers an automatic stay on certain creditor actions.
- High Flow repossessed the leased equipment after Sorbello's bankruptcy filing but before Sorbello's schedules explicitly listed the lease.
- Sorbello moved in Bankruptcy Court for sanctions against High Flow for violating the automatic stay, which the court granted, ordering return of the equipment and monetary sanctions.
- High Flow sought to vacate and respond late to the sanctions order, but the Bankruptcy Court denied these motions.
- High Flow appealed both the sanctions order and the denial of its motions to the District Court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Sorbello was a lessee or merely a guarantor under the lease | Sorbello argued he was a co-lessee, making the lease subject to the automatic stay | High Flow contended Sorbello was only a guarantor, not a co-lessee | Sorbello was only a guarantor, not a lessee |
| Whether the Bankruptcy Court had jurisdiction over the lease dispute | Sorbello argued jurisdiction was proper as part of his bankruptcy estate | High Flow argued dispute was purely state law between High Flow and Iconic, outside bankruptcy jurisdiction | Bankruptcy Court lacked jurisdiction over the lease dispute |
| Whether High Flow violated the automatic stay by repossessing the equipment | Sorbello argued his guarantee made the equipment property of the estate and stay applied | High Flow argued repossession was against Iconic, not Sorbello or his estate | No automatic stay violation; Sorbello only guarantor |
| Whether sanctions and orders against High Flow were appropriate | Sorbello argued sanctions, return of equipment, and costs were proper | High Flow argued actions were inappropriate on jurisdictional and substantive grounds | Orders imposing sanctions and return of equipment reversed |
Key Cases Cited
- Terwilliger v. Terwilliger, 206 F.3d 240 (2d Cir. 2000) (explains the distinction between guarantor and primary obligor under New York law)
- Weissman v. Sinorm Deli, Inc., 88 N.Y.2d 437 (N.Y. 1996) (guarantor liability as secondary and only upon default by the primary obligor)
- In re Ames Dep't Stores, Inc., 582 F.3d 422 (2d Cir. 2009) (standards for district court review of bankruptcy court decisions)