Procel v. United States Tr., Aurora Loan Servs., LLC (In re Procel)

• Decision Date: 15 March 2012
• Docket Number: No. 10–CV–6418 (KMK).,10–CV–6418 (KMK).
• Parties: In re Francisco PROCEL, Debtor.Francisco Procel, Appellant, v. United States Trustee, Aurora Loan Services, LLC, and Litton Loan Servicing, LP, as Servicer for Credit Based Asset Servicing and Securitization, LLC, Appellees.
• Court: U.S. District Court — Southern District of New York

467 B.R. 297

In re Francisco PROCEL, Debtor.Francisco Procel, Appellant,

v.United States Trustee, Aurora Loan Services, LLC, and Litton Loan Servicing, LP, as Servicer for Credit Based Asset Servicing and Securitization, LLC, Appellees.

No. 10–CV–6418 (KMK).

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

March 15, 2012.

Arvind Kumar Galabya, Esq., Law Offices of Arvind K. Galabya, P.C., Brooklyn, NY, for Appellant/Debtor.

Linda Riffkin, Esq., Office of the United States Trustee, New York, NY, for Appellee United States Trustee.

Natalie A. Grigg, Esq., Steven J. Baum, P.C., Amherst, NY, for Appellees Aurora Loan Services, LLC and Litton Loan Servicing, LP, as Servicer for Credit Based Asset Servicing and Securitization, LLC.

OPINION AND ORDER

KENNETH M. KARAS, District Judge.

Francisco Procel (“Appellant” or “Debtor”) appeals from final Orders of the Bankruptcy Court dated June 30, 2010, and July 12, 2010. For the reasons given herein, the judgment of the Bankruptcy Court is vacated in part and affirmed in part, and this case is remanded to the Bankruptcy Court for proceedings consistent with this Opinion.

I. Background

A. Facts

On January 7, 2010, Appellant commenced this action by filing a pro se petition (“the Petition”) under Chapter 13 of the Bankruptcy Code. (Br. of Appellee United States Trustee (“U.S. Trustee Br.”) 2.) In the Petition, Appellant disclosed only one previous bankruptcy filing, filed on January 7, 2008, but failed to provide a case number for this prior petition. ( Id.; see also United States Trustee App. of Docs. Constituting the R. on Appeal (“U.S. Trustee App.”) Ex. 1, at 2.) In fact, Appellant had filed three prior bankruptcy cases, each of which had been voluntarily dismissed on Appellant's motion. (U.S. Trustee Br. 2 n.4.) ¹ Appellant also failed to file schedules of assets and liabilities, or a statement of financial affairs, which is a requirement under the Bankruptcy Code. See 11 U.S.C. § 521(a)(1). Jeffrey L. Sapir was appointed as the Chapter 13 Trustee. (U.S. Trustee Br. 2.)

On February 19, 2010, the Clerk of the Bankruptcy Court scheduled a meeting of creditors, pursuant to 11 U.S.C. § 341(a). ( Id. at 2–3.) Appellant failed to attend that meeting; however, on the same day, he filed a handwritten letter with the Bankruptcy Court indicating his intent to “to withdraw his case from Chapter 13.” ( Id.; U.S. Trustee App. Ex. 2.) The Bankruptcy Court treated Appellant's letter as a motion seeking to dismiss his Chapter 13 petition pursuant to § 1307(b). (U.S. Trustee Br. 3; No. 10–22021, Dkt. No. 17.) Appellant's putative motion was thereafter opposed by several of Appellant's creditors, the United States Trustee, and the Chapter 13 Trustee. (U.S. Trustee Br. 3; U.S. Trustee App. Ex. 3–6.) Additionally, after Appellant filed his motion to dismiss, his name and status as a potential owner of real property came to the attention of the United States Trustee and several creditors in connection with a Chapter 11 case that had been filed in the Southern District of New York in 2008. ( Id.) In that case, In re Halal 4 U LLC, No. 08–15216, several secured creditors filed motions seeking to lift the automatic stay. ( Id.) Those motions referred to Appellant, mentioning the fact that he had recently filed a Chapter 13 petition, and asserting that he was the current or former owner of real property which Appellant had allegedly transferred to Halal without providing notice of any transfers to the secured creditors. ( See U.S. Trustee App. Ex. 8, at 6 (describing, in a hearing before the Bankruptcy Court, what is known about Appellant's relationship to the Halal case).)

On March 24, 2010, a hearing was held before the Bankruptcy Court on Appellant's motion to dismiss. (U.S. Trustee Br. 4; U.S. Trustee App. Ex. 7.) The United States Trustee argued that conversion of Appellant's Chapter 13 case to a Chapter 7 liquidation, pursuant to § 1307(c), would be a better course of action than granting Appellant's § 1307(b) dismissal motion, because such conversion would allow for an investigation of Appellant's previously undisclosed assets. ( Id.) The United States Trustee also informed the Bankruptcy Court about the apparent relationship between the instant case and the Halal case, and also about ongoing discovery relating to potential property transfers by Appellant being undertaken by the United States Trustee in the Halal case. (U.S. Trustee App. Ex. 7, at 5–8.) The Bankruptcy Court adjourned the matter to June 23, 2010 to allow the Parties to undertake discovery and to allow Appellant time to secure counsel, which he did. ( Id. at 3–4, 16–18.) Appellant also was directed to file his schedules. ( Id. at 17–18.) In the interim, Appellees Aurora Loan Services, LLC (“Aurora”) and Litton Loan Servicing, LP, as Servicer for Credit Based Asset Servicing and Securitization, LLC (“Litton”), filed motions seeking termination of the automatic stay and in rem relief. ( See Br. on Behalf of Appellee Aurora Loan Services, LLC (“Aurora Br.”) App. C; Br. on Behalf of Appellee Litton Loan Servicing, LP, as Servicer for Credit Based Asset Servicing and Securitization, LLC (“Litton Br.”) App. C.)

At the June 23, 2010 hearing, the Bankruptcy Court granted secured creditors Bayview Loan Servicing, LLC, Aurora, and Litton relief from the automatic stay provisions of the Bankruptcy Code, “on [an] in rem basis”—meaning the lift of the stay would apply for two years regardless of any subsequent actions filed by Appellant—pursuant to 11 U.S.C. § 362(d), except as the lift pertained to any property involved in the Halal case, as separate relief would be needed to be obtained in that case. (U.S. Trustee App. Ex. 8, at 28.) The Bankruptcy Court based its ruling on the finding that Appellant had engaged in a “scheme to delay, hinder and defraud creditors,” which allows bankruptcy courts to grant such in rem relief under 11 U.S.C. § 362(d)(4). ( Id. at 28–30.) The Bankruptcy Court also granted the United States Trustee's motion to convert to Chapter 7 under § 1307(c), notwithstanding Appellant's motion to dismiss under § 1307(b), noting Appellant's repeated filings and continued failure to disclose information, and the many open questions regarding the extent of Appellant's assets and liabilities. ( Id. at 30–31.) On June 30, 2010, the Bankruptcy Court signed the Order converting Appellant's Chapter 13 case to a Chapter 7 case. (U.S. Trustee App. Ex. 9.) On July 12, 2010, Orders were signed granting Aurora's and Litton's motions for in rem relief from the automatic stay. (Aurora Br. App. B; Litton Br. App. B.)

B. Procedural History

Appellant filed an Amended Notice of Appeal on August 9, 2010 (Dkt. No. 4), which presents six issues:

(1) Whether the Bankruptcy Court erred in its decision relying on 11 U.S.C. § 1307(c) by denying the Debtor's absolute right to dismiss the Debtor's Chapter 13 petition.;

(2) Whether the Bankruptcy Court erred by extending the United States Supreme Court ruling in Marrama v. Citizens Bank of Massachusetts, 549 U.S. 365, 127 S.Ct. 1105, 166 L.Ed.2d 956 (2007), in that it deprived the Debtor of his absolute right to dismiss its Chapter 13 petition, under 11 U.S.C. § 1307(b), effectively overturning the Second Circuit decision In re Barbieri, 199 F.3d 616 (2d Cir.1999);

(3) Whether the Bankruptcy Court erred in finding without an evidentiary hearing, that the Debtor hindered, delayed and defrauded its Creditors;

(4) Whether the Bankruptcy Court erred in its decision in that it provided retroactive relief to the detriment of third parties who acted in good faith to the benefit of the Creditors;

(5) Whether the Bankruptcy Court erred in finding that the current Chapter 13 petition of the Debtor was part of a scheme to delay, hinder and defraud the moving Creditors in violation of 11 U.S.C. § 362(d)(4)(B); and

(6) Whether the Bankruptcy Court erred by failing to give the appropriate leeway traditionally granted by the courts to pro se parties.

(Am. Notice of Appeal 2–3.)

II. Discussion

A. Standard of Review

District courts have jurisdiction to review final bankruptcy orders, such as orders to dismiss or convert Chapter 13 bankruptcy cases, under 28 U.S.C. § 158(a)(1). See In re Firstcent Shopping Ctr., Inc., 141 B.R. 546, 550–51 (S.D.N.Y.1992); In re Rebeor, 89 B.R. 314, 321 (Bankr.N.D.N.Y.1988). ² Pursuant to Bankruptcy Rule 8013, a district court reviews a bankruptcy court's findings of fact for clear error and reviews conclusions of law de novo. See Fed. R. Bankr.P. 8013; Lubow Machine Co. v. Bayshore Wire Prods. Corp. ( In re Bayshore Wire Prods. Corp.), 209 F.3d 100, 103 (2d Cir.2000) (“Like the District Court, we review the Bankruptcy Court's findings of fact for clear error, [and] its conclusions of law de novo....” (citations omitted)); Am. Home Assurance Co. v. Enron Natural Gas Mktg. Corp. ( In re Enron Corp.), 307 B.R. 372, 378 (S.D.N.Y.2004) (“A bankruptcy court's conclusions of law are reviewed de novo and its findings of fact for clear error.”).

Under the clear error standard, “[t]here is a strong presumption in favor of a trial court's findings of fact if supported by substantial evidence,” and a reviewing court will not upset a factual finding “unless [it is] left with the definite and firm conviction that a mistake has been made.” Travellers Int'l A.G. v. Trans World Airlines, Inc., 41 F.3d 1570, 1574 (2d Cir.1994) (first alteration in original) (internal quotation marks omitted); see also Anderson v. City of Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985) (“[A] finding is clearly erroneous when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.” (internal quotation marks omitted)); Ceraso v. Motiva Enters., LLC, 326 F.3d 303, 316 (2d Cir.2003) (stating that an appellate court should not overturn a trial judge's choice “between...