In re Casse
| Decision Date | 21 April 1998 |
| Docket Number | Bankruptcy No. 197-20411-353. |
| Parties | In re Robert E. CASSE, Debtor. |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Eastern District of New York |
Law Offices of Stuart Jay Young, by Stuart Jay Young, Rego Park, NY; Law Offices of George Poulos, by George Poulos, Astoria, NY, for the debtor.
Shapiro & DiCaro, L.L.P., by Ann E. Miller-Hulbert, Gerry Careccia Leonti, New York City, for the creditor.
Stuart P. Gelberg, Garden City, NY, Chapter 13 Trustee.
DECISION ON MOTION TO VACATE FORECLOSURE SALE
This matter arises on motion of Robert E. Casse ("Debtor") to set aside the foreclosure sale of his home. The Debtor asserts that the sale — held September 19, 1997, two days after he filed a petition for relief under Chapter 13 of the Bankruptcy Code on September 17, 1997 — violated the automatic stay imposed by 11 U.S.C. § 362(a). Opposing the motion, Key Bank National Association ("Key Bank"), the foreclosing creditor, asserts that the present bankruptcy case is void ab initio. Key Bank argues that the filing violates an order of this Court ("Order"), which was entered two months earlier, dismissing "with prejudice" a joint Chapter 11 case filed by the Debtor and his wife, Carol J. Casse (collectively, the "Debtors").
The Debtor contends that Key Bank proceeded with the post-petition foreclosure sale in erroneous reliance upon the Order. He questions the very legitimacy of the Order's imposition of prejudicial relief, and further argues that the Order is fatally flawed. Even assuming the Order's validity — so the argument goes — the bar to refiling is limited to Chapter 11 petitions. Therefore, according to the Debtor, the commencement of this Chapter 13 case was a valid bankruptcy filing, rendering the post-petition foreclosure sale void because it was conducted in violation of the automatic stay.
This Debtor is a good customer of the bankruptcy system and quite familiar to this Court. The instant bankruptcy case is the fourth filed by the Debtor in an effort to stave off foreclosure of his home. The three prior cases, all Chapter 11 cases, were marked by the Debtors' inability or unwillingness to make post-petition mortgage payments, failure to comply with basic statutory obligations, and insurmountable legal impediments to plan confirmation. A reorganization plan was never filed during any of these cases. By the time of dismissal of the third Chapter 11 case, if not earlier, it became abundantly clear that the Debtors were impressibly employing the Bankruptcy Code in repeated futile bankruptcy reorganization efforts solely to thwart Key Bank from exercising its legitimate contractual and state law foreclosure remedies. To prevent recurrence of this abuse, the Court dismissed the Debtors' third Chapter 11 case "with prejudice." Two months later, on the eve of the third scheduled foreclosure sale of the Property, the Debtor filed the instant bankruptcy case, which forwards an illegal Chapter 13 plan.
For the reasons more fully set forth below, the Debtor's Chapter 13 filing made in violation of the Order is a nullity. The Order was proper and effective to carry out its intended purpose of allowing completion of the foreclosure sale by Key Bank unimpeded by further bankruptcy filings of the Debtor under any provision of the Bankruptcy Code. Accordingly, the Debtor's motion to set aside Key Bank's post-petition foreclosure sale is denied and this Chapter 13 case is dismissed. The Court, however, reserves jurisdiction to determine the Chapter 13 Trustee's motion to impose sanctions for the Chapter 13 filing. This opinion constitutes the Court's findings of fact and conclusions of law in accordance with Rule 7052 of the Federal Rules of Bankruptcy Procedure, made applicable to this contested matter by Rule 9014.
In September 1988, the Debtors obtained a mortgage loan of approximately $170,000.00 to purchase a home at 64-24 Austin Street, Rego Park, New York (the "Property"). A little more than a year later, they defaulted on the loan. Key Bank, assignee of the mortgage loan, instituted state court foreclosure proceedings in or around April 1990. The foreclosure action was stayed upon the filing by the Debtors of their first Chapter 11 case on August 29, 1991.
The Debtors languished in Chapter 11 for nearly two years until conversion of the reorganization case to Chapter 7. During that twenty-three month span, only four operating reports were filed. The Debtors' period of exclusivity to propose a plan came and went without the filing of a plan and no request for an extension was sought. In fact no reorganization plan was ever filed during this lengthy Chapter 11 interlude. The only discernible activity in the case was lift stay contests. Ultimately, in July 1992, a lift stay motion made by Key Bank was granted conditionally. A time table was set to sell the Property and the Debtors were required to commence making post-petition mortgage payments by August 1, 1992, failing which the stay would be lifted absent further order of the Court. The Debtors failed to comply with the conditional order and, on July 8, 1993, Key Bank filed an affidavit of noncompliance, effectively terminating the automatic stay.
Soon thereafter, on July 29, 1993, the case was converted to Chapter 7 on motion of the Debtors. During the Chapter 7 phase, the Debtors failed to appear at the § 341 meeting of creditors. For that reason, the Chapter 7 trustee moved to dismiss the case. Shortly before the hearing on the Chapter 7 trustee's motion to dismiss, the Debtors attended an adjourned § 341 meeting. Soon thereafter, the Chapter 7 trustee submitted a no asset report and withdrew his motion to dismiss. On January 6, 1995, the Debtors were granted a discharge.
Upon termination of the automatic stay in the Debtors' first bankruptcy case, Key Bank continued its state court foreclosure action. Efforts by the Debtors to vacate the judgment of foreclosure and sale obtained by Key Bank were rejected by the state court. A foreclosure sale of the Property was scheduled for April 18, 1996. On April 17, 1996, the Debtors filed their second Chapter 11 case and thereby stayed the sale. This "reorganization" effort also went nowhere. The Debtors failed to (1) file monthly operating reports, (2) pay United States Trustee quarterly fees, (3) remain current on post-petition administrative expenses, (4) attend the § 341 meeting of creditors, and (5) file a plan of reorganization.
Essentially, this was a single creditor Chapter 11 case, the singular creditor being Key Bank, holder of a mortgage on the Property. The Debtors had no general unsecured creditors and thus were precluded from confirming any plan absent approval of such plan by Key Bank, which was unwilling to consent to the Debtors' proposals. Cram down was unattainable, as a matter of law, because there was no possibility that at least one impaired class of creditors would accept a reorganization plan. See 11 U.S.C. §§ 1129(a)(10), (b)(1).
In July 1996, the United States Trustee moved to dismiss the case. An adjournment of the hearing on the motion to dismiss was obtained. No papers were filed in opposition and no appearance was made by or on behalf of the Debtors at that adjourned hearing, held September 5, 1996. The motion was granted and the Court signed an order dismissing the Debtors' second Chapter 11 case on September 24, 1996.
Upon dismissal of the Debtor's second Chapter 11 case, Key Bank again attempted completion of the Property's foreclosure sale, which was now rescheduled for April 17, 1997. On April 16, 1997, the Debtors filed their third Chapter 11 case, thereby staying the sale once again. This third Chapter 11 case was a virtual carbon copy of the exercise in futility that characterized the Debtors' second Chapter 11 case. Within two weeks of the filing, the United States Trustee moved to dismiss this case. After the Debtors procured two adjournments of the hearing, the motion to dismiss came on for a hearing before the Court on June 19, 1997. The hearing was brief. The Court was informed that the Debtors consented to dismissal of the case. Mindful of the Debtors' long history of futile bankruptcy filings calculated to frustrate Key Banks legitimate foreclosure efforts, the Court observed that the dismissal "will be with prejudice." (Tr., 6/19/97, at 2). In response, Debtors' counsel voiced no objection and even seemed to agree by stating: Id. The Order was settled on notice to the Debtors and their counsel. No objection or counter-order was interposed. The Court signed the Order, on July 16, 1997, which "dismissed with prejudice" the Debtors' third Chapter 11 case pursuant to § 1112(b).
No appeal was taken from the Order, nor was any request made of this Court for reconsideration or clarification. Key Bank proceeded once again to schedule the Property's foreclosure sale, which was now set for September 19, 1997. Notwithstanding the Order, the Debtor obtained new bankruptcy counsel and filed a fourth bankruptcy case on September 17, 1997, this time under Chapter 13. Again, the Debtor's hope was to stay Key Bank on the eve of foreclosure, but that expectation was dashed. In reliance upon the Order, Key Bank completed the foreclosure sale, as scheduled, on September 19, 1997. The Debtor's response is the instant motion to vacate the sale as violative of the automatic stay.
Meanwhile, the Debtor has outlined his Chapter 13 game plan. He advises that the Property is appraised for $135,000.00, and further informs us that his father, who has been "pre-approved" for a $160,000.00 mortgage loan from a lender, has offered to purchase the Property from him. The Debtor, in turn, proposes a Chapter 13 plan to pay Key Bank $160,000.00....
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