Coastal States Bank v. Cullinan (In re Cullinan)
| Decision Date | 18 January 2023 |
| Docket Number | CASE NO. 22-51326-WLH,ADV. PROC. NO. 22-5078 |
| Parties | IN RE: Richard Douglas CULLINAN, Debtor. Coastal States Bank, Plaintiff, v. Richard Douglas Cullinan, Christina M. Cullinan, Fifth Third Bank, National Association, and Credibility Capital, Inc., Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Georgia |
Bret J. Chaness, Rubin Lublin, LLC, Peachtree Corners, GA, for Plaintiff.
Will B. Geer, Rountree, Leitman, Klein & Geer, LLC, Atlanta, GA, for Defendants Richard Douglas Cullinan, Christina M. Cullinan.
G. Frank Nason, IV, Lamberth, Cifelli, Ellis & Nason, P.A., Atlanta, GA, for Defendant Fifth Third Bank, National Association.
THIS MATTER is before the Court on Plaintiff's Motion for Stay Pending Appeal (Doc. No. 32) (the "Motion"). The Motion was scheduled for hearing on December 1, 2022. Counsel for Plaintiff (Bret Chaness), counsel for Richard Douglas Cullinan ("Debtor") (Will Geer), and counsel for Fifth Third Bank, National Association ("Fifth Third") (Frank Nason) appeared and announced they had agreed to a resolution. The parties were ultimately unable to resolve the matter, and the Court scheduled a status hearing on the Motion for January 12, 2023. Mr. Chaness, Mr. Geer, and Mr. Nason appeared at the hearing on January 12, 2023 by video and requested the Court rule on the Motion.
Plaintiff filed the complaint on May 18, 2022, seeking rescission of a deed cancellation and a declaratory judgment that its First Security Deed remains in full force and effect. Debtor and his wife, Christina M. Cullinan ("Ms. Cullinan"), answered the complaint, and Debtor filed a counterclaim objecting to the Plaintiff's claim in the bankruptcy case and seeking to classify it as completely unsecured (Doc. No. 6). Plaintiff filed a Motion for Summary Judgment seeking judgment as to its affirmative claims and the counterclaim asserted by Debtor. Debtor and Ms. Cullinan filed a Motion for Summary Judgment as to the complaint; Debtor also sought summary judgment on his counterclaim (Docs. Nos. 12 & 15). The Court entered an order on October 27, 2022 (Doc. No. 24) (the "SJ Order") in which it denied Plaintiff's Motion for Summary Judgment and granted Debtor and Ms. Cullinan's Motion for Summary Judgment, including summary judgment on Debtor's counterclaim. On October 31, 2022, Plaintiff appealed the SJ Order. On November 3, 2022, Plaintiff filed the Motion seeking to stay payments to Debtor's creditors pursuant to the terms of Debtor's confirmed plan of reorganization. A judgment was not entered until December 6, 2022.1
Bankruptcy Rule 8007(a)(1) governs stays pending appeals arising out of bankruptcy court orders. Fed. R. Bankr. P. 8007. In order to obtain a stay pending appeal of a bankruptcy court order, the movant must demonstrate:
See In re McKenzie, 2009 WL 6499259, at *1 (Bankr. N.D. Ga. Oct. 30, 2009). Each of the four factors imposes a high standard for obtaining a stay pending appeal. The first two factors are the most critical. Nken v. Holder, 556 U.S. 418, 433–34, 129 S.Ct. 1749, 173 L.Ed.2d 550 (2009). "On the second factor, the applicant must ‘demonstrate that irreparable injury is likely , not merely possible in the absence of a stay.’ " In re Revel AC, Inc., 802 F.3d 558, 569 (3d Cir. 2015). "Likely" in this context means "more apt to occur than not." Id.
Here, the complaint was filed against four parties. Credibility Capital, Inc. did not answer, and default has been entered against it. Fifth Third did not dispute that, as a judgment lien creditor, it is not a bona fide purchaser for value ("BFP"); but, if Debtor prevails, Fifth Third's lien will survive and it will receive proceeds from the sale. The relief sought in the complaint and the Motion is therefore primarily as to Debtor and Ms. Cullinan. The Court will focus its analysis of the Motion on the claims against and by Debtor and Ms. Cullinan.
Plaintiff filed a Motion for Summary Judgment seeking judgment as to its affirmative claims and the counterclaim of Debtor. In its Motion for Summary Judgment, Plaintiff argued Debtor was not a BFP, contending he (in the shoes of the trustee) was on inquiry notice. The Debtor's Motion for Summary Judgment on the complaint and counterclaim addressed the same issue. The Court ruled in the SJ Order that Debtor was a BFP and was not on inquiry notice as a matter of law, and Plaintiff has appealed the Court's ruling. In the Motion, Plaintiff does not raise any new arguments on this point. The Court is comfortable with its ruling on this issue and the denial of Plaintiff's Motion for Summary Judgment as to the Debtor and the grant of Debtor's Motion for Summary Judgment on the complaint and counterclaim. The Court does not find Plaintiff has shown a likelihood of success on the merits as to the Debtor.
Debtor and Ms. Cullinan filed a Motion for Summary Judgment as to Counts I and II of the complaint, which sought rescission and declaratory judgment as to all parties. Plaintiff's Motion for Summary Judgment is unclear as to whether it sought summary judgment as to Ms. Cullinan. But Defendants’ Motion for Summary Judgment, Plaintiff's response thereto, Plaintiff's Motion for Summary Judgment, and the Motion and corresponding briefs all failed to separately address Ms. Cullinan. The Court, however, has reviewed the statement of issues on appeal and Plaintiff's initial appellate brief and Plaintiff has raised two arguments on appeal that were not argued before this Court: that the Court does not have subject matter jurisdiction over the matter as to Ms. Cullinan and that the Debtor's status as a BFP, standing in the shoes of the trustee, does not apply to Ms. Cullinan such that even if this Court is correct in its ruling as to the Debtor, it should not have granted Ms. Cullinan's Motion for Summary Judgment. Even though Plaintiff has not argued these points before this Court, this Court will address them in the context of determining whether a stay of the judgment as to Ms. Cullinan pending appeal should be granted.
Plaintiff argues that the Bankruptcy Court has no jurisdiction to hear its claim to set aside the cancellation of the deed as to Ms. Cullinan, even though it filed the complaint against Ms. Cullinan in this Court and alleged the Court had jurisdiction. Ms. Cullinan agreed the Court had jurisdiction. Only now, after the Court ruled, has Plaintiff questioned the Court's subject matter jurisdiction. Extensive participation in an adversary proceeding can result in waiver of a formal jurisdictional challenge. See Glinka v. Abraham & Rose Co., 199 B.R. 484, 496 (D. Vt. 1996), aff'd sub nom. In re Housecraft Indus. USA, Inc., 310 F.3d 64 (2d Cir. 2002) ; In re Bernard L. Madoff Inv. Sec. LLC, 418 B.R. 75, 81 (Bankr. S.D.N.Y. 2009) ; see also Finnegan v. Comm'r of Internal Revenue, 926 F.3d 1261, 1271 (11th Cir. 2019) (). But in any event, the Court concludes it has jurisdiction over Plaintiff's claim against Ms. Cullinan.
Bankruptcy court jurisdiction is codified in 28 U.S.C. § 1334(b) and 28 U.S.C. § 157. Pursuant to 28 U.S.C. § 1334, "district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334(b). "The bankruptcy court's jurisdiction is derivative of and dependent upon these ... bases." Cont'l Nat'l Bank of Miami v. Sanchez (In re Toledo), 170 F.3d 1340, 1344 (11th Cir. 1999) (citing Celotex Corp. v. Edwards, 514 U.S. 300, 115 S.Ct. 1493, 131 L.Ed.2d 403 (1995) ).
The first category of cases, "arising under" proceedings, "are matters invoking a substantive right created by the Bankruptcy Code." Id. at 1345. Such matters are considered core proceedings. Toledo, 170 F.3d at 1348 (citing Wood v. Wood (In re Wood), 825 F.2d 90, 97 (5th Cir. 1987) ). The second category, "arising in a case under title 11," involves administrative-type matters or matters that could arise only in bankruptcy. See Toledo, 170 F.3d at 1345 ; see also 28 U.S.C. § 157(b)(2). The definition covers claims that "are not based on any right expressly created by [T]itle 11, but nevertheless, would have no existence outside of the bankruptcy." Baker v. Simpson, 613 F.3d 346, 350-51 (2d Cir. 2010) (quoting In re Wood, 825 F.2d at 97 ). Typically, the facts giving rise to a claim "arising in" a bankruptcy case occur during the course of the bankruptcy case. See Mercer v. Allen, 2014 WL 185252 (M.D. Ga. Jan. 15, 2014) ; In re Taylor, 2006 WL 6591616 . These matters also typically constitute core proceedings. Alternatively, a "proceeding [that] does not invoke a substantive right created by the federal bankruptcy law and is one that could exist outside of bankruptcy" but is related to the bankruptcy case, is also within the Court's jurisdiction but is not a core proceeding. Toledo, 170 F.3d at 1348 (quoting Wood, 825 F.2d at 97 ); 28 U.S.C. § 157(c)(1).
The claim brought by Plaintiff is a claim to the sales proceeds received by the Debtor pursuant to a Court approved sale. Both Plaintiff and Ms. Cullinan claim those proceeds. This dispute therefore "arises in" the bankruptcy case. See In re Motors Liquidation Co., 829 F.3d 135, 153 (2d Cir. 2016) ; see also In re Gayety Candy Co., Inc., 625 B.R. 390 (Bankr. N.D. Ill. 2021) (). The determination of rights to the proceeds also affects...
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