Stebbins

Filing 13

MEMORANDUM AND OPINION For the reasons set forth herein, Appellant's appeal of the Bankruptcy Court's dismissal of Stebbins' Chapter 13 case is denied. The Court affirms the rulings of the Bankruptcy Court in all respects. The Clerk of the Court shall enter judgment accordingly and close the case. SO ORDERED. Ordered by Judge Joseph F. Bianco on 3/17/2016. (Shea, Zoe)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
_____________________
No 15-CV-1196 (JFB)
_____________________

J. MONROE STEBBINS,
Appellant,
VERSUS

ARTIFICIAL HORIZON, LTD. AND TRUSTEE MARIANNE DEROSA,
Appellees.
___________________
MEMORANDUM AND ORDER
March 17, 2016
___________________

motion to dismiss and affirms the rulings of
the Bankruptcy Court in all respects.

JOSEPH F. BIANCO, District Judge:
The instant case involves an appeal from
the Memorandum Decision and Order in the
voluntary bankruptcy proceeding of debtor
J. Monroe Stebbins a/k/a Julius Monroe
Stebbins, (“Appellant” or “Stebbins”), under
Chapter 13 of the Bankruptcy Code, in the
United States Bankruptcy Court for the
Eastern District of New York (the
“Bankruptcy Court”), against Artificial
Horizon, Ltd. (“AHL”) and Marianne
DeRosa, the Chapter 13 trustee in Stebbins’
bankruptcy, (“Trustee,” and together with
AHL, “Appellees”). Specifically, Stebbins
appeals from an order of the Bankruptcy
Judge Louis A. Scarcella, dated February
24, 2015, which granted the Trustee’s
motion to dismiss. For the reasons set forth
below, the Court finds that the Bankruptcy
Court did not err in granting the Trustee’s

I. BACKGROUND
A. Facts
The following facts, which the parties
agree are not in dispute, are taken from the
record of the Bankruptcy Court in the
underlying proceeding. Appellant is the sole
shareholder of Throg’s Neck Trading Group,
Ltd. (“Throg’s Neck Trading”), which
owned at least four parcels of real property
in Bridgehampton, New York, some of
which were or are subject to a Mortgage
Consolidation, Modification, Extension and
Spreader Agreement dated March 30, 2007
(the “Mortgage”), held by AHL. Stebbins
executed a guaranty dated March 30, 2007
(the “Guaranty”) of certain obligations owed
1

properties were stayed as a result of
Stebbins’ bankruptcy filing under 11 U.S.C.
§ 362(a). According to Stebbins’ Schedule B
(Personal Property) to the petition, the
remaining Bridgehampton properties owned
by Throg’s Neck Trading consist of two
separate five-acre plots with a scheduled
value of $1,500,000 and $1,450,000,
respectively. The Bridgehampton properties
secure the obligation of Throg’s Neck
Trading to AHL. The stock in Throg’s Neck
Trading is Stebbins’ only significant asset
other than a medical malpractice claim
against Stony Brook Dental and Stony
Brook University Hospital in the amount of
$100,000. Stebbins does not own any real
property directly.

to AHL by Throg’s Neck Trading. Throg’s
Neck Trading defaulted on payment of its
indebtedness to AHL, and as a result, AHL
commenced a foreclosure action (the
“Foreclosure Action”) against Throg’s Neck
Trading and Stebbins in the Supreme Court
of the State of New York (the “State
Court”). AHL obtained a Judgment of
Foreclosure and Sale on February 4, 2010,
and amendments to that judgment on March
24, 2010 and April 25, 2012. A sale of two
of the Bridgehampton properties secured by
the Consolidated Mortgage occurred on June
22, 2012, and AHL was paid $2,750,000.
On March 12, 2013, a Notice of
Pendency with respect to the two remaining
properties was filed with the office of the
Suffolk County Clerk, and a referee was
appointed in the Foreclosure Action on
January 6, 2014, to compute the amount due
to AHL. The referee filed a report dated
January 24, 2014 (the “2014 Referee’s
Report”) calculating that the amount due to
AHL for principal, interest, late fees, and
ancillary charges totaled $1,248,746.63 as of
January 24, 2014. The State Court entered
another amended judgment of foreclosure
and sale on April 22, 2014 (the
“Judgment”). The Judgment ratified and
confirmed the 2014 Referee’s Report and
ordered that AHL is entitled to the total
judgment of $1,248,746.63, plus interest at
the judgment rate of 9% from and after
January 25, 2014, costs and disbursements
in the amount of $2,080, and reasonable
legal fees in the amount of $19,500. The
Judgment also ordered that the remaining
two properties be sold at public auction.

Along with his Chapter 13 petition,
Stebbins filed his Schedule D (Creditors
Holding Secured Claims) listing only a
noncontingent,
liquidated,
undisputed
secured debt in the amount of $1,248,747
owed to AHL. The amount listed did not
include costs and disbursements, legal fees
as set forth in the Judgment, or statutory
post-judgment interest. The Judgment
amount of $1,248,746.63, plus costs and
disbursements, legal fees, and post-judgment
interest remained due and owing as of the
Petition Date.
On September 8, 2014, the Trustee filed
a motion to dismiss the Chapter 13 case,
arguing, among other things, that the amount
of secured debt listed by Stebbins exceeds
the $1,149,525 statutory limit for secured
debts under 11 U.S.C. § 109(e) for an
individual Chapter 13 debtor. On September
16, 2014, AHL filed an affirmation in
support of the motion to dismiss.

Stebbins’ Chapter 13 petition was filed
on July 23, 2014 (the “Petition Date”),
before the public auction of the two
remaining Bridgehampton properties could
take place. The Foreclosure Action and the
public auction of the Bridgehampton

On September 17, 2014, Stebbins
amended his Schedule D to list the debt due
AHL as contingent, but did not make any

2

parties presented any witness testimony or
offered any exhibits into evidence. At the
conclusion of the hearing, Bankruptcy Judge
Scarcella granted the Trustee’s motion to
dismiss, and on February 24, 2015, issued a
Memorandum
Decision
and
Order
memorializing his ruling that the guaranty
liability of Stebbins is an unsecured,
noncontingent, liquidated debt, and that
Stebbins is ineligible to be a Chapter 13
debtor under 11 U.S.C. § 109(e).

other changes as to the liquidated nature or
amount of the debt.
On September 18, 2014, AHL filed an
objection to the confirmation of Stebbins’
proposed Chapter 13 plan on the basis that
the plan does not provide for the payment of
the AHL claim in full.
On September 19, 2014, Stebbins filed
an opposition to the Trustee’s motion to
dismiss asserting that, regardless of the
amount of debt he owes to AHL, his
obligation under the Guaranty is contingent
pursuant to New York Real Property
Actions and Proceedings Law § 1371
(“Section 1371”) and should not be included
in the debt calculation under 11 U.S.C. §
109(e). Stebbins contends that AHL elected
its remedy under New York Real Property
Actions and Proceedings Law § 1301
(“Section 1301”) by commencing an action
to foreclose its lien on the Bridgehampton
properties instead of suing under the
Guaranty, and thus, may not now enforce
the Guaranty until the conditions precedent
under Section 1371 (the sale of all the
Bridgehampton properties and entry of a
deficiency judgment against him) have
occurred. Thus, according to Stebbins, the
debt owed to AHL arising out of the
Guaranty is contingent and unliquidated
because the amount of the deficiency is
unknown at this time.

B. Procedural History
On March 6, 2015, Appellant filed a
notice of appeal from the Bankruptcy
Court’s February 24, 2015 order. Appellant
filed his brief on March 23, 2015. The
Trustee and AHL filed separate responses on
April 3, 2015, and Appellant filed a reply on
April 22, 2015. The Court has fully
considered all of the submissions of the
parties.
II. STANDARD OF REVIEW
This Court has jurisdiction to hear
appeals from bankruptcy courts under 28
U.S.C. § 158(a), which provides that “[t]he
district courts of the United States shall have
jurisdiction to hear appeals . . . from final
judgments, orders, and decrees; . . . [and]
with leave of the court, from other
interlocutory orders and decrees . . . of
bankruptcy judges.” 28 U.S.C. § 158(a)(1),
(3). Part VIII of the Federal Rules of
Bankruptcy
Procedure
outlines
the
procedure governing such appeals. Fed. R.
Bankr. P. 8001.

A hearing was held on the motion to
dismiss on October 23, 2014, at which time
Bankruptcy Judge Scarcella directed
supplemental filings be submitted on the
issue of whether Stebbins’ obligation under
the Guaranty was contingent and
unliquidated. Stebbins, AHL, and the
Trustee all submitted supplemental briefings
on the issue, and a further hearing was held
on December 18, 2014. Bankruptcy Judge
Scarcella heard oral arguments; none of the

Rule 8013 of the Federal Rules of
Bankruptcy Procedure provides that a
reviewing court may “affirm, modify, or
reverse a bankruptcy judge’s judgment,
order, or decree,” or it may “remand with
instructions for further proceedings.” Fed. R.
Bankr. P. 8013. In general, the Court
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reviews the Bankruptcy Court’s legal
conclusions de novo, mixed questions of fact
and law de novo, and factual findings for
clear error. See Denton v. Hyman (In re
Hyman), 502 F.3d 61, 65 (2d Cir. 2007);
Babitt v. Vebeliunas (In re Vebeliunas), 332
F.3d 85, 90 (2d Cir. 2003).

sale has not yet occurred, AHL’s only
method of assessment and recovery is
contingent on various factors, including the
sale of the mortgaged properties. Appellant
argues that the claim therefore remains
contingent and unliquidated, and his
noncontingent, liquidated debt does not
exceed the limits established by 11 U.S.C. §
109(e). For the reasons that follow, the
Court, under de novo review, affirms the
Bankruptcy Court’s February 24, 2015 order
dismissing Appellant’s Chapter 13 case.

III. DISCUSSION
Appellant challenges the Bankruptcy
Court’s February 24, 2015 order granting
the Trustee’s motion to dismiss Stebbins’
Chapter 13 case. Appellant argues that the
Bankruptcy Court erred in finding that “as a
result of a personal guaranty, Stebbins owes
a liquidated, noncontingent unsecured debt
to AHL that exceeds the unsecured debt
limit of $383,174 established by 11 U.S.C. §
109(e) for an individual to be eligible for
Chapter 13 relief.” (Bankruptcy Record at
168.) It is Appellant’s position that the
Bankruptcy Court did not directly address
Section 1301, the “election of remedies”
rule, and that Section 1301 should apply to
make his debt contingent and unliquidated.1
Appellant asserts that, because AHL
commenced foreclosure proceedings naming
Stebbins as a defendant and the foreclosure

A. 11 U.S.C. § 109(e)
To be eligible for relief under Chapter
13 of the United States Bankruptcy Code, an
individual debtor must, on the date of the
filing of the petition, have “noncontingent,
liquidated, unsecured debts of less than
$383,175 and noncontingent, liquidated,
secured debts of less than $1,149,525.” 11
U.S.C. § 109(e).2 Only noncontingent and
liquidated debts are included when
calculating the total amount of debt for
eligibility purposes.
Though a Section 109(e) analysis
generally begins with a review of the
debtor’s schedules, a court may also
consider materials outside of the debtor’s
schedules. See In re Moore, No. 10-11491,
2012 WL 1192776, at *5 (Bankr. N.D.N.Y.
April 10, 2012) (finding debtor ineligible
under Chapter 13 after a review of debtor’s
schedules, the proof of claim, and other
readily ascertainable information); Mazzeo
v. United States (In Re Mazzeo), 131 F.3d
295, 305 (2d Cir. 1997) (finding debt to be
easily ascertained from statutory provisions
and tax returns). Neither Appellant nor
Appellees contend that the Bankruptcy
Court erred in considering materials outside
of Stebbins’ schedules, and the Court

1

Section 1301 provides that “1. [w]here final
judgment for the plaintiff has been rendered in an
action to recover any part of the mortgage debt, an
action shall not be commenced or maintained to
foreclose the mortgage, unless an execution against
the property of the defendant has been issued upon
the judgment to the sheriff of the county where he
resides, if he resides within the state, or if he resides
without the state, to the sheriff of the county where
the judgment-roll is filed; and has been returned
wholly or partly unsatisfied. 2. The complaint shall
state whether any other action has been brought to
recover any part of the mortgage debt, and, if so,
whether any part has been collected. 3. While the
action is pending or after final judgment for the
plaintiff therein, no other action shall be commenced
or maintained to recover any part of the mortgage
debt, without leave of the court in which the former
action was brought.”

2

These amounts are updated every three years. 11
U.S.C. § 104(a).

4

‘triggering event’ occurred prior to the filing
of the [C]hapter 13 petition.’” Id. (quoting 2
L. King, Collier on Bankruptcy ¶
109.06[2][b] (15th ed. rev. 1997)).

concludes that the Bankruptcy Court
properly considered the proof of claim filed
by AHL, the Judgment, and the language
contained in the Guaranty that gave rise to
the debt owed to AHL.

The Second Circuit has made clear that
liability need not be reduced to a judgment
in order to cause debt triggered prepetition
to become noncontingent as of the petition
date. Specifically, the Second Circuit has
explained:

B. Whether the Guaranty Obligation
is Contingent
Appellant argues that the Court erred in
finding that Stebbins’ debt is noncontingent,
and that, although the Bankruptcy Court
“recognized” Stebbins’ argument regarding
the “election of remedies” rule, it did not
directly address it. Appellant asserts that
Section 1301(3) applies in this case and
supports the conclusion that the debt
Stebbins owes AHL is contingent. The
Court disagrees and affirms the Bankruptcy
Court’s conclusion that the obligation is
noncontingent.

Nor, by a future “event,” do we
refer to a judicial determination as
to liability and relief, for a claim
may be noncontingent even though
it has not been reduced to judgment.
Although the creditor’s ability to
collect the sum due him may depend
upon adjudication, that does not
make the debt itself contingent. In
broad terms, the concept of
contingency involves the nature or
origin of liability. More precisely, it
relates to the time or circumstances
under which the liability arises. In
this connection liability does not
mean the same as judgment or
remedy, but only a condition of
being obligated to answer for a
claim.

A contingent claim is an “obligation[ ]
that will become due upon the happening of
a future event that was within the actual or
presumed contemplation of the parties at the
time the original relationship between the
parties was created.” Ogle v. Fid. & Deposit
Co. of Md., 586 F.3d 143, 146 (2d Cir.
2009); (quoting Olin Corp. v. Riverwood
Int'l Corp. (In re Manville Forest Prods.
Corp.), 209 F.3d 125, 128-29 (2d Cir.
2000)). A debt is contingent when “the
debtor will be called upon to pay only upon
the occurrence or happening of an extrinsic
event which will trigger . . . liability.” In re
Mazzeo, 131 F.3d. at 303 (quoting
Brockenbrough v. Commissioner, 61 B.R.
685, 686 (W.D. Va. 1986)). If the triggering
event occurs prepetition, the debt becomes
noncontingent as of the petition date. Id.
(“‘A claim is contingent as to liability if the
debtor’s legal duty to pay does not come
into existence until triggered by the
occurrence of a future event . . . [A]
creditor’s claim is not contingent when the

Id., 131 F.3d at 303 (internal quotation
marks and citations omitted).
Section 1301(3) states that, with respect
to an action to foreclose a mortgage,
“[w]hile the action is pending or after final
judgment for the plaintiff therein, no other
action shall be commenced or maintained to
recover any part of the mortgage debt,
without leave of the court in which the
former action was brought.” Under New
York law, this “election of remedies” rule
applies to the holder of a note and mortgage.
See Resolution Trust Corp. v. J.I. Sopher &

5

Co., 1997 WL 100879, at *2 n.2 (2d Cir.
Mar. 6, 1997) (citing Mfrs. Hanover Trust
Co. v. 400 Garden City Assocs., 568
N.Y.S.2d 505, 507 (N.Y. Sup. Ct. Nassau
Co. 1991)). The purpose of Section 1301 is
“to avoid multiple actions to recover the
same debt and to confine the proceedings to
collect the mortgage debt to one court and
one action.” Contemporary Mortg. Bankers,
Inc. v. High Peaks Base Camp, Inc., 156
B.R. 890, 894-95 (N.D.N.Y. 1993).

conditioned on the default of Throg’s Neck
Trading, the principal obligor. When
Throg’s Neck Trading defaulted, AHL
gained the contractual right to enforce the
Guaranty against Stebbins immediately. As
the Bankruptcy Court correctly concluded,
Stebbins’ obligation became noncontingent
at the time of default, before the foreclosure
action was even commenced, and thus, is
not contingent on a judgment or remedy in
the foreclosure action. See In re Wilson, 9
B.R. 723, 725 (Bankr. E.D.N.Y. 1981) (“As
a guarantor of payment, liability attached to
the debtor immediately upon default of the
principal obligor.”) Moreover, the purpose
of 1301(3), to prevent multiple actions to
recover on the same debt, has no force here.

Appellant seeks to apply this rule here,
arguing that because AHL elected to
foreclose the mortgage, the amount of the
obligation owed to AHL was, and still is,
contingent. However, by the terms of the
Guaranty,3
Stebbins’
liability
was

any renewals, extensions and refinancings thereof. . .
. 4. The liability of the Undersigned hereunder shall
be limited to a principal amount of $Unlimited (if
unlimited or if no amount is stated, the Undersigned
shall be liable for all Indebtedness, without any
limitation as to amount), plus accrued interest hereon
and all other costs, fees, and expenses agreed to be
paid under all agreements evidencing the
Indebtedness and securing the payment of the
Indebtedness, and all attorneys’ fees, collection costs
and enforcement expenses referable thereto.
Indebtedness may be created and continued in any
amount, whether or not in excess of such principal
amount, without affecting or impairing the liability of
the Undersigned hereunder. The Lender may apply
any sums received by or available to Lender on
account of the Indebtedness from Borrower or any
other person (except the Undersigned), from their
properties, out of any collateral security or from any
other source to payment of the excess. Such
application of receipts shall not reduce, affect or
impair the liability of the Undersigned hereunder. . . .
. . . 6. The liability of the Undersigned shall not be
affected or impaired by any of the following acts or
things: . . . (vii) foreclosure or enforcement of any
collateral security . . . 11. . . . Lender shall not be
required first to resort for payment of the
Indebtedness to Borrower or other persons or their
properties, or first to enforce, realize upon or exhaust
any collateral security for Indebtedness, before
enforcing this guaranty.” (Guaranty, AHL’s
Affirmation in Support of Standing Trustee’s Motion
to Dismiss Bankruptcy Petition, Ex. C, Sept. 15,
2014.)

3

The Guaranty provides, in relevant part, that “the
Undersigned hereby absolutely and unconditionally
guarantees to Lender, the full and prompt payment
when due, whether at maturity or earlier by reason of
acceleration or otherwise, of the debts, liabilities and
obligations described as follows: . . . . B. If this x is
checked, the Undersigned guarantees to Lender the
payment and performance of each and every debt,
liability and obligation of every type and description
which Borrower may now or at any time hereafter
owe to Lender (whether such debt, liability or
obligation now exists or is hereafter created or
incurred, and whether it is or may be direct or
indirect, due or to become due, absolute or
contingent, primary or secondary, liquidated or
unliquidated, or joint, several, or joint and several; all
such debts, liabilities and obligations being
hereinafterly referred to as the “Indebtedness”).
Without limitation, this guaranty includes the
following described debt(s): Any and all of the
Borrower’s indebtedness to the Lender. The
Undersigned further acknowledges and agrees with
Lender that: 1. No act or thing need occur to establish
the liability of the Undersigned hereunder, . . . . 2.
This is an absolute, unconditional and continuing
guaranty of payment of the Indebtedness and shall
continue to be in force and be binding upon the
Undersigned, whether or not all Indebtedness is paid
in full, until this guaranty is revoked by written
notice actually received by the Lender, and such
revocation shall not be effective as to the
Indebtedness existing or committed for at the time of
actual receipt of such notice by the Lender, or as to

6

In filing a motion to dismiss Stebbins’
Chapter 13 claim, the Trustee did not seek to
commence another action to recover on the
same debt.

“The terms liquidated and unliquidated
generally refer to the value of a claim or
interest, the size of the corresponding debt,
and the ‘ease with which that value can be
ascertained.’” In re Greenwich Sentry, L.P.,
534 Fed. App’x. 77, 79 (2d Cir. 2013)
(quoting In re Mazzeo, 131 F.3d at 304). If a
claim’s value is “easily ascertainable” it is
“generally viewed as liquidated,” whereas a
value that depends on “a future exercise of
discretion” is considered unliquidated. Id.
“‘[C]ourts have generally held that a debt is
‘liquidated’ . . . where the claim is
determinable by reference to an agreement
or by a simple computation.’” In re Mazzeo
131 F.3d. at 304 (quoting 2 L. King, Collier
on Bankruptcy § 109.06[2][c] (15th ed. rev.
1997) (citing cases)).

C. Whether the AHL Claim is
Liquidated
Appellant also argues that the
Bankruptcy Court erred in concluding that
the debt owed by Stebbins to AHL is
liquidated. Appellant’s position is that the
debt in question cannot be liquidated until
AHL obtains a deficiency judgment in the
foreclosure proceeding against Stebbins
under Section 1371.4
4

Section 1371(1) and (2) provide the following:
“1.[i]f a person who is liable to the plaintiff for the
payment of the debt secured by the mortgage is made
a defendant in the action, and has appeared or has
been personally served with the summons, the final
judgment may award payment by him of the whole
residue, or so much thereof as the court may
determine to be just and equitable, of the debt
remaining unsatisfied, after a sale of the mortgaged
property and the application of the proceeds, pursuant
to the directions contained in such judgment, the
amount thereof to be determined by the court as
herein provided. 2. Simultaneously with the making
of a motion for an order confirming the sale,
provided such motion is made within ninety days
after the date of the consummation of the sale by the
delivery of the proper deed of conveyance to the
purchaser, the party to whom such residue shall be
owing may make a motion in the action for leave to
enter a deficiency judgment upon notice to the party
against whom such judgment is sought or the
attorney who shall have appeared for such party in
such action. Such notice shall be served personally or
in such other manner as the court may direct. Upon
such motion the court, whether or not the respondent
appears, shall determine, upon affidavit or otherwise
as it shall direct, the fair and reasonable market value
of the mortgaged premises as of the date such
premises were bid in at auction or such nearest earlier
date as there shall have been any market value
thereof and shall make an order directing the entry of
a deficiency judgment. Such deficiency judgment
shall be for an amount equal to the sum of the amount
owing by the party liable as determined by the
judgment with interest, plus the amount owing on all

The Court finds that the Bankruptcy
Court did not err in concluding that the debt
in question is liquidated. The claim is
determinable by reference to the note, the
Guaranty, the Foreclosure Judgment, and a
computation of interest. The amount due
(the full amount of the outstanding
indebtedness) was readily ascertainable from
the point in time that Throg’s Neck
Trading’s default triggered Stebbins’
liability. Though Stebbins may dispute the
amount he will ultimately have to pay AHL
following a deficiency judgment in the
foreclosure
action,
this
does
not
automatically render the debt either
contingent or unliquidated. Id. As the
Bankruptcy Court points out, this conclusion
is further supported by Stebbins’ own
Amended Schedule D, which reflects the
debt owed to AHL as liquidated in the
amount of $1,238,746.63.

prior liens and encumbrances with interest, plus costs
and disbursements of the action including the
referee’s fee and disbursements, less the market value
as determined by the court or the sale price of the
property whichever shall be the higher.”

7

III. CONCLUSION
For the foregoing reasons, Appellant’s
appeal of the Bankruptcy Court’s dismissal
of Stebbins’ Chapter 13 case is denied. The
Court affirms the rulings of the Bankruptcy
Court in all respects. The Clerk of the Court
shall enter judgment accordingly and close
the case.

SO ORDERED.

______________________
JOSEPH F. BIANCO
United States District Judge
Dated: March 17, 2016
Central Islip, New York
***
Appellant is represented by Richard F.
Artura of Phillips, Weiner, Quinn & Artura,
165 S. Wellwood Avenue P.O. Box 405,
Lindenhurst, NY 11757. Appellees are
represented by Stephen P. Gelfand of the
Law Office of Stephen P. Gelfand, Esq., 548
West Jericho Turnpike, Smithtown, NY
11787, and Marianne DeRosa, Standing
Chapter 13 Trustee, 100 Jericho Quadrangle,
Suite 208, Jericho, NY 11753.

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