Aquila Alpha LLC v. Ehrenberg
| Decision Date | 22 February 2023 |
| Docket Number | 22-cv-2148 (FB),Bankr. 8-18-8053 (AST) |
| Parties | AQUILA ALPHA LLC, Appellant, v. HOWARD M. EHRENBERG, In his capacity as Liquidating Trustee of Orion HealthCorp, Inc., et al., CHT Holdco, LLC, and CC Capital, Appellee. |
| Court | U.S. District Court — Eastern District of New York |
For Appellant:
ANTHONY F. GIULIANO
Giuliano Law, PC
For Appellee:
JOHN P. AMATO
MARK T. POWER
JOSEPH ORBACH
BRIGITTE R. ROSE
Thompson Coburn Hahn & Hessen LLP
Aquila Alpha LLC (“Aquila”) appeals a March 31, 2022 order of the United States Bankruptcy Court for the Eastern District of New York (the “Bankruptcy Court”) (Alan S. Trust, J.) denying its motion to vacate a default judgment entered against it. The default judgment had been obtained by Howard M. Ehrenberg in his capacity as liquidating trustee of Appellee debtors (the “Liquidating Trustee”), including CHT Holdco, LLC (“CHT”), Orion HealthCorp, Inc., et al., and CC Capital (collectively, “Debtors”). For the following reasons, the Bankruptcy Court's order is affirmed.
The Liquidating Trustee was appointed pursuant to the Debtors' joint liquidation plan effective March 1, 2018. On March 16, 2018, Debtors filed a voluntary petition for relief from their creditors, pursuant to 11 U.S.C. § 101, et seq. They then filed an adversary proceeding on April 4, 2018 in the Bankruptcy Court against various corporate entities, not including Aquila. The adversary suit sought, inter alia, to recover a $23.7 million mortgage (the “Mortgage”) on real property (the “Mortgaged Property”) that had been transferred to Aquila by Paul Parmar (“Parmar”). Parmar, a named defendant to the adversary proceeding, had served as Chief Executive Officer and Chairman of the board of directors of debtor corporation CHT. The Mortgage had been granted to Parmar in 2008, who then formed Aquila in 2016 to purchase it for $3.8 million. The suit alleged that Parmar had funded Aquila's purchase of the Mortgage with $3.8 million transferred fraudulently from CHT to Aquila, with CHT receiving nothing in return.
Aquila was added as a defendant in an amended complaint (the “First Amended Complaint”) filed on June 4, 2018. On June 6, 2018, Aquila received service of process via first class mail at two addresses: (1) in Dover, Delaware, at an address of Aquila's registered service agent (the “Dover Address”), and (2) in Hazlet, New Jersey, at Aquila's business address (the “Hazlet Address”). Aquila filed no answer and made no motions in response to the First Amended Complaint. The address of Aquila's registered service agent changed in 2020.
The Liquidating Trustee was appointed in February 2019. In September 2019, he obtained the Bankruptcy Court's permission to settle certain claims lodged in the First Amended Complaint. John Petrozza (“Petrozza”), Aquila's purported owner, objected to the settlement on behalf of himself and two other entities, but not on behalf of Aquila. The Bankruptcy Court approved the settlement on July 24, 2020, issuing an order authorizing the Liquidating Trustee “to file an amended complaint to realign the parties and assert” claims assigned to the Liquidating Trustee in the settlement.
Pursuant to this order, the Liquidating Trustee filed a second amended complaint (the “Second Amended Complaint”) on January 14, 2021. The Second Amended Complaint reproduced the same allegations against Aquila as were contained in the First Amended Complaint and did not add new claims against it. It was served on Aquila at the Dover and Hazlet Addresses and was given to Charles Simpson (“Simpson”). Simpson had filed pleadings on Aquila's behalf, but later notified the Bankruptcy Court that he no longer represented Aquila. Aquila made no response to the Second Amended Complaint.
The Liquidating Trustee filed a motion for default judgment against Aquila on August 5, 2021 with respect to the Second Amended Complaint. Debtors' motion was served via mail to the Hazlet and Dover Addresses and emailed to Simpson, who was still listed as Aquila's counsel of record. Aquila filed no response or objection. The Bankruptcy Court granted the motion for default and a default judgment was entered on October 29, 2021, which granted Debtors legal and equitable ownership of the Mortgaged Property. On November 10, 2021, Aquila filed motions to vacate and prevent enforcement of the default judgment under Federal Rule of Civil Procedure 60(b)(4). After briefing and an evidentiary hearing, the Bankruptcy Court denied Aquila's Rule 60(b) motion on March 31, 2022. See In re Orion HealthCorp, Inc., No. 18-71748-67-AST, 2022 WL 993850 (Bankr. E.D.N.Y. Apr. 1, 2022). Aquila filed a notice of appeal on April 11, 2022.
On an appeal from a bankruptcy court, district courts review conclusions of law de novo, while scrutinizing findings of fact for clear error. In re Purdue Pharms. L.P., 619 B.R. 38, 47-48 (S.D.N.Y. 2020) (citing Elliot v. Gen. Motors LLC (In re Motors Liquidation Co.), 829 F.3d 135, 152 (2d Cir. 2016); In re Republic Airways Holdings Inc., 582 B.R. 278, 281 (S.D.N.Y. 2018)). Findings of fact may be overturned as “clearly erroneous only if this Court is ‘left with the definite and firm conviction that a mistake has been committed.'” Id. at 48 ). “Particularly strong deference must be given a bankruptcy court's findings of fact based on credibility assessments of witnesses it has heard testify.” In re Pisculli, 426 B.R. 52, 59 (E.D.N.Y. 2010), aff'd, 408 Fed.Appx. 477 (2d Cir. 2011). Holdings that involve mixed issues of fact and law “are generally subject to de novo review, although the standard applied ‘depends . . . on whether answering it entails primarily legal or factual work.'” In re Purdue, 619 B.R. at 48 (quoting U.S. Bank Nat. Ass n ex rel. CWCapital Asset Mgmt. LLC v. Vill. at Lakeridge, LLC, 138 S.Ct. 960, 962 (2018)). Underlying evidentiary rulings, meanwhile, are reversed “only for abuse of discretion.” United States v. Komasa, 767 F.3d 151, 155 (2d Cir. 2014). Rulings on a motion to vacate under Rule 60(b)(4) are subject to de novo review, Burda Media, Inc. v. Viertel, 417 F.3d 292, 298 (2d Cir. 2005), while their underlying factual findings are reviewed for clear error, New York v. Green, 420 F.3d 99, 105 (2d Cir. 2005).
Relief from a judgment under Rule 60(b)(4) is “extraordinary,” Nemaizer v. Baker, 793 F.2d 58, 61 (2d Cir. 1986), appropriate only where “the court that rendered it lacked jurisdiction of the subject matter, or of the parties, or if it acted in a manner inconsistent with due process of law,” Grace v. Bank Leumi Trust Co., 443 F.3d 180, 194 (2d Cir. 2006) (cleaned up). A judgment may be declared void under Rule 60(b)(4) for lack of jurisdiction only when the court “plainly usurped jurisdiction” or “there is a total want of jurisdiction and no arguable basis on which it could have rested a finding that it had jurisdiction.” Cent. Vermont Pub. Ser v. Corp. v. Herbert, 341 F.3d 186, 190 (2d Cir. 2003). Relief for a due process violation, on the other hand, must be based on a “fundamental” deprivation “of notice or the opportunity to be heard.” Sanchez v. MTV Networks, 525 Fed. App'x 4, 6 (2d Cir. 2013). Such a deprivation must be greater than the failure to “follow procedural rules in ‘every particular.'” Id. (quoting Neilson v. Colgate-Palmolive Co., 199 F.3d 642, 654-56 (2d Cir. 1999)).
Aquila challenges the denial of its Rule 60(b) motion on the basis that the Bankruptcy Court lacked personal jurisdiction over Aquila and that it misapplied the relevant factors in declining to vacate the default judgment.
Aquila argues that the Bankruptcy Court lacked personal jurisdiction over it for three reasons: (1) Aquila was joined to the First Amended Complaint without leave from the Bankruptcy Court, (2) the Second Amended Complaint was either time barred under 11 U.S.C. § 546 or improperly served, and (3) the Default Motion was not properly served under Local Bankruptcy Rule 7055-1.
Aquila invokes Federal Rule of Civil Procedure 21, applicable to bankruptcy proceedings through Bankruptcy Rule 7201, to argue that Debtors needed leave from the Bankruptcy Court to join Aquila as a defendant to the First Amended Complaint. Rule 21 permits a court to “add or drop a party” from a suit “[o]n a motion or on its own.” Fed.R.Civ.P. 21. However, courts also allow the addition of parties through amendment under Rule 15(a), made applicable by Bankruptcy Rule 7015, which “gives plaintiffs an unequivocal right to file one amended complaint without leave of court before defendant's filing of a responsive pleading.” Gaming Mktg. Sols., Inc. v. Cross, 528 F.Supp.2d 403, 406 (S.D.N.Y. 2007). Rule 15(a)(1) allows amending as of right within 21 days after service of a responsive pleading or a Rule 12 motion “if the pleading is one to which a responsive pleading is required.” Fed.R.Civ.P. 15(a)(1)(B). Amendment under Rule 15(a) can include the addition of parties. See Washington v. New York City Bd. of Estimate, 709 F.2d 792, 795 (2d Cir. 1983) (approving joinder of defendants before responsive pleading was filed); see also New Falls Corp. v. Soni Holdings, No. 19-0449, 2021 WL 855939, at *6 (E.D.N.Y Mar. 5, 2021), aff'd 2022 WL 2720517 (2d Cir. Jul 14, 2022) ( that under Washington, Rule 15 permitted plaintiff to amend pleading to add party without leave of court).
Aquila cites two district court orders holding that Rule 21's requirement for leave trumps the general amen...
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