Bank of N.Y. Mellon v. 251 Gotham LLC, Adversary Case No. 19-1020
| Decision Date | 18 June 2019 |
| Docket Number | Adversary Case No. 19-1020 |
| Citation | 604 B.R. 71 |
| Parties | The BANK OF NEW YORK MELLON, Plaintiff, v. 251 GOTHAM LLC, Defendant. |
| Court | U.S. Bankruptcy Court — Southern District of Alabama |
Thomas Connop, Locke Lord LLP, Dallas, TX, Michael P. De Simone, Locke Lord LLP, West Palm Beach, FL, Stephen J. Humeniuk, Locke Lord LLP, Austin, TX, for Plaintiff.
Mark Steven Anderson, Shiryak Bowman Anderson Gill & Kadochnik, Andreas Euripides Christou, Kew Gardens, NY, for Defendant.
Kathy LaFortune, pro se.
James Padilla, pro se.
ORDER DENYING DEFENDANT'S MOTION TO DISMISS
The United States District Court for the Southern District of Alabama referred this case to this court to resolve the defendant's motion to be dismiss (doc. 1-151 ) "and all other proceedings, consistent with Article III of the Constitution." (See order, doc. 1, at p.8). Having carefully reviewed the briefing of the parties, the district court record, and the relevant law, the court denies the motion to dismiss for the reasons set out below.
Plaintiff The Bank of New York Mellon ("the Bank") sued the defendant 251 Gotham LLC ("251 Gotham") and other defendants in the district court on January 11, 2019. It subsequently amended its complaint (see doc. 1-10) on January 23, 2019 and dismissed all defendants but 251 Gotham.
The Bank alleges that it is the mortgagee of certain real property located in Nassau County, New York ("the Property"). The mortgagors are two individuals, Kathy LaFortune and James F. Padilla. While the mortgage was in effect, recorded, and unsatisfied, LaFortune and Padilla filed a joint chapter 13 bankruptcy case in this district, case number 11-4954 ("the first bankruptcy"). Their confirmed chapter 13 plan provided for the surrender of the Property. The Bank did not foreclose or take any steps during the first bankruptcy to obtain title to the Property. Post-confirmation, the court granted Padilla's motion to be dismissed from the first bankruptcy. LaFortune completed the chapter 13 case and received a discharge, and her case was closed in 2017.
Meanwhile, Padilla filed his own non-joint bankruptcy in this court, case number 16-1857 ("the second bankruptcy") in June 2016. He did not identify or list any interest in the Property on the schedules filed in the second bankruptcy. He conveyed his interest in the Property to 251 Gotham in February 2018, during the pendency of the bankruptcy. 251 Gotham then instituted a quiet title action in New York state court, which the state court ultimately resolved in its favor on statute of limitations grounds. The bankruptcy court dismissed the second bankruptcy at Padilla's request on February 27, 2019.
While the second bankruptcy was still pending, the Bank filed this case in the district court requesting, among other things, that the district court declare Padilla's transfer of the Property void because Padilla did not disclose his interest in the Property in the second bankruptcy and transferred that interest without bankruptcy court approval. 251 Gotham moved to dismiss the case. The district court, finding that this bankruptcy court at least had "related to" jurisdiction pursuant to 28 U.S.C. § 157(a), referred the case to this court for resolution, including a final resolution of the jurisdictional issue.2 (See order, doc. 1).
251 Gotham argues that the court should dismiss this case on multiple grounds under Federal Rule of Civil Procedure 12 and for lack of standing. Alternatively, 251 Gotham requests a venue transfer to the Eastern District of New York. It also requests an award of sanctions. The court discusses each argument in turn below.
Subject-matter jurisdiction
The court construes 251 Gotham's motion to dismiss for lack of subject-matter jurisdiction as a factual attack, as opposed to a facial challenge based merely on the allegations in the amended complaint. The court thus may consider extrinsic evidence in its jurisdictional analysis. See Odyssey Marine Exploration, Inc. v. Unidentified Shipwrecked Vessel , 657 F.3d 1159, 1169 (11th Cir. 2011). "It may independently weigh the facts and is not constrained to view them in the light most favorable to the non-movant." Id. 251 Gotham argues that the district court lacked subject-matter jurisdiction because (1) there is no "related to" or "in rem" jurisdiction under 28 U.S.C. § 1334 ; (2) there is no diversity jurisdiction; and (3) this action is barred by the Rooker-Feldman doctrine based on the New York state court decision in favor of 251 Gotham and against the Bank. Because the court finds that the district court has jurisdiction over this action under § 1334, it need not reach the issue of diversity jurisdiction.
The court further agrees with the district court that the Rooker-Feldman doctrine is inapplicable because this action "was commenced before the state proceedings ended." See In re Bertram , 746 F. App'x 943, 949 (11th Cir. 2018) ; see also generally Exxon Mobil Corp. v. Saudi Basic Indus. Corp. , 544 U.S. 280, 125 S.Ct. 1517, 161 L.Ed.2d 454 (2005) ; Nicholson v. Shafe , 558 F.3d 1266 (11th Cir. 2009).
The district court has original jurisdiction of all civil actions "related to cases under" the Bankruptcy Code. See 28 U.S.C. § 1334(b). The Bank was not required to initiate this action as an adversary proceeding in the second bankruptcy if "related to" jurisdiction exists. Rather, the district court could refer this action to this court pursuant to 28 U.S.C. § 157(a) and the Order of Reference, as it did here.3
" ‘The usual articulation of the test for determining whether a civil proceeding is related to bankruptcy is whether the outcome of the proceeding could conceivably have an effect on the estate being administered in bankruptcy.’ " Carter v. Rodgers , 220 F.3d 1249, 1253 (11th Cir. 2000) (citation omitted). "The proceeding need not necessarily be against the debtor or the debtor's property." In re Toledo , 170 F.3d 1340, 1345 (11th Cir. 1999) (citation and quotation marks omitted). "An action is related to bankruptcy if the outcome could alter the debtor's rights, liabilities, options or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankrupt estate." Id. (citation and quotation marks omitted). "The key word in th[is] test is ‘conceivable,’ which makes the jurisdictional grant extremely broad." See id. The test is a liberal one. See id. The test is applied at the time of the commencement of the civil action. See Grupo Dataflux v. Atlas Global Grp., L.P. , 541 U.S. 567, 570, 124 S.Ct. 1920, 158 L.Ed.2d 866 (2004) () (citation omitted).4
The court does not have "related to" jurisdiction based on the terms of the confirmed plan in the first bankruptcy, because that bankruptcy case was closed prior to the commencement of this case and has not been re-opened. See, e.g. , Cook v. Chrysler Credit Corp. , 174 B.R. 321, 327 (M.D. Ala. 1994) ; Al-Rayes v. Willingham , No. 3:15-cv-107-J-34JBT, 2016 WL 9527956, at *2 (M.D. Fla. Mar. 11, 2016) ; Matter of Dennis , AP 17-05200-LRC, 2017 WL 4457414, at *2 (Bankr. N.D. Ga. Oct. 4, 2017).
Nevertheless, when Padilla was dismissed from the first bankruptcy, his interest in the Property revested in him. See 11 U.S.C. § 349. His interest in the Property became property of the second bankruptcy estate and was property of the bankruptcy estate at the time Padilla transferred his interest in the Property to 251 Gotham. See 11 U.S.C. § 541(a) (). Padilla had an ongoing duty throughout the second bankruptcy to disclose property of the estate, but he never disclosed the Property. See, e.g. , Robinson v. Tyson Foods, Inc. , 595 F.3d 1269, 1274 (11th Cir. 2010) ; Jones v. Savage Servs. Corp. , No. 2:17-CV-01570-AKK, 2019 WL 2058715, at *3 (N.D. Ala. May 9, 2019) ; see also 11 U.S.C. § 554(d) ().
The confirmed plan in the second bankruptcy stated, "Property of the Estate shall revest in the Debtor(s) upon discharge or dismissal of the case." Although Padilla voluntarily dismissed the second bankruptcy in February 2019, the bankruptcy was pending when Padilla transferred the Property, when the Bank filed this case, and when the Bank filed its amended complaint. Thus, the Property was still property of the bankruptcy estate at the time the Bank filed this case. The Bank now seeks a declaratory judgment that the transfer from Padilla to 251 Gotham was void.
The court must decide whether the outcome of this action could conceivably have an effect on the estate that was being administered in the second bankruptcy. Subject to certain limitations, a chapter 13 debtor has "the rights and powers of a trustee under section[ ] 363(b) ...." See 11 U.S.C. § 1303. 11 U.S.C. § 363(b) governs the sale of property of the debtor's estate: "The trustee, after notice and a hearing, may ... sell, ... other than in the ordinary course of business, property of the estate ...." In general, the sale of an individual debtor's "real property is not in the ordinary course of business and court approval is required by § 363(b)." See In re Smith , 352 B.R. 500, 503 (Bankr. N.D. Ala. 2006) ; see also In re McCann , 537 B.R. 172, 177-78 (Bankr. S.D.N.Y. 2015). The debtor "could not have entered into an enforceable contract with [a buyer] to sell the property absent such approval." See In re Smith , 352 B.R. at 503 ; see also In re Fid. Standard Mortg. Corp. , 839 F.2d 1517, 1522 (11th Cir. 1988).
"If a debtor, acting with the powers of a trustee, disposes of property out of the ordinary course of business without prior court approval,...
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