IN RE COUNTRY SQUIRE ASSOCIATES OF CARLE PLACE
| Decision Date | 25 November 1996 |
| Docket Number | Bankruptcy No. 94-14377.,BAP No. 96-50028 |
| Parties | In re COUNTRY SQUIRE ASSOCIATES OF CARLE PLACE, L.P., Debtor. COUNTRY SQUIRE ASSOCIATES OF CARLE PLACE, L.P., Appellant, v. ROCHESTER COMMUNITY SAVINGS BANK, Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, Second Circuit |
SHIFF, CONRAD and NINFO, Judges of the Second Circuit Bankruptcy Appellate Panel.
ALAN H.W. SHIFF, Bankruptcy Appellate Panel Judge.
The appellant, Country Squire Associates of Carle Place, L.P. ("Country Squire") has filed the instant emergency motion to stay a foreclosure sale pending appeal of the September 3, 1996 order of the Bankruptcy Court for the Northern District of New York which granted a motion for relief from the automatic stay filed by the appellee, Rochester Community Savings Bank ("RCSB"), (the "Order"). See Rules 8005 and 8011 F.R.Bankr.P. For the reasons that follow, the motion is granted.
The underlying controversy involves Country Squire's ground lease on property encumbered by a mortgage held by RCSB, which secures a promissory note on which Country Squire is obligated. Country Squire defaulted on or about May 1, 1994, and on August 24, 1994, RCSB commenced a foreclosure action in New York Supreme Court, Albany County. That action was stayed on December 1, 1994 when Country Squire filed a chapter 11 petition.
On June 12, 1996, RCSB filed a second motion for relief from the automatic stay so that it could continue its foreclosure action. The bankruptcy court adjourned the hearing on that motion to September 16, 1996. Country Squire's motion for a determination of the value of RCSB's claim, see § 506(a), and a hearing on its fourth amended plan (the "Plan") was also scheduled for that date. The Plan, which was filed on July 15, 1996, classified RCSB's claim as secured and proposed to pay it in full over a period of 120 months. The Order entered without a hearing on September 3, 1996.
On September 13, 1996, Country Squire filed a motion for reconsideration, which was denied on October 4, 1996. On November 7, 1996, the bankruptcy court denied Country Squire's motion for a stay pending appeal. RCSB continued its foreclosure action in state court, and a judgement of foreclosure entered on October 21, 1996. The property is now scheduled to be sold at a public auction on November 26, 1996.
Rule 8005 F.R.Bankr.P. provides that "a motion for a stay of the order of a bankruptcy judge . . . may be made to the . . . bankruptcy appellate panel. . . ." In Hirschfeld v. Board of Elections, 984 F.2d 35, 39 (2d Cir.1993), the Court of Appeals established a four part test for determining whether to grant a motion for stay pending appeal: "(1) whether the movant will suffer irreparable injury absent a stay, (2) whether a party will suffer substantial injury if a stay is issued, (3) whether the movant has demonstrated `a substantial possibility, although less than a likelihood, of success' on appeal, and (4) the public interests that may be affected."1
At the outset, it is noted that the standard developed in Hirschfeld was applied in the context of Rule 8(a) F.R.App.P. However, Rule 8005 is directly adapted from Rule 8(a), see F.R.Bank.P. 8005 advisory committee's note (1983). See also In re Highway Truck Drivers & Helpers Local Union # 107, 888 F.2d 293, 297 (3d Cir.1989) (); In re Family Showtime Theatres, Inc., 67 B.R. 542, 552 (Bankr.E.D.N.Y.1986) ().
It is apparent that absent a stay pending appeal, the foreclosure sale will proceed and the appeal will be rendered moot. Obviously, that result would be the "quintessential form of prejudice" to Country Squire, see In re Advanced Mining Systems, Inc., supra note 1, 173 B.R. at 469. See also In re St. Johnsbury Trucking Co. Inc., 185 B.R. 687, 690 (S.D.N.Y.1995).
RCSB's claim that it would suffer substantial injury appears to be premised on the fact that this is a two year old single asset case, and it should not be delayed further. On the other hand, Country Squire's papers note that after the commencement of the chapter 11 case, it improved the value of the property by securing a subtenant which will pay for a ground lease on a portion of the premises. Country Squire also notes that it made post petition payments to RCSB.
RCSB might suffer some injury if a stay is granted. In measuring whether any such injury would be "substantial," it is appropriate to compare it with the irreparable harm Country Squire will suffer if the foreclosure sale is not stayed. Moreover, whether a delayed foreclosure sale would result in a lower net recovery is pure speculation. It is also noted that RCSB did not request a supersedeas bond.
The Hirschfeld test requires that the movant demonstrate a "substantial possibility" of success on appeal. Although those words have not been specifically defined in this circuit, see Nostas Associates v. Costich (In re Klein Sleep Products, Inc.), No. 93 CIV 7599, 1994 WL 652459, at *1 (S.D.N.Y. Nov. 18, 1994), it is noted that Hirschfeld chose to eliminate the more onerous requirement of "likelihood of success on appeal." Hirschfeld, supra, 984 F.2d at 39. The result is that the movant must show that there is more than a mere possibility of a successful appeal. Hirschfeld prescribes an intermediate level between possible and probable which is intended to eliminate frivolous appeals.
Country Squire's instant motion contends that the bankruptcy court erred in entering the Order without a hearing. It argues that the determination that the property lacked equity was made without the benefit of an evidentiary hearing, which relieved RCSB of that statutory burden, and was therefore "clearly erroneous and not supported by any substantial evidence." Emergency Motion at ¶ 57. Country Squire further argues that the finding that RCSB controlled the unsecured creditor class was also clearly erroneous. Id.
The entry of the Order without an evidentiary hearing, which preempted the confirmation process and the opportunity for Country Squire to appeal from any adverse findings related to valuation and classification issues, provides a basis for us to conclude that this appeal is not frivolous and that there is a substantial possibility of success on the merits.
The Supreme Court has stated that . . . "bankruptcy courts are necessarily entrusted with broad equitable powers to...
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