U.S. Bank National Ass'n v. McKenna
149 A.D.3d 1136
| N.Y. App. Div. | 2017Background
- U.S. Bank, as trustee, sued in state court to record a September 2006 mortgage and to declare it a first-priority lien on property owned by Kevin T. McKenna and Arlene M. McKenna (the McKennas).
- The McKennas filed Chapter 13 bankruptcy on September 24, 2013, which automatically stayed the state action under 11 U.S.C. § 362(a).
- The Bankruptcy Court, on August 25, 2014, reclassified U.S. Bank’s claim from secured to unsecured and terminated the stay as to U.S. Bank so the state action could proceed to judgment.
- While the state-court summary judgment motion was pending, the McKennas’ amended Chapter 13 plan (filed December 2, 2014) treated U.S. Bank as an unsecured creditor and was confirmed by the Bankruptcy Court on December 19, 2014.
- The McKennas argued in state court that the confirmed bankruptcy plan had res judicata effect and barred the state action; the state Supreme Court rejected that argument, granted U.S. Bank summary judgment on the complaint as to the McKennas, and denied the McKennas’ cross motion. The McKennas appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether confirmation of the Chapter 13 plan has res judicata effect to bar the state action challenging the mortgage priority | U.S. Bank: confirmation does not bar the state action because the state action was pending when the bankruptcy petition was filed | McKennas: confirmation of the plan, which treated U.S. Bank as unsecured, operates as res judicata and discharges the claim | Court: Confirmation does not have res judicata effect because the state-court lien dispute was pending at the time the bankruptcy was filed; summary judgment for U.S. Bank affirmed |
Key Cases Cited
- In re Layo, 460 F.3d 289 (2d Cir.) (order confirming Chapter 13 plan may constitute a final judgment on the merits)
- In re Enewally, 368 F.3d 1165 (9th Cir.) (confirmed plan does not have res judicata effect where state-court lien action was pending when bankruptcy was filed)
- In re Residential Capital, LLC, 522 B.R. 458 (Bankr. S.D.N.Y.) (similar principle regarding unresolved state-court actions and plan confirmation)
- Edwards v. Broadwater Casitas Care Ctr., 221 Cal. App. 4th 1300 (Cal. Ct. App.) (confirmed plan lacks res judicata effect when lien validity suit was pending at petition date)
- Cen-Pen Corp. v. Hanson, 58 F.3d 89 (4th Cir.) (discusses limits of res judicata in bankruptcy contexts)