J. J. Cranston Constr. Corp. v. City of N.Y.

• Decision Date: 29 April 2022
• Docket Number: 20-CV-04902 (DG) (RML)
• Citation: 602 F.Supp.3d 373
• Parties: J. J. CRANSTON CONSTRUCTION CORP. and East Harlem Management Group, Inc., Plaintiffs, v. The CITY OF NEW YORK, Defendant.
• Court: U.S. District Court — Eastern District of New York

602 F.Supp.3d 373

J. J. CRANSTON CONSTRUCTION CORP. and East Harlem Management Group, Inc., Plaintiffs,

v.The CITY OF NEW YORK, Defendant.

20-CV-04902 (DG) (RML)

United States District Court, E.D. New York.

Signed April 29, 2022

Wayne M. Greenwald, New York, NY, for Plaintiffs.

Zachary Bruce Kass, Corporation Counsel of City of New York, New York, NY, for Defendant.

MEMORANDUM & ORDER

DIANE GUJARATI, United States District Judge:

On October 12, 2020, Plaintiffs J. J. Cranston Construction Corp. ("Cranston") and East Harlem Management Group, Inc. ("East Harlem") (together, "Plaintiffs") brought this action seeking money damages pursuant to 11 U.S.C. § 105 (" Section 105") for Defendant The City of New York's alleged violation of the automatic stay imposed by the United States Bankruptcy Court for the Eastern District of New York in Case No. 91-16978-cbd under 11 U.S.C. § 362(a). See generally Complaint ("Compl."), ECF No. 1.¹ On January 14, 2021, this case was reassigned to the undersigned.

Pending before the Court is Defendant's motion to dismiss the Complaint. See Notice of Motion to Dismiss the Complaint Pursuant to Fed. R. Civ. P. 12(b)(1) and 12(b)(6) (the "Motion"), ECF No. 21; Defendant's Memorandum of Law in Support of Defendant's Motion to Dismiss the Complaint ("Def.’s Br."), ECF No. 22; Defendant's Reply Memorandum of Law in Further Support of Defendant's Motion to Dismiss the Complaint ("Def.’s Reply"), ECF No. 24. Defendant seeks dismissal of Plaintiffs’ Complaint pursuant to Federal Rule of Civil Procedure 12(b)(1) (" Rule 12(b)(1)") and Federal Rule of Civil Procedure 12(b)(6) (" Rule 12(b)(6)"). See Motion at 1; Def.’s Br. at 1. Plaintiffs oppose the Motion. See Plaintiffs’ Memorandum of Law Opposing Motion to Dismiss ("Pls.’ Br."), ECF No. 23.

For the reasons set forth below, Defendant's motion to dismiss is granted and the Complaint is dismissed without prejudice to refiling in an appropriate court.

BACKGROUND

I. Factual Background²

In 1974, Cranston obtained title to real property (the "Property") located at 1650 Madison Avenue, New York, NY and 22 East 110th Street, New York, NY. See Compl. ¶ 1. On October 24, 1991, Cranston filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code"), in the United States Bankruptcy Court for the Eastern District of New York, Case No. 91-16978-cbd (the "Bankruptcy Action"). See id. ¶ 2.

On April 1, 1992, Defendant – a creditor in the Bankruptcy Action – filed a proof of claim in the Bankruptcy Action. See id. ¶¶ 3, 5. On or about May 19, 1992, East Harlem obtained subleases for the Property's first and second floors, which gave East Harlem an interest in the Property that allegedly "differed from whatever interest Cranston's general unsecured creditors had in [the] Property." See id. ¶¶ 6, 8-9. On April 24, 1993, the Bankruptcy Action was converted to an action under Chapter 7 of the Bankruptcy Code and a Chapter 7 trustee (the "Trustee") was appointed. See id. ¶¶ 10-11. The filing of the Bankruptcy Action put into effect an automatic stay affecting all of Cranston's property (the "Automatic Stay") and created a bankruptcy estate (the "Estate"). See id. ¶¶ 12-13. The Property was included in the Estate. See id. ¶ 14.

On February 3, 1993, despite its knowledge of the Bankruptcy Action, Defendant took title to the Property (the "Deed") following a foreclosure action for non-payment of real estate taxes (the "Foreclosure Action") which accrued prior to the Bankruptcy Action being filed. See id. ¶¶ 4, 16-17, 23. Defendant did not seek relief from the Automatic Stay to permit Defendant to continue its Foreclosure Action or to take title to the Property. See id. ¶¶ 18-19. Nor did Defendant stipulate with the Trustee to permit Defendant continuing its Foreclosure Action or taking the Property. See id. ¶ 20. In 1994, the Bankruptcy Action closed. See id. ¶ 25.

On March 27, 1997, Defendant attempted to sell the Property at auction. See id. ¶ 26. On July 29, 1997, Defendant cancelled the sale. See id. ¶ 27. Litigation ensued between Defendant and the successful bidder for the Property at the auction (the "Buyer Actions"). See id. ¶ 28. On March 3, 1998, in one of the Buyer Actions, Defendant acknowledged that it obtained the Property in violation of the Automatic Stay. See id. ¶ 29.

In September 2017, Defendant moved to obtain an order vacating the Foreclosure Action judgment, and on October 13, 2017, an order granting vacatur was entered. See id. ¶¶ 30-31. The Registrar of Deeds did not change the record until 2018. See id. ¶ 32.

Plaintiffs allege that while Defendant was in violation of the Automatic Stay, Defendant collected rents from tenants at the Property; evicted tenants from the Property, including East Harlem; demolished the structure at the Property; and otherwise denied Cranston the privileges of ownership of the Property. See id. ¶¶ 33-39.

Based on Defendant's alleged violations of the Automatic Stay, Cranston seeks $17,433,960.00 plus interest thereon in damages, and East Harlem seeks $26,650,000.00 plus interest thereon in damages. See id. ¶ 46.

II. Procedural Background

Plaintiffs filed their Complaint on October 12, 2020. See ECF No. 1. On August 5, 2021, Defendant filed a letter requesting a pre-motion conference in anticipation of filing a motion to dismiss. See ECF No. 15. On August 12, 2021, Plaintiffs filed a letter responding to Defendant's letter requesting a pre-motion conference. See ECF No. 16. The Court held a pre-motion conference on September 29, 2021. See Sept. 29, 2021 Minute Entry, ECF No. 17. Defendant's motion to dismiss was filed on November 3, 2021. See ECF Nos. 21-24.

Oral argument on the motion to dismiss was held on April 14, 2022. See generally Oral Argument Transcript ("Oral Argument Tr."); Apr. 14, 2022 Minute Entry, ECF No. 25.³

STANDARD OF REVIEW

A district court must dismiss a case for lack of subject matter jurisdiction under Rule 12(b)(1) when it lacks the statutory or constitutional power to adjudicate it. See Makarova v. United States , 201 F.3d 110, 113 (2d Cir. 2000) (citing Fed. R. Civ. P. 12(b)(1) ). A plaintiff asserting subject matter jurisdiction bears the burden of establishing such jurisdiction. See id. ; Aurecchione v. Schoolman Transp. Sys., Inc. , 426 F.3d 635, 638 (2d Cir. 2005) ; see also Conyers v. Rossides , 558 F.3d 137, 143 (2d Cir. 2009) ("The party invoking federal jurisdiction bears the burden of establishing that jurisdiction exists." (quotation marks omitted)). "If the court determines at any time that it lacks subject-matter jurisdiction, the court must dismiss the action." Fed. R. Civ. P. 12(h)(3).

When a court is faced with a motion to dismiss pursuant to both Rules 12(b)(1) and 12(b)(6), the court "must decide the jurisdictional question first because a disposition of a Rule 12(b)(6) motion is a decision on the merits and, therefore, an exercise of jurisdiction." Pressley v. City of N.Y. , No. 11-CV-03234, 2013 WL 145747, at *5 (E.D.N.Y. Jan. 14, 2013) (quotation marks omitted); see also United States ex rel. Kreindler & Kreindler v. United Techs. Corp. , 985 F.2d 1148, 1155-56 (2d Cir. 1993).

DISCUSSION

For the reasons set forth below, the Court determines that it lacks subject matter jurisdiction over this action, and therefore dismisses the Complaint in its entirety.⁴

I. The Court Lacks Subject Matter Jurisdiction

Defendant argues that this action must be dismissed because, under binding Second Circuit precedent, claims for alleged violations of the automatic stay provisions of the Bankruptcy Code must be brought in the Bankruptcy Court, not in the District Court. See Def.’s Br. at 4. In support of this argument, Defendant cites to Eastern Equipment & Services Corp. v. Factory Point National Bank, Bennington , 236 F.3d 117 (2d Cir. 2001) and other in-Circuit cases that follow the Eastern Equipment precedent. See Def.’s Br. at 4-8; Def.’s Reply at 2-5.

Plaintiffs argue that – notwithstanding Eastern Equipment – this Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1334(b) (" Section 1334(b)") and 28 U.S.C. § 1331 (" Section 1331").⁵ See Pls.’ Br. at 2-5. Plaintiffs contend that because Eastern Equipment discusses 28 U.S.C. § 1334(a) – and not Section 1334(b) or Section 1331 – it is "inapposite to this action." See id. at 2. In the alternative, Plaintiffs argue that the Court should "divert" from Eastern Equipment , citing various cases outside the Second Circuit in support of that argument. See id. at 5-8.

The Court agrees with Defendant that, under binding Second Circuit precedent, a claim seeking recovery of damages for willful violations of the automatic stay must be brought in Bankruptcy Court and that, accordingly, the Court lacks subject matter jurisdiction over this action.

In Eastern Equipment , the Second Circuit held that a claim seeking recovery of damages for willful violations of the automatic stay "must be brought in the bankruptcy court, rather than in the district court, which only has appellate jurisdiction over bankruptcy cases."⁶ See E. Equip. , 236 F.3d at 121 (citing In re Crysen/Montenay Energy Co. , 902 F.2d 1098, 1104 (2d Cir. 1990) and MSR Exploration, Ltd. v. Meridian Oil, Inc. , 74 F.3d 910, 916 (9th Cir. 1996) ). Eastern Equipment has regularly been applied in this Circuit. See, e.g. , United States v. Colasuonno , 697 F.3d 164, 172 n.4 (2d Cir. 2012) ; Marin v. City of Utica , 140 F. App'x 304, 304 (2d Cir. 2005) ; Palmer v. City of N.Y. , 564 F.Supp.3d 221, 236 (E.D.N.Y. 2021) ; Gray v. Capstone Fin. , No. 20-CV-00896, 2020 WL 6526086, at *8 (N.D.N.Y. Sept. 22, 2020), report and recommendation adopted , 2020 WL 6504625 (N.D.N.Y. Nov. 5, 2020) ; Shader v. Brattleboro Sav. & Loan Ass'n , 14-CV-00152, 2014 WL 7140612, at *5 n.4 (D. Vt. Dec. 12, 2014) ; Truong v. Litman , No. 06-CV-01431, 2006 WL 3408573, at *4 (S.D.N.Y. Nov. 22, 2006), aff'd , 312 F. App'x 377 (2d Cir. 2009).

Here, Plaintiffs seek damages for D...