513 B.R. 34
Bankr. E.D.N.Y.2014Background
- P.B. #7 LLC holds a mortgage on 227–231 4th Avenue, Brooklyn (the Property) and obtained a state court foreclosure judgment against 231 Fourth Avenue Lyceum, LLC (Lyceum) and Eric Richmond (the Debtor) before foreclosure sale.
- Lyceum filed chapter 11 on the eve of the scheduled foreclosure sale; this Court lifted the automatic stay in Lyceum’s case because Lyceum’s plan was infeasible and its attack on the foreclosure judgment was barred.
- One day before a state-court return date on P.B.’s permission to file a notice of sale, the Debtor (Lyceum’s sole shareholder) filed this chapter 13 case.
- The chapter 13 schedules do not list the Property as estate property; the Debtor lists only stock in Lyceum and related entities and is named as a defendant/guarantor in the foreclosure.
- P.B. moved for relief from the automatic stay under 11 U.S.C. § 362(d)(4), arguing the chapter 13 filing was part of a scheme of serial filings to delay enforcement of the foreclosure.
- The Court found the filing timed to obstruct foreclosure, that the Debtor again sought to relitigate the foreclosure judgment (precluded by Rooker–Feldman and res judicata), and that the Property is not property of the Debtor’s chapter 13 estate; relief under § 362(d)(4) was granted as to the Property (but not as to any personal deficiency claim).
Issues
| Issue | Plaintiff's Argument (P.B.) | Defendant's Argument (Richmond) | Held |
|---|---|---|---|
| Whether stay relief under 11 U.S.C. § 362(d)(4) is warranted | The chapter 13 filing is part of a scheme of multiple filings timed to delay foreclosure; in rem relief is appropriate | The filing is a legitimate bankruptcy proceeding; Rooker–Feldman does not bar challenge to the foreclosure judgment | Granted: Court finds scheme to delay/hinder; § 362(d)(4) relief appropriate as to the Property |
| Whether the Debtor can use chapter 13 to modify P.B.’s mortgage on the Property | N/A (P.B. opposes any attempt to impede foreclosure) | Debtor seeks to attack/avoid the foreclosure judgment and to disallow P.B.’s claim | Denied: Property is not property of Debtor’s estate, so Debtor cannot modify the mortgage in chapter 13 |
| Whether the Debtor may relitigate the state-court foreclosure judgment in bankruptcy court | Judgment is final; federal court should permit P.B. to enforce it; bankruptcy filings timed to obstruct enforcement | Debtor contends the foreclosure judgment is void (e.g., CPLR § 3215(c) issues) and asks the court to deny P.B.’s claim | Debtor’s attack barred: Rooker–Feldman and res judicata preclude collateral attack in this Court; any challenge must be in state court |
| Whether any stay relief should affect personal deficiency claims against the Debtor | P.B. seeks relief only as to the real property enforcement (in rem); may still pursue deficiency in appropriate forum | Debtor opposes foreclosure enforcement and deficiency pursuit | Stayed relief granted only as to the Property; relief is not granted as to any deficiency claim against the Debtor |
Key Cases Cited
- In re 231 Fourth Ave. Lyceum, LLC, 506 B.R. 196 (Bankr. E.D.N.Y. 2014) (prior lift-stay decision; feasibility and preclusion issues)
- In re Montalvo, 416 B.R. 381 (Bankr. E.D.N.Y. 2009) (scope and effect of § 362(d)(4) in rem relief)
- In re Procel, 467 B.R. 297 (S.D.N.Y. 2012) (inference of intent from serial filings)
- Hoblock v. Albany County Bd. of Elections, 422 F.3d 77 (2d Cir. 2005) (statement of Rooker–Feldman test)
- McKithen v. Brown, 626 F.3d 143 (2d Cir. 2010) (application of Rooker–Feldman to bar federal review)
- Kelleran v. Andrijevic, 825 F.2d 692 (2d Cir. 1987) (res judicata applies to default judgments)
- Marvel Characters, Inc. v. Simon, 310 F.3d 280 (2d Cir. 2002) (New York preclusion standard for claims and privies)
- In re Slater, 200 B.R. 491 (E.D.N.Y. 1996) (distinguishing extrinsic vs. intrinsic fraud for collateral attacks)