Bank of N.Y. Mellon v DeMatteisBank of N.Y. Mellon v DeMatteis
v
Joseph DeMatteis, Also Known as Joseph A. DeMatteis, Jr., et al., Appellants, et al., Defendants.
Second Department, October 18, 2023
APPEARANCES OF COUNSEL
Galgano Sharp LLP, White Plains (Eric R. Sharp of counsel), for appellants.
Woods Oviatt Gilman LLP, Rochester (David B. Wildermuth of counsel), for respondent.
Connolly, J.
This appeal requires us to examine whether the stay provided by
This appeal also requires us to determine whether the bankruptcy stay pursuant to
I. Factual and Procedural Background
On November 17, 2006, the defendant Joseph DeMatteis executed a note that was secured by a mortgage on certain real property located in Ossining (hereinafter the subject property). In 2012, DeMatteis deeded the subject property to the defendant Hunter Street Properties, LLC (hereinafter Hunter, and together with DeMatteis, the defendants).
On June 19, 2014, the Bank of New York Mellon formerly known as the Bank of New York, as Trustee for the Certificateholders of the CWABS, Inc., Asset-Backed Certificates, Series 2006-23 (hereinafter BONY Mellon), alleging that it was the holder and owner of the note and mortgage, commenced an action against the defendants, among others, to foreclose the mortgage (hereinafter the 2014 foreclosure action). The complaint in the 2014 foreclosure action alleged that DeMatteis defaulted under the terms of the note and mortgage by failing to make the payment due on December
On October 20, 2020, DeMatteis filed a voluntary chapter 7 petition in bankruptcy in the United States Bankruptcy Court for the District of Arizona (hereinafter the bankruptcy proceeding). DeMatteis asserted in his bankruptcy petition that he did not have a legal or equitable interest in any real property as of October 20, 2020. The bankruptcy petition further provided that DeMatteis lived in Arizona. Neither the note nor the mortgage were listed on the bankruptcy petition. On February 2, 2021, DeMatteis received a discharge in the bankruptcy proceeding. The bankruptcy proceeding was closed on February 11, 2021.
By summons and complaint filed on April 8, 2021, the plaintiff, the Bank of New York Mellon, formerly known as the Bank of New York as Trustee for registered holders of CWABS, Inc., Asset-Backed Certificates, Series 2006-23, alleging, inter alia, that it was the owner and holder of the note and mortgage, commenced this action against the defendants, among others.1 The first cause of action alleged, among other things, that DeMatteis failed to repay the installment payment due on August 1, 2015, and subsequent payments, and that a principal balance of $485,618.82, together with accrued interest from July 1, 2015, and certain costs, expenses, taxes, charges, and fees, were due and owing. The first cause of action sought to foreclose the mortgage. The second cause of action sought reformation of the legal description of the subject property in the mortgage, and the third cause of action sought, inter alia, to
The defendants moved pursuant to
The plaintiff opposed the defendants’ motion, contending that the statute of limitations to commence this action against DeMatteis and Hunter was tolled. First, the plaintiff contended that the statute of limitations was tolled by a series of executive orders issued by then-Governor Andrew Cuomo in response to the COVID-19 pandemic (see Executive Order [A. Cuomo] Nos. 202.8 [9 NYCRR 8.202.8], 202.14 [9 NYCRR 8.202.14], 202.28 [9 NYCRR 8.202.28], 202.38 [9 NYCRR 8.202.38], 202.48 [9 NYCRR 8.202.48], 202.55 [9 NYCRR 8.202.55], 202.55.1 [9 NYCRR 8.202.55.1], 202.60 [9 NYCRR 8.202.60], 202.63 [9 NYCRR 8.202.63], 202.67 [9 NYCRR 8.202.67], 202.72 [9 NYCRR 8.202.72] [hereinafter collectively the COVID-19 executive orders]). The plaintiff further contended that the statute of limitations was tolled by the automatic bankruptcy stay of
In the reply affirmation of their attorney, the defendants contended, inter alia, that the automatic bankruptcy stay did not toll the statute of limitations to
In an order dated December 2, 2021 (2021 NY Slip Op 33994[U] [Sup Ct, Westchester County 2021]), the Supreme Court, among other things, granted that branch of the defendants’ motion which was to dismiss the second cause of action, for reformation of the mortgage, insofar as asserted against them. However the court denied those branches of the defendants’ motion which were to dismiss the remainder of the complaint insofar as asserted against them. The court did not address the effect of the COVID-19 executive orders or the automatic bankruptcy stay. Instead, the court held, inter alia, that, because the 2014 foreclosure action had been dismissed for lack of personal jurisdiction against Hunter, that action had not been commenced against Hunter, the debt had not been accelerated against Hunter, and the statute of limitations had not started to run. The court also held, in effect, that, because the 2014 foreclosure action had been discontinued against DeMatteis due to failure to prosecute, the statute of limitations had not started to run as against him. The defendants appeal. We modify.
II. Standard for CPLR 3211 (a) (5) Motions
“A party may move for judgment dismissing one or more causes of action asserted against it on the ground that the cause of action may not be maintained because of the statute of limitations” (HSBC Bank USA, N.A. v Francis, 214 AD3d 58, 60-61 [2d Dept 2023]; see
III. The Effect of the 2014 Foreclosure Action
Pursuant to
” ‘and if that defense is based on a claim that the instrument at issue was accelerated prior to, or by way of commencement of a prior action, a plaintiff shall be estopped from asserting that the instrument was not validly accelerated, unless the prior action was dismissed based on an expressed judicial determination, made upon a timely interposed defense, that the instrument was not validly accelerated’ ” (GMAT Legal Title Trust 2014-1 v Kator, 213 AD3d at 916-917, quoting
CPLR 213 [4] [a] ).
[1] Here, in support of their motion, the defendants demonstrated that the complaint in the 2014 foreclosure action called due the entire debt. The 2014 foreclosure action was dismissed against Hunter for lack of personal jurisdiction and was dismissed against DeMatteis for failure to prosecute. Because the 2014 foreclosure action was not dismissed “based on an expressed judicial determination, made upon a timely interposed defense, that the instrument was not validly accelerated” (
Thus, the defendants established, prima facie, that the instant action, which was commenced more than six years after the complaint in the 2014 foreclosure action accelerated the debt, was untimely (see HSBC Bank USA, N.A. v Francis, 214 AD3d at 61; Wilmington Sav. Fund Socy., FSB v 117 Pulaski, LLC, 197 AD3d 686, 687 [2d Dept 2021]). With the defendants having satisfied their initial burden of proof as to the untimeliness of this action, “the burden shifted to the plaintiff to raise a question of fact as to whether the statute of limitations was tolled or otherwise inapplicable, or whether the plaintiff actually commenced the action within the applicable limitations period” (HSBC Bank USA, N.A. v Francis, 214 AD3d at 61; see Wilmington Sav. Fund Socy., FSB v 117 Pulaski, LLC, 197 AD3d at 687).
The plaintiff argues that the statute of limitations within which it was required to commence this action against DeMatteis and Hunter was tolled by the collective effect of the COVID-19 executive orders and the automatic bankruptcy stay. We address those contentions as alternative grounds for affirmance (see Parochial Bus Sys. v Board of Educ. of City of N.Y., 60 NY2d 539 [1983]).
IV. The COVID-19 Executive Orders Tolled the Statute of Limitations to Commence This Action against Both DeMatteis and Hunter
First, as this Court held in Brash v Richards (195 AD3d 582 [2d Dept 2021]), Executive Order (A. Cuomo) No. 202.8 (9 NYCRR 8.202.8), which was signed by then-Governor Andrew
On March 20, 2020, the plaintiff still had 91 days left on the statute of limitations. Accordingly, when the statute of limitations began to run again, the plaintiff had 91 days, or until February 2, 2021, to commence this action. As the plaintiff did not commence this action until April 8, 2021, this action would still be untimely, unless the plaintiff raised a question of fact as to whether the automatic bankruptcy stay also tolled the statute of limitations.
V. The Automatic Bankruptcy Stay Tolled the Statute of Limitations to Commence This Action against DeMatteis But Not Hunter
We agree with the plaintiff that the automatic bankruptcy stay tolled the statute of limitations to commence this action against DeMatteis. However, we reach a different conclusion with respect to Hunter.
“The effects of [the automatic] stay are wide-ranging and limit virtually all judicial action against the debtor and any codebtors: The automatic stay is designed to provide blanket relief from creditor action and any exceptions from the stay are narrowly written and strictly construed” (Deutsche Bank Natl. Trust Co. v Lubonty, 208 AD3d at 146 [citations and internal quotation marks omitted]; see Lubonty v U.S. Bank N.A., 34 NY3d at 258). The automatic bankruptcy stay of
A. DeMatteis
We start by analyzing whether
Next, we must determine whether the commencement of this mortgage foreclosure action would have been “against the debtor” within the meaning of
The United States Court of Appeals for the Second Circuit has explained that
In Fogarty, the Second Circuit held that
Likewise, in other cases determining whether
[2] We similarly hold that, by its plain language,
Accordingly, we hold that the bankruptcy stay prohibited the plaintiff from commencing this mortgage foreclosure action against DeMatteis beginning on October 20, 2020, when he filed for bankruptcy. Pursuant to
In sum regarding DeMatteis, the automatic stay pursuant to
B. Hunter
Next, we must decide whether the automatic bankruptcy stay pursuant to
We start with the principle that the automatic stay provision of
Instead, the plaintiff contends that the automatic bankruptcy stay tolled the statute of limitations to commence this action against Hunter because the subject property was considered property of the estate under bankruptcy law. Although the automatic bankruptcy stay would have prohibited the plaintiff from commencing an action against Hunter to foreclose on the subject property if the subject property were property of the estate (see
Pursuant to
Nevertheless, “[p]roperty interests are created and defined by state law” (Butner v United States, 440 US 48, 55 [1979]). “It is state law that determines whether the debtor‘s interest in any particular item of property is sufficient to confer a property right on the bankruptcy estate under Section 541(a)” (In re Frederes, 141 BR 289, 291 [WD NY 1992]; see In re Prudential Lines Inc., 928 F2d at 569).5 The trustee of a bankruptcy estate can assert no greater property rights than the debtor had on the date the bankruptcy proceeding was commenced (see In re S.W. Bach & Co., 435 BR 866, 878 [SD NY 2010]; 5 Collier on Bankruptcy ¶ 541.03; see also First Fed. Sav. & Loan Assn. of Rochester v Brown, 86 AD2d 963, 963 [4th Dept 1982] [property of the estate does not include property in which the bankrupt has no interest]).
[3] On this record, the plaintiff has failed to raise a question of fact as to whether DeMatteis had a legal or equitable interest in the subject property on October 20, 2020, the date he filed his bankruptcy petition. Although DeMatteis was the record owner of the subject property at one point, the complaint in this action alleged that Hunter was the owner of record by virtue of a
We similarly reject the plaintiff‘s contention that it raised a question of fact as to DeMatteis‘s legal or equitable interest in the subject property at the time the bankruptcy proceeding was commenced merely because DeMatteis was an obligor on the note and the mortgagor on the mortgage. Although there are no allegations regarding the circumstances or terms and conditions of the transfer of the subject property from DeMatteis to Hunter in December 2012, even assuming for purposes of this
For example, in Geris, the United States Court of Appeals for the Fourth Circuit rejected an argument that the bankruptcy stay applied to real property that the debtor no longer owned, even though that property secured the debtor‘s obligation on a deed of trust (see In re Geris, 973 F2d at 320-321). The court held that even though the debtor had a material interest in having the value of the property maximized when sold at foreclosure, insofar as it bore directly on the size of the deficiency
We acknowledge that there are circumstances where a debtor may have a legal or equitable interest in property, even when the debtor has transferred title to that property prior to commencing the bankruptcy proceeding. In particular, property of the estate may include a debtor‘s possessory interest in real property (see Herkimer County Indus. Dev. Agency v Village of Herkimer, 124 AD3d 1298, 1299 [4th Dept 2015] [debtor‘s leasehold interest in property was property of the bankruptcy estate]; In re 48th St. Steakhouse, Inc., 835 F2d 427, 430 [2d Cir 1987] [“(A) mere possessory interest in real property, without any accompanying legal interest, is sufficient to trigger the protection of the automatic stay“]; cf. In re St. Clair, 251 BR 660, 667 [D NJ 2000] [” ‘property from the estate’ encompasses property in the possession or control of the trustee or the debtor-in-possession, but only to the extent the trustee or debtor-in-possession has a good-faith, colorable claim to possession or control of the property“], affd sub nom. St. Clair v Wood, 281 F3d 224 [3d Cir 2001]). In this case, however, the complaint does not allege that DeMatteis resided in the subject property at the time he filed his bankruptcy petition. In fact, the complaint alleged that the subject property was vacant and abandoned.7 Accordingly, there is no basis to question whether DeMatteis had a possessory interest in the subject property at the time he filed his bankruptcy petition.
It is also true that there are many kinds of legal or equitable interests in real property that a debtor may have, even if the debtor does not have legal title to, or any possessory interest in, that property. For example, in Wells Fargo Bank, N.A. v Newhouse (218 AD3d 1117 [4th Dept 2023]), the Appellate Division, Fourth Department, determined that the debtor‘s approximately $7,000 judgment, which was secured by a subordinate lien on the property, was an interest in the property. However, in this case, the plaintiff only points to DeMatteis‘s status as the mortgagor and the former owner of the subject property to support its claim that the subject property was property of the estate.
We emphasize that, under the procedural posture of this case, the plaintiff had the burden of raising a question of fact as to the applicability of a toll, and hence, the burden of raising a question of fact as to whether the subject property was property of the estate or that the bankruptcy stay otherwise applied. On this sparse record and with no extended argument on many of the relevant legal issues, the plaintiff failed to meet that burden.
Based upon the record and arguments before us, the plaintiff could have commenced this action against Hunter while the bankruptcy stay was in effect without violating the stay, so long as DeMatteis was not named as a defendant (see In re Stillwater Asset Backed Offshore Fund Ltd., 565 BR at 48-49). Accordingly, as the bankruptcy stay triggered by DeMatteis‘s bankruptcy petition did not prohibit the plaintiff from commencing this foreclosure action against Hunter, it did not operate as a “statutory prohibition” under
VI. Conclusion
In light of the foregoing, the Supreme Court properly denied that branch of the defendants’ motion which was to dismiss the first and third causes of action insofar as asserted against DeMatteis. However, the court should have granted that branch of the defendants’ motion which was to dismiss those causes of action insofar as asserted against Hunter as untimely.
Accordingly, the order is modified, on the law, by deleting the provision thereof denying that branch of the defendants’ motion which was to dismiss the first and third causes of action insofar as asserted against the defendant Hunter Street Properties, LLC, and substituting therefor a provision granting that branch of the motion; as so modified, the order is affirmed insofar as appealed from.
LaSalle, P.J., Chambers and Taylor, JJ., concur.
Ordered that the order is modified, on the law, by deleting the provision thereof denying that branch of the motion of the defendants Joseph DeMatteis and Hunter Street Properties, LLC, which was to dismiss the first and third causes of action insofar as asserted against the defendant Hunter Street Properties, LLC, and substituting therefor a provision granting that branch of the motion; as so modified, the order is affirmed insofar as appealed from, without costs or disbursements.