In Re: 307 Assets LLC
In re 307 ASSETS LLC,
Debtor
SEI INSIEME LLC
Appellant,
-v- No. 23 Civ. 7942 (LTS)
Appellee.
MEMORANDUM ORDER
Pending before the Court are the appeal of Sei Insieme LLC (“Appellant” or “Sei“) of the “Order Confirming Chapter 11 Plan” (docket entry no. 1 (the “Appeal“)), issued by the Bankruptcy Court for the Southern District of New York on August 21, 2023, and the motion of 307 Assets LLC (“Appellee” or “307 Assets“) to dismiss the Appeal as equitably moot. (Docket entry no. 10 (the “Motion“).) The Court has jurisdiction of this appeal pursuant to
The Court has reviewed carefully the parties’ submissions and, for the following reasons, grants Appellee‘s motion to dismiss the Appeal.1
BACKGROUND
The following summary of relevant facts is drawn from the parties’ moving papers, the record, and from filings in the foreclosure action against 307 Assets, captioned
Sei was formed on March 6, 2012, for the purpose of owning the property located at 307-309 Sixth Avenue, New York, NY (the “Property“). (Docket entry no. 7 (“App‘t Brief“) ¶ 1.) The Property was sold on or about August 4, 2017, by Sei and its sister company to 307 Assets for $17,000,000. (Id. ¶ 2.) In order to finance the purchase, 307 Assets took a mortgage of approximately $8 million in funds secured by a note to Creif 135 LLC (the “Creif Mortgage“). (Id. ¶ 3.) Sei and its sister company took back a purchase money mortgage in the amount of $5 million. (Id. ¶ 4.) The mortgage held by Creif 135 LLC was assigned to an affiliate, Creif II Lender NE LLC, on September 5, 2017. (Foreclosure Action, NYSCEF doc. no. 2 (“Foreclosure Action Complaint“) ¶¶ 22, 28.)
The State Foreclosure Action
Following 307 Assets’ default on the Creif Mortgage, Creif II Lender NE LLC initiated foreclosure proceedings against 307 Assets on September 24, 2020, in the Supreme Court of the State of New York, County of New York. (See App‘t Brief ¶ 5; Foreclosure Action Complaint.) While the foreclosure proceedings were pending, the Creif Mortgage was assigned to 307-309 Sixth Avenue LLC (the “First Mortgagee“), which was then substituted as a plaintiff in the Foreclosure Action. (App‘t Brief ¶ 7 (citing A000047 of the certified record); see also Foreclosure Action, NYSCEF doc. no. 18.) On June 1, 2022, the Supreme Court signed a judgment for foreclosure and sale of the Property. (Foreclosure Action, NYSCEF doc. no. 54.) The judgment was in the amount of approximately $13.6 million dollars. (Id. at 3-4)
Also in June of 2022, George Filioupolos, beneficial owner of 307 Assets, transferred ownership of the Property to an entity named 307-309 Sixth Owner LLC. (Docket entry no. 8 (“App‘ee Brief“) at 11.) On October 25, 2022, the referee appointed by the Supreme Court in the Foreclosure Action entered notice that the Property would be sold at public auction, scheduled to take place on December 14, 2022. (Id. at 12; Foreclosure Action, NYSCEF doc. no. 58.)
The Sei Bankruptcy Case
On December 13, 2022, Sei filed a chapter 11 bankruptcy petition to “protect its interest in the Property.” (App‘t Brief ¶ 10; Sei Bankr. Case, docket entry no. 1.) Sei had used its second mortgage on the Property “as part of the collateral for another loan pursuant to a collateral assignment to The Galinn Fund LLC.” (Sei Bankr. Case, docket entry no. 2 ¶¶ 3-4.) Although The Galinn Fund LLC had been named and served in the Foreclosure Action, Sei had not. (See Foreclosure Action Complaint; Sei Bankr. Case, docket entry no. 13 ¶ 7.) Sei moved for a temporary restraining order (“TRO“) in the Sei Bankruptcy Case on December 14, 2022, seeking a stay of the foreclosure sale scheduled for that afternoon. (Sei Bankr. Case, docket entry no. 2.) Sei was heard on the TRO motion the same day, December 14, 2022, at a remote conference at which representatives for Appellant and the First Mortgagee were present. (Sei Bankr. Case,
The 307 Assets Bankruptcy Case
On January 9, 2023, 307 Assets filed a petition for chapter 11 bankruptcy in the Bankruptcy Court for the Southern District, captioned In re 307 Assets LLC, 23-10027 (JPM) (the “307 Assets Bankr. Case“).2 307 Assets filed a proposed disclosure statement and plan of reorganization that same day. (307 Assets Bankr. Case, docket entry nos. 1, 5, 6.) The sole asset listed in 307 Assets’ petition was the Property, valued at $14.5 million, and its liabilities were listed as approximately $22.6 million. (307 Assets Bankr. Case, docket entry no. 1, at 8.)
The proposed plan of reorganization included procedures to sell the Property, and organized claims into six classes to be paid from sale proceeds as follows: (1) New York City liens, totaling approximately $83,366, to be paid in full with any applicable interest; (2) the First Mortgagee, 307-309 Sixth Avenue LLC, totaling $15,077,472, to be paid up to the allowed amount of the Class 2 Claim, after payment of administrative expenses, priority tax claims, Class 1 Claims, and Class 4 Claims, with any deficiency after the Property sale to be treated as a Class 5 Claim; (3) the Second Mortgagee, i.e., Sei and its sister company, totaling approximately $7,500,000, to be paid up to the allowed amount of the Class 3 Claim, after payment of administrative expenses, priority tax claims, Class 1 Claims, Class 2 Claims, and Class 4 Claims, with any deficiency after Property sale to be treated as a Class 5 Claim; (4) priority claims under
Following Sei‘s objections, 307 Assets filed revised disclosure statement and plan documents, clarifying relationships between the various individuals and entities party to the 307 Assets Bankruptcy Case, and an application to employ Meridian Capital Group (“Meridian“) as a real estate broker for the Property. (307 Assets Bankr. Case, docket entry nos. 26, 28, 32; docket entry no. 33 (the “Amended Plan“).) The proposed sale procedures for the Property and distribution of proceeds to claimants otherwise remained the same. (See Amended Plan.) By order dated April 10, 2023, the Bankruptcy Court approved the amended disclosure statement and sale procedures for the Property, and set the sale date for June 19, 2023. (307 Assets Bankr. Case, docket entry no. 34.)
Sei filed a motion for reconsideration (307 Assets Bankr. Case, docket entry nos. 36-37), arguing that the date set for the
On July 25, 2023, following its Rule 2004 examinations of the requested witnesses, Sei filed various objections to confirmation of the Amended Plan. (307 Assets Bankr. Case, docket entry no. 61, at 2.) Sei also initiated an adversary proceeding the day before the confirmation and sale approval hearing was set to take place. (307 Assets Bankr. Case, docket entry no. 69.) The Amended Plan was ultimately confirmed, and the sale approved, by the Bankruptcy Court at the August 3, 2023 hearing, with the Bankruptcy Court finding that 307 Assets had “complied with the applicable requirements of
The written order confirming the Amended Plan and approving the sale of the Property was entered on August 21, 2023. (307 Assets Bankr. Case, docket entry no. 70 (the “Confirmation and Sale Approval Order“).) Sei filed a notice of appeal on September 3, 2023 (307 Assets Bankr. Case, docket entry no. 76), seeking to vacate the Confirmation and Sale Approval Order, but did not seek or otherwise obtain a stay pending the instant Appeal. 307 Assets filed a motion to dismiss the Appeal in the instant case on February 13, 2024, asserting that the appeal is equitably moot. (Docket entry no. 10.) The Appeal and motion to dismiss the Appeal are now fully briefed.
DISCUSSION
“Generally in bankruptcy appeals, the district court reviews the bankruptcy court‘s factual findings for clear error and its conclusions of law de novo.” In re Charter Communs., Inc., 691 F.3d 476, 482-83 (2d Cir. 2012) (citation omitted). However, “in an equitable mootness dismissal, the district court is not reviewing the bankruptcy court at all, but exercising its own discretion in the first instance.” Id. at 483. In determining whether an appeal is equitably moot, “the district
Under the prudential doctrine of equitable mootness, a bankruptcy appeal should be dismissed as equitably moot, even when it is not constitutionally moot, “‘when, during the pendency of an appeal, events occur’ such that ‘even though effective relief could conceivably be fashioned, implementation of that relief would be inequitable.‘” In re Motors Liquidation Co., 829 F.3d 135, 167 (2d Cir. 2016) (quoting In re Chateaugay Corp. (“Chateaugay I“), 988 F.2d 322, 325 (2d Cir. 1993)). Equitable mootness is not limited to appeals of orders confirming plans of reorganization, but rather has been applied in a “‘range of contexts,’ including appeals involving all manner of bankruptcy court orders.” In re Windstream Holdings, Inc., 838 F. App‘x 634, 637 (2d Cir. 2021) (citing In re BGI, 772 F.3d 102, 109 & n.12 (2d Cir. 2014)).
“[D]ismissal is appropriate when the appellant has made no effort to obtain a stay and has permitted such a comprehensive change of circumstances to occur as to render it inequitable for the appellate court to reach the merits of the appeal.” Chateaugay I, 988 F.2d at 322 (internal quotation marks and citation omitted). In the Second Circuit, “a bankruptcy appeal is presumed equitably moot when the debtor‘s reorganization plan has been substantially consummated.” In re BGI, Inc., 772 F.3d at 108. Under the Bankruptcy Code, “substantial consummation” consists of:
(A) transfer of all or substantially all of the property proposed by the plan to be transferred;
(B) assumption by the debtor or by the successor to the debtor under the plan of the business or of the management of all or substantially all of the property dealt with by the plan; and
(C) commencement of distribution under the plan.
To obtain relief in these circumstances, a claimant must demonstrate that its requested relief is nevertheless warranted by establishing each of the so-called “Chateaugay II factors“:
[1] the court can still order some effective relief;
[2] such relief will not affect the re-emergence of the debtor as a revitalized corporate entity;
[3] such relief will not unravel intricate transactions so as to knock the props out from under the authorization for every transaction that has taken place and create an unmanageable, uncontrollable situation for the Bankruptcy Court;
[4] the parties who would be adversely affected by the modification have notice of the appeal and an opportunity to participate in the proceedings; and
[5] the appellant pursued with diligence all available remedies to obtain a stay of execution of the objectionable order[,] if the failure to do so creates a situation rendering it inequitable to reverse the orders appealed from.
In re BGI, Inc., 772 F.3d at 108 (citing In re Chateaugay Corp. (“Chateaugay II“), 10 F.3d 944, 952-53 (2d Cir. 1993)).
Courts have also applied the Chateaugay II factors in analyzing whether an appeal of an unstayed bankruptcy transaction is equitably moot due to a “comprehensive change in circumstances.” See, e.g., In re PC Liquidation Corp., No. 06-CV-1935-SJF, 2008 WL 199457, at *5 (E.D.N.Y. Jan. 17, 2008), cited with approval in In re BGI, Inc., 772 F.3d at 109; see also, e.g., In re RS Old Mill LLC, No. 20-CV-743-VB, 2020 U.S. Dist. LEXIS 82039, at *11-12 (S.D.N.Y. May 8, 2020) (noting “[t]here is a ‘strong presumption’ that an appeal of an unstayed order is moot,” which “may only be overcome when each of the [Chateaugay II factors] are present” (citation omitted)).
307 Assets argues that Sei‘s appeal is equitably moot because “(i) the Debtor and Purchaser closed on the Property sale, (ii) the Plan was consummated, (iii) Appellant sought no stay, and (iv) Appellant served no affected party but the Debtor with notice of the appeal.” (Motion at 1-2.) 307 Assets further notes that it has paid all amounts due under the Plan, including Bankruptcy Court-approved legal fees, real estate broker fees, claims made by the City of New York, and amounts due to the United States Trustee (id. at 3), and has also provided records demonstrating that, post-confirmation, the deed for the Property was transferred pursuant to the Amended Plan, and the Property has since been encumbered with a new mortgage lien. (Id. at 5-46.)
Sei does not contest the assertion that the Amended Plan has been substantially consummated, but rather argues that the appeal is “primarily concerned with the approval of the sale of the Property by the Confirmation Order pursuant to
As to Sei‘s first argument, the doctrine of equitable mootness calls for an analysis separate from the statutory limitation on appeals found in
will not preclude review for equitable mootness even if such characterization were appropriate.
Turning then to the Chateaugay II factors, the Court finds that Sei has failed to meet its burden to establish each factor is present, such that the Confirmation and Sale Approval Order should be disturbed. Beginning with the fifth and arguably most important factor, Sei failed, as noted, to pursue with diligence a stay of the “objectionable order,” i.e., the Confirmation and Sale Approval Order. See In re MPM Silicones, L.L.C., 874 F.3d 787, 804 (2d Cir. 2017) (“Although we require satisfaction of each Chateaugay II factor to overcome a mootness presumption, we have placed significant reliance on the fifth factor, concluding that a ‘chief consideration under Chateaugay II is whether the appellant sought a stay of confirmation.‘” (citation omitted)). As a result, the Amended Plan has been all but fully implemented, with the Property transferred and subsequently encumbered with a new lien, and all amounts due under the Amended Plan paid, including claims with greater priority and Bankruptcy Court-approved legal fees and real estate broker fees. (Motion at 3-4; App‘ee Brief at 10-11; 307 Assets Bankr. Case, docket entry nos. 81-83.) At no point did Sei seek to prevent the confirmed Amended Plan, including the close of the Property contemplated by the Amended Plan, from going into effect.
Sei argues that its inaction in seeking a stay was justified based on its perception that “the Bankruptcy Court was not going to stay the confirmation of the Plan which approved the Sale” in light of Sei‘s prior, unsuccessful attempts to oppose the Amended Plan and Property sale. (Sei Resp. Brief at 3-4.) The Second Circuit has repeatedly rejected this line of argument, and “insist[s] that a party seek a stay even if it may seem highly unlikely that the bankruptcy court will issue one.” In re Metromedia Fiber Network, Inc., 416 F.3d 136, 144 (2d Cir. 2005) (citing Chateaugay I, 988 F.2d at 326). The great weight placed on this factor is in recognition of the fact that, in bankruptcy proceedings, “the ability to achieve finality is essential to the fashioning of effective remedies,” and that “acts of reliance on unstayed bankruptcy confirmation orders should not be ‘routinely vulnerable to nullification‘” in order to promote successful debtor reorganizations. In re Fiorano Tile Imps., Inc., 517 B.R. 409, 416 (Bankr. E.D.N.Y. 2014) (quoting Chateaugay I, 988 F.2d at 325-26).
Sei argues that, under the first Chateaugay II factor, effective relief from the unstayed order can nonetheless be fashioned because the Property sale could be reversed, or Sei could be awarded monetary relief. (Sei Resp. Brief at 3.) As to a monetary award, Sei does not explain the basis upon which it would be entitled to monetary relief in this appellate posture. As to the reversal of the sale, even if such relief
In sum, Sei has failed to meet its burden to establish each of the Chateaugay II factors. Accordingly, Sei is unable to overcome the presumption that the instant appeal is equitably moot. The Amended Plan has been substantially consummated, and Sei‘s failure to seek or obtain a stay of the Sale approval has resulted in a comprehensive change of circumstances, such that reversal of the Sale would now be inequitable to the debtor and affected parties under the Amended Plan. The Court therefore grants 307 Assets’ motion to dismiss the instant appeal on equitable mootness grounds.
CONCLUSION
For the foregoing reasons, the motion to dismiss the Appeal as equitably moot is granted.
This Memorandum Order resolves docket entry no. 10. The Clerk of Court is respectfully directed to close this case.
SO ORDERED.
Dated: New York, New York
September 30, 2024
/s/ Laura Taylor Swain
LAURA TAYLOR SWAIN
Chief United States District Judge