539 B.R. 409
Bankr. E.D.N.Y.2015Background
- Debtor Ideal Mortgage Bankers (a HUD-approved mortgage lender) entered involuntary chapter 7 in 2010; R. Kenneth Barnard is chapter 7 Trustee.
- Global Appraisal Solutions, owned by Laurence Holzer, provided appraisal management services to Debtor and obtained a federal default judgment prepetition for unpaid appraisal fees (~$763,157).
- Global filed proofs of claim: Claim No. 4-1 (secured, Feb 2011), Claim No. 4-2 (amendment, Nov 2011), and Claim No. 27 (Oct 2012, asserting secured status and priority).
- Trustee argued Claim No. 27 superseded earlier claims and that Global has only a general unsecured claim because the judgment lien was only docketed in Suffolk County (where Debtor had no property) and no perfected lien or other security exists.
- Global sought allowance of its claims as secured or as administrative-priority (variously invoking “Federal Mortgage Law,” substantial contribution, recovery/turnover, and executory-contract/assumption theories) and sought relief from the automatic stay; Trustee moved to expunge Claims 4-1 and 4-2 and reclassify Claim 27 as unsecured.
- Court heard extensive evidentiary and legal argument, addressed standing issues (Global, an LLC, must be represented by counsel; Holzer cannot appear pro se for Global), and reserved decision.
Issues
| Issue | Holzer/Global's Argument | Trustee's Argument | Held |
|---|---|---|---|
| Standing to litigate pro se | Holzer argued he could represent Global and filed motions on Global’s behalf | Trustee: an LLC cannot appear pro se; assignments were not properly documented | Court: Global (LLC) must be represented by counsel; Holzer may not appear for Global; nevertheless court reached merits because matter likely to be refiled |
| Whether Claims 4-1 and 4-2 remain | Global treated them as live; Claim 4-2 was an amendment | Trustee: later Claim 27 supersedes prior proofs | Court: Claim 4-2 supersedes 4-1; Claim 27 supersedes 4-2; 4-1 and 4-2 expunged |
| Whether Claim 27 is a secured claim (judgment lien) | Global: judgment and "Federal Mortgage Law" make claim secured and payable | Trustee: judgment was docketed only in Suffolk County (no debtor property there); no perfected lien or security interest elsewhere | Court: No evidence of a perfected lien or attachment; Claim 27 reclassified as a general unsecured claim |
| Whether Claim 27 is an administrative-priority claim (§§503/507) | Global: made substantial contribution, recovered/turned over records, prompted criminal investigations, and contends appraisals were necessary postpetition; also asserted entitlement under §507(a)(7) and executory-contract/assumption under §365 | Trustee: Global’s litigation was prepetition (no court approval), trustee prosecuted and settled fraudulent-transfer claims, bank records were obtained by Trustee independently, and Global failed to show postpetition benefit or statutory entitlement | Court: Global failed to prove any §503(b) administrative category (no court-approved postpetition recovery, no substantial contribution shown, no direct postpetition benefit quantified); §507(a)(7) inapplicable; no executory contract to assume; no priority granted |
| Relief from automatic stay to enforce judgment | Global sought relief to enforce judgment or pursue criminal complaints | Trustee: enforcement is barred by stay; Global lacks secured status needed for §362(d)(2) relief | Court: Denied relief—automatic stay bars enforcement; §362(d)(2) relief not available because Global is unsecured; no cause under §362(d)(1) |
| Removal of Trustee or professionals | Global alleged conflicts, fraud, and that Trustee failed to assume contract and pursue HUD | Trustee: acted reasonably; professionals’ fees are administrative and properly prioritized | Court: Global’s allegations were conclusory and unsupported; no cause to remove Trustee or professionals |
Key Cases Cited
- Stern v. Marshall, 131 S. Ct. 2594 (U.S. 2011) (bankruptcy judge adjudication of core proceedings discussed)
- Eagle Assocs. v. Bank of Montreal, 926 F.2d 1305 (2d Cir. 1991) (artificial entities cannot proceed pro se)
- Lattanzio v. COMTA, 481 F.3d 137 (2d Cir. 2007) (LLCs and corporations must be represented by counsel)
- Butner v. United States, 440 U.S. 48 (1979) (property rights and liens determined by state law)
- Sonnax Indus. v. Tri Component Prods. Corp., 907 F.2d 1280 (2d Cir. 1990) (standard for showing "cause" to lift the automatic stay)