In re Lawrence And Julie Salander

• Decision Date: 02 June 2011
• Docket Number: No. 07–36735.,07–36735.
• Citation: 450 B.R. 37
• Parties: In re Lawrence and Julie SALANDER, Debtors.
• Court: U.S. Bankruptcy Court — Southern District of New York

450 B.R. 37

In re Lawrence and Julie SALANDER, Debtors.

No. 07–36735.

United States Bankruptcy Court, S.D. New York.

June 2, 2011.

Christopher J. Shore & Julia M. Winters, White & Case LLP, New York, NY, for First Republic Bank.Louis A. Craco, Jr., Allegaert Berger & Vogel LLP, New York, NY, Randolph E. White, Law Office of Randolph E. White, Brooklyn, NY, for Debtor, Julie D. Salander.Jacob Ginsburg, Helfand & Helfand, New York, NY, for Wells Fargo f/k/a Wachovia.

MEMORANDUM DECISION ENFORCING SETTLEMENT AGREEMENT

CECELIA G. MORRIS, Bankruptcy Judge.

First Republic Bank seeks an order enforcing a settlement agreement between it and the chapter 7 Trustee in order to prevent Ms. Salander from bringing claims and raising defenses in a state court foreclosure action. Ms. Salander opposes the motion, arguing that her claims were revived upon the Trustee's abandonment of her real property, and in the alternative, that the settlement should be vacated under Federal Rule of Civil Procedure 60(b). Wells Fargo, the holder of the second mortgage on the real property, argues that the settlement should be vacated under Rule 60(b) and that Ms. Salander's claims continue to be property of the estate. The Court finds that Ms. Salander's claims were property of the estate and have been settled and administered by the Trustee. Those claims and defenses no longer exist and cannot be raised in state court. First Republic's motion to enforce the settlement is granted.

Statement of Jurisdiction

This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1334(a), 28 U.S.C. § 157(a) and the Standing Order of Reference signed by Acting Chief Judge Robert J. Ward dated July 10, 1984. The administration of the Debtors' estate is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A).

Background

Lawrence and Julie Salander (the “Debtors”) commenced a joint chapter 11 case on November 2, 2007 through the law firm of Baker & Hostetler. The Debtors' bankruptcy filing stemmed from problems with Mr. Salander's business investments. At the time of filing, Mr. Salander was the subject of multiple lawsuits in New York Supreme Court alleging breach of contract, money had and received, unjust enrichment, conversion, breach of fiduciary duty, fraud and deceptive acts and practices. He was under investigation by the Manhattan District Attorney's Office.¹

Prior to filing, Mr. Salander ran art galleries (the Salander–O'Reilly Galleries or the “Galleries”), including one of the largest privately-owned galleries in the country. During its period of operation, the Galleries exhibited and managed fine art valued into the millions of dollars. The day before the Debtors filed this petition, an involuntary chapter 7 case was filed against the Galleries on November 1, 2007. On November 9, 2007, the Galleries' chapter 7 converted to a chapter 11.

These two cases are intertwined and complicated by the multitude of valuable artwork and antiques housed at the Galleries and at the Debtors' homes. The Debtors claim ownership of some paintings. The Galleries claim ownership of some paintings. Consignors claim ownership of others. Various parties, including the Debtors' estate and the Galleries' estate, claim competing interests in the paintings.

The artwork and antiques were the principal assets of the Debtors and the Galleries. The Debtors entered into a stipulation with the Galleries to relocate artwork from their New York City townhouse and Millbrook home to the Galleries' premises and/or a bonded warehouse to be stored at the Galleries' sole cost and expense. By an order entered in the Galleries' case on March 11, 2008, all claims of ownership of artwork in possession of the Galleries must follow a protocol for assertion and resolution of claims. The Debtors filed claims on over 100 pieces of artwork in the Galleries' case. The value of the Debtors' estate depends heavily upon a determination of the Debtors' claims in the Galleries' case.

At the time of filing, the Debtors owned real property located in Millbrook, N.Y. (the “Millbrook Property”), subject to a note and mortgage held by Wachovia and a collateralized guaranty of the Galleries' obligations to First Republic Bank (“First Republic”). The Debtors also owned a townhouse in Manhattan subject to two notes and mortgages held by First Republic in the total amount of $16,954,547.50. According to the petition, First Republic held a blanket security interest on all of the Debtors assets in the amount of $28,478,676.83.

Discharge of Ms. Salander

On April 17, 2008, the Debtors' case was converted to chapter 7 and on April 18, 2008, the Court appointed a chapter 7 trustee (the “Trustee”). On October 31, 2008, the Trustee examined the Debtors. Also present at the October 31, 2008 meeting of creditors was an the Debtors' chapter 11 counsel, Baker & Hostetler, and an attorney for First Republic. During that examination, Trustee showed Ms. Salander several bank papers bearing a signature purporting to be Ms. Salander's, including powers of attorney and mortgage agreements, which Ms. Salander denied signing on the record. The Trustee sought several extensions of time to file a complaint objecting to the Debtors' discharge due to his ongoing investigation of the Debtors' financial affairs, including the investigation of a transfer of real property by the Debtors shortly before the filing of their chapter 11 petition. See Trustee's Mtn. Extend Time, Docket No. 386.

On November 13, 2008, the Committee deposed Ms. Salander as part of a Rule 2004 examination in the Galleries' bankruptcy case. Present at the deposition were the Debtors' chapter 11 counsel, Baker & Hostetler, counsel for the Committee, and counsel for First Republic. On November 24, 2008, the Committee of Unsecured Creditors of the Galleries' (the “Committee”) filed a motion to extend the time to object to Ms. Salander's dischargeability. The motion and the response were filed under seal pursuant to an order dated November 21, 2008.² Among other things, the Committee's motion sought additional time to investigate a bank account and other financial documents purported to be signed by Ms. Salander, which Ms. Salander denied knowledge of at her 2004 examination.

Ms. Salander filed pro se objections to the motions, arguing that her signature was forged on several documents, including paperwork with First Republic Bank. Ms. Salander's father, a licensed attorney, appeared at both hearings on her behalf. On September 23, 2009, Ms. Salander received her discharge.

Settlement Agreement and Abandonment of the Millbrook Property

First Republic filed a proof of claim in Debtors' case in the amount of $45,067,000.00, asserting a security interest on all the personal property and assets owned by the Debtors, as well as the Millbrook Property, and real property located in Manhattan. Allegedly, this security interest was collateral for loans given by First Republic to the Galleries. On October 21, 2009, the Court entered an order approving a settlement agreement (“Agreement” or “Settlement Agreement”) between First Republic and the Trustee. The Agreement is complicated and touches aspects of all of the Debtors' assets as well as some assets of the Galleries. It provided for the transfer to First Republic of a Trustee's deed title of the Manhattan townhouse. In exchange for this deed, First Republic agreed to release its lien on all the personal property of the Debtors, including Ms. Salander's jewelry and the contents of the Millbrook and Manhattan residences. At the time, the Trustee estimated that the sale of these items could raise over $1 million for the estate. The Agreement also provided for the Trustee to receive proceeds from the sale of some artwork subject to First Republic's lien and granted releases of any claims by the Debtors against First Republic.

The stipulation included a release of any and all claims against First Republic. The Agreement states as follows:

The Trustee hereby acknowledges that the Estate owes the Bank, without defense, setoff or counterclaim, (i) in respect of the Millbrook Property, the principal amount of $1,400,00[0].00 plus interest and such other amounts and expenses (including legal expenses) expended or incurred by the Bank or owed to the Bank ... and the duly recorded mortgage on the Millbrook Property securing such note ...

(iii) in respect of the obligations of [the Galleries] under the Prepetition Credit Agreement and arising out of [the Guaranties], all obligations of [the Galleries] in respect of the Prepetition Credit Agreement, which is secured by a lien on all of the personal and fixture property (and all proceeds thereof) of the Salanders, the Estate and Salander Decorative Arts. (emphasis added).

The Agreement also released First Republic from any and all claims and causes of actions “arising from or related in any way to the Estate.” In particular, the Settlement Agreement:

resolves all claims, demands and causes of action that may be or have been asserted, directly or indirectly, against the Bank by the Salanders, the Trustee and the Estate ... and releases, discharges, and acquits the Bank ... from any and all claims ... of any kind, character, or nature whatsoever whether known or unknown, foreseen or unforeseen, liquidated or unliquidated, fixed or contingent, ... in law, at equity, whether for tort, fraud contract, violations of federal or state securities laws or otherwise .... (emphasis added).

The Trustee negotiated this Settlement Agreement to avoid “inherent difficulties, costs and uncertainties involved in any litigation to contest the extent, nature and validity of the security interest of [First Republic].” See Trustee's Application to Approve Settlement ¶ 10, Docket No. 422. In his motion seeking approval of the settlement, the Trustee stated, “[i]t is respectfully submitted that such settlement would be in the best interest of the estate given the potential outcome which...