Rora LLC v. 404 E. 79th St. Lender LLC

• Decision Date: 10 May 2021
• Docket Number: 20-CV-3344 (MKB)
• Citation: 630 B.R. 876
• Court: U.S. District Court — Eastern District of New York
• Parties: RORA LLC, Appellant, v. 404 EAST 79TH STREET LENDER LLC, Appellee.

630 B.R. 876

RORA LLC, Appellant,

v.404 EAST 79TH STREET LENDER LLC, Appellee.

20-CV-3344 (MKB)

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

Signed May 10, 2021

Douglas J. Pick, Pick & Zabicki, LLP, New York, NY, for Appellant.

James M. Andriola, Andriola Law, PLLC, New York, NY, for Appellee.

MEMORANDUM & ORDER

MARGO K. BRODIE, United States District Judge:

Appellant Rora LLC commenced this appeal on July 24, 2020, arising from a bankruptcy proceeding in the United States Bankruptcy Court for the Eastern District of New York (the "Bankruptcy Court") under Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. § 1101 et seq . (Notice of Appeal, Docket Entry No. 1.) Appellant filed for Chapter 11 bankruptcy on January 21, 2019 (the "Bankruptcy Proceeding"), naming 404 East 79th Street Lender LLC as a mortgage lender with a lien on property located at 404 East 79th Street, New York, New York (the "Property"). (Bankruptcy Ct. Docket 1, Docket Entry No. 1-3; Notice of Bankruptcy R. Received ("R.") 1, Docket Entry No. 5.) On April 26, 2019, Appellee filed a Proof of Claim and an Amended Proof of Claim, asserting a secured indebtedness in the amount of $1,905,038.11 pursuant to an executed note and mortgage on the Property (the "Claim"), (R. 198–200), and on September 18, 2019, Appellant filed an objection to the Claim, seeking an order expunging, reducing and/or subordinating the Claim, which Appellee opposed, (R. 10, 187–94, 229–42). The Bankruptcy Court conducted hearings on the objection on December 16, 2019 and July 7, 2020, (R. 13, 19, 272–301), and on July 21, 2020, the Bankruptcy Court issued a written order formally overruling Appellant's objection to the Claim (the "Bankruptcy Court Order"), (R. 312). Appellant appeals from the Bankruptcy Court Order and Appellee opposes.¹

For the reasons set forth below, the Court affirms the Bankruptcy Court Order.

I. Background

a. The Note and Mortgage

Appellant is the owner of the Property, which is a commercial condominium unit located at 404 East 79th Street, New York, New York. (R. 71.) On February 9, 2016, Appellant executed and delivered to Brick KV Capital LLC ("Brick Capital") a First Mortgage Note to evidence its obligations to Brick Capital for a loan (the "Loan") in the principal amount of $1,400,000.00 (the "Note"). (R. 71.) As security for the payment of the amount owed under the Note, Appellant granted Brick Capital a lien against the Property pursuant to a First Mortgage and Security Agreement dated February 9, 2016 (the "Mortgage"). (R. 71–101.) The Note and Mortgage were respectively amended by an Amended and Restated First Mortgage Note and Modification and Extension Agreement both dated March 1, 2017. (R. 60–65, 104–09.)

b. The default and forbearance

By letter dated May 15, 2017, Brick Capital notified Appellant that Appellant had defaulted on the Mortgage due to a "failure to pay the required monthly payments" for March of 2017 and thereafter, demanded full and immediate payment of all outstanding principal and interest due under the Note and the Mortgage, and informed Appellant that it would commence foreclosure proceedings on the Property if Appellant did not render payment. (R. 111–12.) Appellant failed to comply. (R. 111–12.)

On May 30, 2017, Brick Capital commenced an action in the Supreme Court of the State of New York, County of New York (the "State Court"), seeking to foreclose on the Mortgage (the "Foreclosure Action"). (R. 130.) On December 5, 2017, Brick Capital and Appellant signed a Stipulation of Settlement pursuant to which Brick Capital agreed to forbear from conducting a foreclosure sale of the Property prior to November 1, 2018, so long as Appellant met the terms and conditions set forth in the Stipulation of Settlement (the "Settlement Stipulation"). (R. 116–25.) Under the Settlement Stipulation, Appellant "consent[ed] to the entry of a judgment of foreclosure and sale ... in the amount of $1,473,050.82 plus interest from November 1, 2017 at the default rate of twenty-four ... percent per annum through the date [Appellee] receives payment in full of all sums due ... in conjunction with [the Foreclosure Action]." (R. 119.) Although Appellant consented to being indebted to Appellee in the amount of $1,473,050.82 plus interest, Appellee agreed to accept "$1,200,000.00 in full payment" if Appellant made the payment by November 1, 2018 with "time being of the essence" and "no notice, grace period or right to cure." (R. 119, 122.) Appellant expressly waived "any right to an order of reference [or] referee's computation of amount due." (R. 120.) On May 2, 2018, the State Court issued a Judgment of Foreclosure and Sale (the "Judgment") pursuant to the Settlement Stipulation, which provided for Appellant's payment of $1,473,050.82 plus interest. (R. 129–40.) On November 1, 2018, Appellant failed to make the payment due pursuant to the Settlement Stipulation. (R. 48.)

On December 4, 2018, Brick Capital assigned the Note and Mortgage and all of its right, title, and interest in its cause of action and the Judgment to Appellee. (R. 143–50.) On January 3, 2019, the State Court issued an Order to Show Cause on substituting Appellee as plaintiff in the Foreclosure Action and amending the Judgment to reflect the change and scheduled a hearing on the motion for January 22, 2019. (R. 152–53.)

c. The Bankruptcy Court Order

On January 21, 2019, Appellant filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code. (R. 1.) On April 26, 2019, Appellee filed the Claim asserting a secured indebtedness in the amount of $1,905,038.11, which includes the sum of $1,473,050.82 plus interest, under the Note and Mortgage, (R. 198–200, 204), and on September 18, 2019, Appellant filed its objection to the Claim, seeking an order expunging, reducing and/or subordinating the Claim, which Appellee opposed, (R. 10, 187–94, 229–42). The Bankruptcy Court conducted hearings on the objection on December 16, 2019, (the "December 2019 Hearing") and July 7, 2020, (the "July 2020 Hearing"). (R. 13, 19, 272–301.) At the December 2019 Hearing, Appellee agreed to reduce the Claim by $132,000, which represented the payments of monthly interest received subsequent to the entry of the Settlement Stipulation. (R. 284.)

At the July 2020 Hearing, the Bankruptcy Court held, contrary to Appellee's assertion, that the Rooker - Feldman doctrine did not bar the claim because Appellant did not contest the Judgment or "ask the [c]ourt to undo or revisit it," (R. 284), and "the steps of the claim objection process" differ from that of the judgment process, (R. 292). Thus, the Bankruptcy Court "focused on the two issues" and identified them as:

in substance, what the effect is of a tender of a $1.2 million payment in December ... on the amount due. Did it cause the amount due to be [$]1.2 million as opposed to the number in the [Judgment]? Did it cause interest no longer to run because of the authority that has been cited to the [c]ourt, among others [ In re Avaya, Inc. , No. 17-BR-10089, 2019 WL 1858847 (Bankr. S.D.N.Y. Apr. 22, 2019) ]?

(R. 280–81.)

As to the first issue, Appellant argued that on December 21, 2018, it tendered to Appellee a payment of $1,200,000, which Appellee refused. (R. 285–86.) The Bankruptcy Court opined that:

[T]he opportunity to pay ... the debt in full with the [reduced] payment of [$]1.2 million was there under stipulation, but the payment had to be made by November 1st, and it wasn't. The tender was not offered until December. The date had passed. There was no agreement..... brought to the [c]ourt's attention or argued to extend. And so[,] the payment of the amount that was agreed to in the forbearance is no longer a payment that is available to the [Appellant] in full satisfaction of the amount owed. [Appellant] doesn't dispute that it didn't pay or offer to pay on November 1st. And, again, [Appellant] does not contest, nor could it, the [Judgment]. [Appellant] is straightforward about that. So[,] [Appellant's] ... objection to the claim on grounds that it owes only [$]1.2 million pursuant to the [Settlement] [S]tipulation ... is overruled.

(R. 288–89.) As to the second issue, the Bankruptcy Court concluded that:

A defendant's unconditional tender of the judgment amount ... will stop the running of post judgment interest pursuant to CPLR 5003.... But, here, what we have fell short of an unconditional tender of the judgment amount. It would be a different result, very likely, if the amount had been tendered on November 1st. And ... it would be a closer question if the amount had been tendered first thing in the morning on November 2nd. Probably the same result, but perhaps a closer question. But by December 18th, ... the passage of time made that an incomplete offer, and an incomplete offer does not have the effect that [Appellant] seeks in invoking the concept of equitable defenses under New York law. So[,] to the extent [Appellant] has objected to the claim on those grounds, that objection is overruled as well.

(R. 291–92.) Appellant's counsel noted that "the only remaining question for the purposes of [the] hearing is ... the amount of the claim" and stated that the matter could be resolved with Appellee's counsel. (R. 299.)

On July 21, 2020, the Bankruptcy Court issued the Bankruptcy Court Order overruling the objection, (R. 312), which Appellant appeals, (Appellant Br.; Appellant Reply), and Appellee argues should be affirmed, (Appellee Br.).

II. Discussion

a. Standard of review

District courts have appellate jurisdiction over "final judgments, orders, and decrees" entered in bankruptcy court. 28 U.S.C. § 158(a). An order declining to expunge, reduce and/or subordinating a claim is a final, appealable order. See In re Lehman Bros. Holdings Inc. , 548 B.R. 663, 668 (S.D.N.Y. 2016) (reviewing bankruptcy ruling on subordination claims), aff'd on other grounds , 855 F.3d 459 (2d Cir. 2017) ; In re Residential Cap., LLC , No. 12-12020, 2016 WL...