Laurence Holzer & Global Appraisal Solutions, LLC v. R. Kenneth Barnard, Chapter 7 Tr. of Ideal Mortg. Bankers, Ltd., 15-CV-6277 (JFB)
| Decision Date | 27 July 2016 |
| Docket Number | No. 15-CV-6277 (JFB),15-CV-6277 (JFB) |
| Parties | LAURENCE HOLZER AND GLOBAL APPRAISAL SOLUTIONS, LLC, Appellants, v. R. KENNETH BARNARD, CHAPTER 7 TRUSTEE OF IDEAL MORTGAGE BANKERS, LTD, A/K/A LEND AMERICA, A/K/A CONSUMER FIRST LENDING KEY, Appellee. |
| Court | U.S. District Court — Eastern District of New York |
Laurence Holzer ("Holzer") and Global Appraisal Solutions ("Global" and with Holzer, collectively, "Appellants") appeal from Bankruptcy Judge Louis A. Scarcella's October 14, 2015 Memorandum Decision, which denied Global's Claims Allowance Motion and granted the Trustee R. Kenneth Barnard ("Trustee" or "Appellee")'s Claims Objection Motion. The Trustee has also filed a motion to dismiss Appellants' appeal. For the reasons set forth below, the Court finds that the Bankruptcy Court did not err in denying Global's Claims Allowance Motion and granting the Trustee's Claims Objection Motion, and affirms the rulings of the Bankruptcy Court in all respects.
The following facts, which are not in dispute, are taken from the record of the Bankruptcy Court in the underlying proceeding.
Ideal Mortgage Bankers Ltd., a/k/a Lend America, a/k/a Consumer First Lending Key ("Debtor") was a mortgage lender in Suffolk County, New York that originated loans and participated in mortgage orientation programs sponsored by the United States Department of Housing and Urban Development ("HUD"). The Debtor wasapproved by HUD to do business in 48 states and the District of Columbia. By the end of 2009, the Debtor lacked sufficient funds to continue its business, and on or about December 1, 2009, the Debtor lost its ability to originate loans backed by HUD. On December 4, 2009, the New York State Banking Department issued a cease and desist order that required the Debtor to cease engaging in activities as a mortgage banker. Various officers of the Debtor, including Michael Ashley ("Ashley"), chief business strategist, and Helene DeCillis ("DeCillis"), chief operating officer, were criminally investigated, and allegations surfaced that the Debtor misappropriated funds available under its warehouse line of credit.
An involuntary chapter 7 petition was filed against the Debtor by EAM Land Services, PSS Settlement Services, LLC, Evans National Leasing Inc., and Michael and Kimberly McLean ("Petitioning Creditors") on November 30, 2010. On December 2, 2010, Petitioning Creditors filed a motion seeking the appointment of an interim trustee, which Bankruptcy Judge Dorothy T. Eisenberg granted on December 13, 2010.1 R. Kenneth Barnard was appointed as interim trustee on December 15, 2010, and subsequently became the permanent trustee pursuant to 11 U.S.C. § 702(d). The order of relief was entered on December 29, 2010, and shortly thereafter, the Trustee sought and obtained several orders pursuant to Bankruptcy Rule 2004 authorizing him to issue third party subpoenas to various financial institutions, and some officers, employees, and legal counsel of the Debtor.
As part of the Debtor's loan origination process, either the Debtor or the potential borrower would select one of five appraisal management companies on the Debtor's approved vendor list to conduct an appraisal of the property for which the Debtor served as the originating lender. Global was one of the appraisal management companies on the Debtor's approved vendor list. Global is wholly owned by Holzer, and did not directly appraise properties, but instead, served as a central source from which appraisals could be ordered nationally and managed the appraisal process. The Debtor and Global did not have a written contract specifying the terms of Global's appraisal services; rather, Global would charge the Debtor for the cost of the appraisal upon the completion or cancelation of each appraisal order. The cost included both the appraiser's fee and Global's management fee. If the Debtor canceled an appraisal order, Global would still charge the Debtor for its management fee.
On or about November 19, 2009, Global filed an action against the Debtor in the United States District Court for the Eastern District of New York (the "Global Action"), seeking to recover amounts that Global claimed the Debtor owed it for unpaid appraisals. The Debtor defaulted in the Global Action, and as a result, on April 6, 2010, Global obtained a default judgment against the Debtor in the amount of $763,157, plus interest. The amount of the default judgment was based on a February 19, 2010 affidavit by Holzer in which he claimed that Debtor owed $45,417 for 158 completed but unpaid appraisal reports ordered by theDebtor, and $717,740 for 1,594 appraisals ordered by the Debtor that were later canceled. Holzer attached two lists to his affidavit that detailed the appraisals completed and cancelled. The default judgment was docketed on May 17, 2010 with the Clerk of Suffolk County, New York. On May 17, 2010, Global obtained an execution judgment from the Suffolk County Clerk that directed the Sheriff of Suffolk County to satisfy the default judgment from any of the Debtor's real or personal property within Suffolk County. The writ of execution was returned unsatisfied.
On November 29, 2010, Global filed an action in the United States District Court for the Eastern District of New York (the "Global Fraudulent Conveyance Action") seeking to recover alleged fraudulent transfers made by the Debtor to Ashley, Ashley's relatives, and Ashley's affiliated entities. The involuntary bankruptcy petition was filed the next day, and the Global Fraudulent Conveyance Action was automatically stayed pursuant to 11 U.S.C. § 362(a).
On February 7, 2011, Global filed Claim No. 4-1, asserting a secured claim of $765,296.62 based on the default judgment plus $2,139.62 of interest. With Claim No. 4-1, Global attached a copy of the default judgment, an itemized statement of interest, an abstract of the default judgment, and the execution judgment.
On November 11, 2011, Global filed Claim No. 4-2 as an amendment to Claim No. 4-1. Claim No. 4-2 asserted the same secured claim of $765,296.62, based on the default judgment and prepetition interest. With Claim No. 4-2, Global attached (1) a May 13, 2010 amended retainer agreement between Holzer and Fellheimer & Eichen, LLP ("Fellheimer"), the law firm that represented Global, and (2) a note explaining that, under the amended retainer agreement, Global agreed to pay Fellheimer 40% of any recovery received by Global from its dispute with the Debtor, minus the $25,000 retainer Global paid the firm. Fellheimer requested that all of Global's proceeds under Claim 4-2 be disbursed jointly to Global and Fellheimer because Fellheimer previously applied the entire retainer to fees owed by Global.
On May 2, 2012, this Court dismissed the Global Fraudulent Conveyance Action, finding that only the Trustee, not Global, had standing post-petition to file a fraudulent conveyance action to recover the Debtor's property from third parties on behalf of the Debtor's bankruptcy estate. Global then terminated Fellheimer, and the two parties entered into a mutual release on May 24, 2012, by which Fellheimer agreed to send Global the executed assignment of Claim No. 4-2 and $5,000.2
On October 12, 2012, Global filed Claim No. 27, which (1) asserted a secured claim of $763,157 plus interest as per 28 U.S.C. § 1961 based on the default judgment, and (2) asserted that, under section 507(a)(7) of the Bankruptcy Code, the debt owed to Globalwas entitled to a priority in payment. Global did not attach any supporting documentation.
On April 22, 2014, Holzer, proceeding pro se on behalf of himself and Global, filed a Claims Allowance Motion seeking (1) to lift the automatic stay and have Claim No. 4-1 paid immediately as either a secured claim or an administrative expense claim, (2) to have $25,000 of legal expenses Global incurred to Fellheimer be reimbursed as an administrative expense under 11 U.S.C. § 503(b), and (3) to have the Trustee and his professionals removed for alleged conflicts of interest.3
On June 2, 2014, the Trustee filed an objection to the Claims Allowance Motion, asserting that (1) Claim No. 27 is a prepetition money judgment and at best, a disputed general unsecured claim because the default judgment was not secured by a consensual or judgment lien recorded against the Debtor's assets, and (2) there is nothing in "Federal Mortgage Law" that indicates that Claim No. 27 is secured or entitled to administrative expense priority status pursuant to 11 U.S.C. §§ 503 and 507. The Trustee also argued that the default judgment was recorded only in Suffolk County, where the Debtor does not own or maintain real or personal property, and that none of the cash proceeds recovered during the administration of the Debtor's estate were derived from the liquidation or disposition of assets that served as collateral for the default judgment.
On June 6, 2014, the Trustee filed a Claims Objection Motion seeking (1) to expunge Claims No. 4-1 and No. 4-2 because they were superseded by Claim No. 27, and (2) to reclassify Claim No. 27 from a secured claim to a general unsecured claim. The Trustee also argued that Global did not have standing to bring the Claims Allowance Motion pro se, and thus, was required to retain legal counsel to seek legal relief.
On June 10, 2014, Global filed a "Notice of Transfer of Claim Other Than For Security," by which Global purported to transfer Claim No. 4-2 to Holzer. On June 19, 2014, Global filed its opposition to the Trustee's Claims Objection Motion.
Bankruptcy Judge Scarcella held an extended initial hearing on the Claims Motions on July 22, 2014, and an additional day of the evidentiary hearing on August 8, 2014.
On October 14, 2015, Bankruptcy Judge Scarcella issued a Memorandum Decision, denying...
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