16-01160
Bankr. S.D.N.Y.Jun 14, 2022Background
- Pretty Girl, Inc. filed Chapter 11 in July 2014; case converted to Chapter 7 in December 2014 and Salvatore LaMonica was appointed Chapter 7 Trustee.
- Trustee sued 13 former affiliate store defendants seeking accounts receivable and advances owed to the estate as of mid-2014.
- Defendants did not dispute liability but disputed the amounts, asserting they made post-petition payments to JPMorgan Chase (to repay a loan) that should reduce what they owe the estate.
- At summary judgment, the Court held Defendants were not entitled to subrogation or setoff for those payments because they were jointly and severally liable on the Chase debt and thus ineligible under Section 509.
- Defendants moved for partial reconsideration arguing they were originally only guarantors (not jointly/severally liable) and that loan documents would show this; the Court denied reconsideration as untimely, barred by prior admissions/judicial estoppel, and because the bankruptcy filing triggered guarantor liability.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Defendants can reduce estate liability by payments they made to Chase (subrogation/setoff) | Trustee: payments conferred a direct benefit to defendants but do not permit setoff/subrogation against the estate; estate should recover full amounts. | Defendants: payments to Chase repaid a loan that reduced estate claims and thus should offset amounts owed to the estate to avoid unjust enrichment. | Denied — Defendants not entitled to credit; no subrogation/setoff because of joint and several liability under §509. |
| Whether Defendants were jointly and severally liable to Chase (affecting subrogation) | Trustee: Defendants admitted joint and several liability; even if guarantors, bankruptcy filing triggered liability making them jointly/severally liable. | Defendants (newly): loan documents show Debtor was primarily liable and Defendants were only guarantors, so subrogation/setoff should be evaluated differently. | Denied — Court refused belated change in position, relied on Defendants’ admissions; in any event bankruptcy petition default triggered guarantor liability. |
| Whether reconsideration under Fed. R. Civ. P. 59(e) or 60(b)(1) is warranted | Trustee: Reconsideration is improper because Defendants present new arguments/evidence and fail to show overlooked controlling law or exceptional circumstances. | Defendants: sought partial reconsideration to correct legal error re: liability characterization based on loan documents. | Denied — Movant didn’t meet the strict standards for relief; motion was effectively a late new argument and didn’t justify relief. |
Key Cases Cited
- Analytical Surveys, Inc. v. Tonga Partners, L.P., 684 F.3d 36 (2d Cir. 2012) (motions to alter or amend judgment are strictly construed; reconsideration denied absent overlooked controlling authority)
- Shrader v. CSX Transp., Inc., 70 F.3d 255 (2d Cir. 1995) (standards for Rule 59(e) reconsideration)
- Sequa Corp. v. GBJ Corp., 156 F.3d 136 (2d Cir. 1998) (reconsideration is not a vehicle for relitigating lost issues)
- United States v. Int’l Bhd. of Teamsters, 247 F.3d 370 (2d Cir. 2001) (Rule 60(b) relief requires exceptional circumstances)
- New Hampshire v. Maine, 532 U.S. 742 (U.S. 2001) (judicial estoppel doctrine prohibits parties from deliberately changing positions to suit the moment)