Musso v. OTR Media Grp., Inc. (In re Ladder 3 Corp.)

• Decision Date: 22 January 2018
• Docket Number: Adv. Pro. No. 16–01053–cec,Case No. 14–40806–cec
• Parties: IN RE: LADDER 3 CORP., Debtor. Robert J. Musso, Chapter 7 Trustee of the Estate of Ladder 3 Corp., Plaintiff, v. OTR Media Group, Inc., Defendant.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Eastern District of New York

581 B.R. 7

IN RE: LADDER 3 CORP., Debtor.Robert J. Musso, Chapter 7 Trustee of the Estate of Ladder 3 Corp., Plaintiff,

v.OTR Media Group, Inc., Defendant.

Case No. 14–40806–cec

Adv. Pro. No. 16–01053–cec

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

Signed January 22, 2018

Entered January 23, 2018

Dov Ber Medinets, Esq., Gutman Weiss, P.C., 2276 65th Street, 2nd Fl., Brooklyn, NY 11204, Counsel for the Plaintiff

Wayne M. Greenwald, Esq., Wayne Greenwald, P.C., 475 Park Avenue South, 26th Fl., New York, NY 10016, Counsel for the Defendant

DECISION DENYING DEFENDANT'S MOTION FOR RELIEF FROM ORDER AND JUDGMENT

CARLA E. CRAIG, Chief United States Bankruptcy Judge

This matter comes before the Court on the motion by OTR Media Group, Inc. ("OTR") for relief from an order granting summary judgment in favor of Robert J. Musso (the "Trustee"), chapter 7 trustee of the estate of Ladder 3 Corp. ("Ladder 3"), and the money judgment entered therewith. OTR asserts that the Order and Judgment are void and should be vacated pursuant to Rule 60(b)(4) of the Federal Rules of Civil Procedure because this Court, as an Article I court, did not have authority to enter final judgment. For the reasons set forth below, the motion is denied.

JURISDICTION

This Court has jurisdiction of this matter pursuant to 28 U.S.C. § 1334(b), and the Eastern District of New York standing order of reference dated August 28, 1996, as amended by order dated December 5, 2012.

BACKGROUND

The following facts are undisputed and were recited in the underlying decision granting the Trustee's motion for summary judgment.

OTR is an outdoor advertising company that leases and sells billboards, bulletins, wallscapes, and spectaculars in locations throughout New York City. (Mot. for Summ. J., ¶ 4, ECF No. 20.)¹ Ladder 3 rigged, erected, maintained, and removed the same billboards, bulletins, wallscapes, and spectaculars that OTR Media Group leased and sold. (Mot. for Summ. J., ¶ 5, ECF No. 20.) On or about August 2, 2010, Ladder 3 commenced an action against OTR in the Supreme Court of New York, County of Kings, pleading breach of contract, account stated, and quantum meruit. (Adv. Pro. No. 10–01311–jbr, ECF No. 1.) On August 4, 2010, Ladder 3 filed a petition for relief under chapter 11 of the Bankruptcy Code (the "2010 Bankruptcy Case"). (Case No. 10–47430–jbr, ECF No. 1.) On October 7, 2010, Ladder 3 filed a notice of removal to the United States District Court for the Eastern District of New York, and the action was then referred to the United States Bankruptcy Court for the Eastern District of New York (the "2010 Adversary Proceeding"). (Adv. Pro. No. 10–01311–jbr, ECF No. 1.) On January 10, 2011, OTR filed an answer to the complaint in the 2010 Adversary Proceeding, and asserted counterclaims under state law. (Adv. Pro. No. 10–01311–jbr, ECF No. 5.)

On June 16, 2011, Ladder 3 sought approval from the bankruptcy court of a stipulation settling the 2010 Adversary Proceeding (the "Stipulation"). (Adv. Pro. No. 10–01311–jbr, ECF No. 14.) The stipulation provided that OTR would pay Ladder 3 $250,000 in full and final settlement of the 2010 Adversary Proceeding. (Stipulation, Case No. 10–47430–jbr, ECF No. 136, Ex. A ¶¶ 1, 3; Stipulation, Adv. Pro. No. 10–01311–jbr, ECF No. 14, Ex. A.) OTR agreed to pay $12,500 per month commencing on July 1, 2011 and continuing on the first day of each month thereafter, until the $250,000 was paid in full. (Stipulation ¶¶ 1(a), 1(b).) The Stipulation further provided that in the event of default, Ladder 3 would be entitled to recover legal fees from OTR, and to "reinstate this adversary proceeding ... for the sole purpose of immediately entering judgment against [OTR], without further notice, in the amount of three hundred thousand ($300,000) dollars less credits for payments actually made pursuant to this Stipulation." (Stipulation ¶¶ 5, 9.)

On July 11, 2011, the Court issued an order approving the Stipulation. (Adv. Pro. No. 10–01311–jbr, ECF No. 15; Case No. 10–47430, ECF No. 144.) The 2010 Adversary Proceeding was closed on August 3, 2011. (See Adv. Pro. No. 10–01311–jbr.) On August 24, 2011, OTR made one payment under the Stipulation, and defaulted on all subsequent payments.² (Am. Compl. ¶¶ 19–20, ECF No. 11.)

On December 7, 2011, Ladder 3 filed an unopposed motion to dismiss the 2010 Bankruptcy Case. (Mot. to Dismiss, Case No. 10–47430–jbr, ECF No. 193.) Ladder 3 stated that it had "worked through its problems with various creditors, coming to agreements that did not require plan confirmation." (Mot. to Dismiss ¶ 4, Case No. 10–47430–jbr, ECF No. 193.) The court granted the motion to dismiss on January 18, 2012. (Order Dismissing Case, Case No. 10–47430–jbr, ECF No. 204.)

A little over two years later, on February 26, 2014, Ladder 3 filed a petition under chapter 7 commencing this bankruptcy case and the Trustee was appointed. (Petition, Case No. 14–40806–cec, ECF No. 1.) On June 4, 2014, the Trustee filed a no asset report. (Case No. 14–40806–cec.) On June 5, 2014, a final decree was issued, and this chapter 7 case was closed. (Case No. 14–40806–cec, ECF No. 8.)

On August 6, 2015, the Trustee filed a motion to reopen this bankruptcy case to collect a pre-petition judgment owed to Ladder 3. (Case No. 14–40806–cec, ECF No. 9.) On September 21, 2015, the Court issued an order reopening this chapter 7 case to permit the Trustee to administer the assets, and deemed the Trustee's no asset report withdrawn. (Case No. 14–40806–cec, ECF No. 10.)

On February 22, 2016, the Trustee filed a complaint commencing this adversary proceeding against OTR, which was amended on June 17, 2016, alleging that OTR had breached the Stipulation by failing to pay all but one of the payments under the Stipulation, and seeking judgment in the amount of $287,500 under the terms of the Stipulation. (Am. Compl., ECF No. 11.) On November 16, 2016, OTR filed an answer, asserting affirmative defenses and state law counterclaims for breach of contract and interference with contract. (Answer, ECF No. 18.)

On December 30, 2016, the Trustee moved for summary judgment, asserting that OTR breached the Stipulation by defaulting under the terms of the Stipulation (the "Motion for Summary Judgment"). (Mot. for Summ. J., ECF No. 20.) On February 4, 2017, OTR filed opposition (the "Opposition") to the Motion for Summary Judgment, contending that 11 U.S.C. § 349(b)(2) and (3) rendered the Stipulation null and unenforceable upon the dismissal of the 2010 Bankruptcy Case.³ (Opp'n to Summ. J., ECF No. 23–7.) OTR also cross-moved for summary judgment. (Opp'n to Summ. J., ECF No. 23–7.)

The Court held a hearing on the Motion for Summary Judgment on February 14, 2017. (Mot. Summ. J. Hr'g Tr.⁴ Feb. 14, 2017, ECF No. 26.) OTR did not dispute that it had voluntarily executed the Stipulation with Ladder 3, and had consented in the Stipulation to enforcement of the Stipulation by the bankruptcy court, nor did OTR dispute that the bankruptcy court had approved the Stipulation pursuant to Federal Rule of Bankruptcy Procedure 9019 in the 2010 Adversary Proceeding and the 2010 Bankruptcy Case. (Mot. Summ. J. Hr'g Tr. 4:4–9, ECF No.26.) There was no dispute that OTR breached the Stipulation by failing to make any payments following the first payment of $12,500. (Mot. Summ. J. Hr'g Tr. 14:20–25, ECF No. 26.)

On July 27, 2017, the Court issued a decision rejecting OTR's argument that § 349(b) rendered the Stipulation null and unenforceable upon the dismissal of the 2010 Bankruptcy Case, and issued an order (the "Order") granting the Trustee's motion for summary judgment, and denying OTR's motion for summary judgment. (ECF Nos. 28, 29.) The Court also entered a money judgment of $287,500 against OTR (the "Judgment"). (ECF No. 30.)

On August 10, 2017, OTR filed a notice of appeal. (ECF No. 34.) OTR did not seek a stay pending appeal. However, on August 23, 2017, after the Trustee issued a restraining notice to collect on the Judgment, OTR filed an emergency motion to vacate the Order and Judgment pursuant to Rule 60(b)(4) ("OTR's Motion"), arguing that the Order and Judgment are void because this Court lacked the constitutional authority to issue a final judgment in this matter, which OTR contends is non-core. (ECF No. 42.)

On August 23, 2017, the Court issued an order scheduling a hearing on OTR's Motion, and staying enforcement of the Judgment pending the determination of the motion. On August 28, 2017, the Trustee filed opposition to OTR's Motion. A hearing was held on August 29, 2017, and the parties filed post-hearing memoranda of law.

LEGAL STANDARD

Rule 60(b)(4) of the Federal Rules of Civil Procedure (the "Rules"), made applicable to this adversary proceeding pursuant to Rule 9024 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules), provides that "[o]n motion and just terms, the court may relieve a party or its legal representative from a final judgment, order, or proceeding [if] .... the judgment is void." Fed R. Civ. P. 60(b)(4). OTR argues that relief is warranted pursuant to Rule 60(b)(4), arguing that the Order and Judgment are void because this adversary proceeding is an action to enforce a pre-petition contract, and as such, this Court lacked authority to enter final judgment. OTR asserts that, instead of issuing the Order and Judgment, this Court should have instead submitted findings of facts and conclusions of law to the district court pursuant to 28 U.S.C. § 157(c)(1).

Before addressing the merits of this motion, it is necessary to determine the impact, if any, that OTR's pending appeal has on this Court's jurisdiction to rule on OTR's Motion. The Supreme Court has held that "[t]he filing of a notice of appeal is an event of jurisdictional significance—it confers jurisdiction on the court of appeal and divests the district court [or here, bankruptcy court] of its control over those aspects of the case involved in the appeal." Griggs v. Provident Consumer Discount Co., ...