State Employees Federal Credit Union v. S.G.F. Properties, LLC et al

Filing 21

MEMORANDUM-DECISION AND ORDER denying 8 Motion to Stay: The Court hereby ORDERS that Appellant's motion for a stay pending appeal is DENIED; and the Court further ORDERS that the Clerk of the Court shall serve a copy of the Memorandum-Decision and Order on all parties in accordance with the Local Rules. Signed by U.S. District Judge Mae A. D'Agostino on 11/25/2015. (ban)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK
____________________________________________
STATE EMPLOYEES FEDERAL CREDIT UNION,
also known as SEFCU,
Appellant,
vs.

1:15-cv-00418
(MAD)

S.G.F. PROPERTIES, LLC; FARAGON PROPERTIES,
LLC,
Appellees.
____________________________________________
APPEARANCES:

OF COUNSEL:

MELVIN, MELVIN LAW FIRM
217 South Salina Street
7th Floor
Syracuse, New York 13202-1686
Attorneys for Appellant

LOUIS LEVINE, ESQ.

NOLAN, HELLER LAW FIRM
39 North Pearl Street
3rd Floor
Albany, New York 12207
Attorneys for Appellees

FRANCIS J. BRENNAN, ESQ.

Mae A. D'Agostino, U.S. District Judge:
MEMORANDUM-DECISION AND ORDER
I. INTRODUCTION
Currently before the Court is Appellant SEFCU's motion for an order staying enforcement
of a portion of an order of the United States Bankruptcy Court entered on April 20, 2015, pending
the disposition of Appellant's appeal of that order. See Dkt. No. 8-10.

II. BACKGROUND

On January 2, 2013, S.G.F. Properties, LLC and Faragon Properties, LLC ("Appellees")
filed petitions for relief under Chapter 11 of the Bankruptcy Code. Dkt. No. 8-1 at ¶ 3. At that
time, Appellant held claims against Appellees totaling $1,496,219.47. Id. at ¶ 4. This debt was
secured by mortgage liens upon thirteen properties owned by Appellees, one of which is located
at 8-10 Locust Park, Albany, New York (the "Locust Park Parcel"). Id.
On January 13, 2015, the parties conducted a mediation/settlement conference with
bankruptcy Judge Cangilos-Ruiz to confirm Appellees' proposed plan of reorganization. Id. at ¶
9. After this meeting, a stipulation was entered on the record which outlined the parties'
obligations in moving forward with the bankruptcy proceedings. Id. The relevant portions of the
stipulation stated that "(a) [Appellees] would execute and deliver to [Appellant] deeds in lieu of
foreclosure to all 13 parcels to hold in escrow pending a default by [Appellees]," (b) if, inter alia,
Appellees reduced the principal amount of Appellant's claim to $950,000.00 or less before July
31, 2015, "then a 'Refinance' would occur pursuant to which the balance of [Appellant's] claim
would be reamortized for a term of 25 years with a three-year maturity date[,]" and (c) "if
[Appellees] made at least the first three regular monthly payments under the Refinanced debt,
then [Appellant] would return or destroy the deed in lieu for the Locust Park Parcel[.]" Id. at ¶¶
10, 11. It is undisputed that Appellees reduced the principle amount owed to Appellant below
$950,000.00 by July 15, 2015. Id. at ¶ 23.
In drafting an agreement to incorporate the terms of the stipulation into a document titled
"Schedule B," see Dkt. No. 8-3, the parties disagreed as to the precise nature of Appellant's claim
secured by the Locust Park Parcel. Dkt. No. 8-1 at ¶ 13. Specifically,
[Appellees] took the position that if the deed in lieu to the Locust
Park Parcel were returned or destroyed then [Appellant] also would
be required to release its mortgage lien from the Locust Park Parcel.
[Appellant] took the position that it had merely agreed not to
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foreclose its mortgage on the Locust Park Parcel, and that a release
thereof had not been required.
Id. The disputed provision was the last sentence of paragraph "k" from said Schedule B. Id.
Judge Cangilos-Ruiz reviewed this dispute in an all-day mediation session and issued an order
ruling in Appellees' favor on March 24, 2015. Id. at ¶ 14; Dkt. No. 8-4 at 1. This order required
the final words of paragraph "k" relating to the Locust Park Parcel to state: "and the mortgage
encumbering said property shall be released." Dkt. No. 8-1 at ¶ 15. Appellant appealed this order
on April 7, 2015. Id. at ¶ 16; Dkt. No. 8-5.
On April 20, 2015, bankruptcy Judge Littlefield issued an order confirming Appellees'
second amended plan of reorganization, which included the Schedule B containing the revised
paragraph "k" as ordered by Judge Cangilos-Ruiz. Dkt. No. 8-1 at ¶ 17; Dkt. No. 8-6. Appellant
appealed this order on April 29, 2015. Dkt. No. 8-1 at ¶ 18; Dkt. No. 8-7. Appellant's appeals of
the March 24, 2015 and April 20, 2015 orders were consolidated by this Court on June 16, 2015.
See Dkt. No. 4. The issues raised in those appeals concern the interpretation and application of
paragraph "k" of Schedule B as to the disposition of the Locust Park Parcel.
On June 17, 2015, Appellant applied to Judge Littlefield for an order pursuant to Federal
Rule of Bankruptcy Procedure 8007(a) staying enforcement of the April 20, 2015 order, pending
appeal. Dkt. No. 8-1 at ¶ 19. That motion requested limited relief to stay only the enforcement of
the final portion of paragraph "k" of Schedule B, which states: "and the mortgage encumbering
said [Locust Park] property shall be released." Id. at ¶ 19. Appellant's request for a stay pending
appeal was denied by the bankruptcy court on June 23, 2015. Id. at ¶ 21; Dkt. No. 8-8.
Specifically, Judge Littlefield
was not convinced [Appellant] would suffer irreparable injury
absent imposition of the stay pending appeal, nor did [the court]
believe [Appellant] has a substantial possibility of success on
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appeal based upon [the March 24, 2015 order], wherein Judge
Cangilos-Ruiz clarified the settlement terms reached after an all-day
mediation with her that were put in the record and approved in a
subsequent order.
Dkt. No. 8-8 at 2.

III. DISCUSSION
A.

Standard of review
Federal Rule of Bankruptcy Procedure 8007 (formerly Rule 8005) governs motions to stay

pending appeal of bankruptcy court orders. See Fed. R. Bankr. P. 8007. Generally, a Rule 8007
motion must first be made in the bankruptcy court. See id. A motion for such relief may
subsequently be made in the district court so long as it states "that the [bankruptcy] court has
ruled [on the motion] and set[s] out any reasons given for the ruling." Id. at 8007(b)(2)(B). In
reviewing a bankruptcy court's decision, a district court applies the clearly erroneous standard to
conclusions of fact and de novo review to conclusions of law. See In re Petition of Bd. of Dirs. of
Hopewell Int'l Ins. Ltd., 275 B.R. 699, 703 (S.D.N.Y. 2002) (citation omitted). "[T]he decision to
grant or deny a stay pending appeal is within the discretion of the bankruptcy court." Green Point
Bank v. Treston, 188 B.R. 9, 11 (S.D.N.Y. 1995) (citations omitted). Thus, the district court
"review[s] the bankruptcy court's decision [to deny a stay pending appeal] only for abuse of
discretion." Id. (citations omitted).
The Second Circuit has established a four-pronged test for determining whether to grant a
motion for a stay pending an appeal: "(1) whether the movant will suffer irreparable injury absent
a stay, (2) whether a party will suffer substantial injury if a stay is issued, (3) whether the movant
has demonstrated a substantial possibility, although less than a likelihood, of success on appeal,
and (4) the public interests that may be affected." Hirschfeld v. Bd. of Elections, 984 F.2d 35, 39
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(2d Cir. 1993) (quotations omitted); accord In re Country Squire Assocs. of Carle Place, L.P.,
203 B.R. 182, 183 (2d Cir. B.A.P. 1996) (citations omitted); In re Turner, 207 B.R. 373, 375 (2d
Cir. B.A.P. 1997). This standard has been routinely applied to a motion for a stay of an order of a
bankruptcy court, pending an appeal to the district court. See, e.g., In re Rossi, No.
1:08–MC–0081, 2008 WL 4519008, *1 (N.D.N.Y. Sept. 26, 2008); In re Brunswick Baptist
Church, No. 1:05–CV–1085, 2007 WL 294087, *2 (N.D.N.Y. Jan. 25, 2007).
"Failure to satisfy one prong of this standard for granting a stay will doom the motion."1
In re Turner, 207 B.R. at 375; accord In re Bijan–Sara Corp., 203 B.R. 358, 360 (2d Cir. B.A.P.
1996); In re Deep, 288 B.R. 27, 30 (N.D.N.Y. 2003) (citation omitted). As a result, "[t]he
moving party must show 'satisfactory' evidence on all four criteria." In re Bijan–Sara Corp., 203
B.R. at 360 (citation omitted); accord In re Albert, No. 99–31520, 2002 WL 1432663, *3 (Bankr.
S.D.N.Y. June 20, 2002) (citation omitted).

B.

Appellant's Motion
Bankruptcy Judge Littlefield based his denial of Appellant's application for a stay on its

inability to prove that it will suffer irreparable injury or that it has a substantial possibility of
success on the merits of the appeal. See Dkt. No. 8-8. Thus, the Court will begin its discussion of
the instant motion by reviewing Judge Littlefield's decision on these grounds for an abuse of
discretion. See Green Point Bank v. Treston, 188 B.R. 9, 11 (S.D.N.Y. 1995). Significantly,
Appellant has not explained the reasoning for Judge Littlefield's previous denial of the stay nor
has it provided an explanation for why that decision amounted to an abuse of discretion. See In re

While several lower courts have addressed the four factors as a balancing test, the
Second Circuit has not departed from the rigid approach applied in In re Turner. See In re
CPJFK, LLC, 496 B.R. 65, 68 (Bankr. E.D.N.Y. 2011).
1

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World Trade Bus. Ass'ns, Inc., No. 13-Misc.-44-A, 2013 WL 6441506, *5 (W.D.N.Y. Dec. 9,
2013) (noting that a failure to address the bankruptcy judge's previous order, while not a
jurisdictional defect, weighs in favor of the district court denying the stay).
"A showing of probable irreparable harm is the principal prerequisite for the issuance of a
[Rule 8007] stay. Irreparable harm must be neither remote nor speculative, but actual and
imminent." In re Taub, 470 B.R. 273, 278 (E.D.N.Y. 2012) (quoting In re Adelphia Commc'ns
Corp., 361 B.R. 337, 347 (S.D.N.Y. 2007)) (other citations omitted). The mere possibility of
monetary loss is insufficient to establish irreparable harm. See Centauri Shipping Ltd. v. W. Bulk
Carriers KS, 528 F. Supp. 2d 186, 194 (S.D.N.Y. 2007). In certain circumstances, "the risk that
an appeal may become moot in the absence of a stay pending appeal satisfies the irreparable
injury requirement." In re Adelphia Commc'ns Corp., 361 B.R. at 347. However, a "majority of
courts have held that a risk of mootness, standing alone, does not constitute irreparable harm." In
re Gen. Motors Corp., 409 B.R. 24, 31 (Bankr. S.D.N.Y. 2009) (quoting id.). The potential
mooting of an appeal, coupled with the risk of substantial monetary loss, is sufficient to establish
irreparable injury. See In re Moreau, 135 B.R. 209, 215 (N.D.N.Y. 1992).
Appellant contends that, absent a stay, it will suffer irreparable injury because of the
potential mooting of its pending appeal. Dkt. No. 8-10 at 6. If the preconditions to the
refinancing agreement are met and Appellees successfully make their first three payments under
that plan prior to the appeal being decided, Appellant would be required to release the mortgage
on the Locust Park Parcel notwithstanding the outcome of the appeal.2 See Dkt. No. 8-1 at ¶ 28.
Appellant's only support for its argument that the potential mooting of its appeal constitutes

While Appellant contends that the Locust Park Parcel may be released as early as
October of 2015, the records before the Court indicate that the release has not yet occurred. See
Dkt. No. 8-1 at ¶ 29.
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irreparable injury is the citation to six cases decided within the Second Circuit. See Dkt. No. 8-10
at 6. The Court finds these citations to be unpersuasive because the first four cases either involve
the potential for a complete loss of a creditor's claims absent a stay, or the loss of a different,
substantial right in addition to the potential mooting of their appeal. See In re Country Squire
Assocs. of Carle Place, L.P., 203 B.R. 182, 182-83 (2d Cir. B.A.P. 1996) (finding that irreparable
injury would amount from the failure to stay a foreclosure sale of a single property encumbered
by a mortgage, which was the sole security to the creditor's promissory note); In re Advanced
Mining Sys., Inc., 173 B.R. 467, 468 (S.D.N.Y. 1994) ("If a stay pending appeal is denied, the
debtors' assets will be distributed without any reserve for the [creditors'] claim"); In re St.
Johnsbury Trucking Co., Inc., 185 B.R. 687, 690 n.1 (S.D.N.Y. 1995) ("If the government's
appeal here is mooted, it will . . . lose the ability to enforce some provisions of CERCLA and the
Internal Revenue Code . . . . It is that threatened loss rather than the loss of the right to appeal vel
non that gives rise to the Court's irreparable injury finding"). The remaining two cases cited by
Appellant likewise fail to provide a reasoned argument that the potential mooting of a creditor's
appeal is a sufficient irreparable injury. In In re Norwich Historic Preservation Trust, LLC, the
District of Connecticut hesitantly assumed that the potential mooting of a pro se appellant's
appeal was sufficient to show irreparable injury and easily denied the stay application for failure
to satisfy the other three requirements. No. 3:05CV12, 2005 WL 977067, *3 (D. Conn. Apr. 21,
2005). Lastly, in In re BGI, Inc., the Southern District of New York held that the potential
mooting of an appeal was not an irreparable injury because the debtor had sufficient funds to
satisfy its obligations to the appellants, even absent a stay. 504 B.R. 754, 768 (S.D.N.Y. 2014).
Thus, none of the cases cited by Appellant satisfy its burden to prove that the potential mooting of
its appeal, standing alone, is sufficient to show irreparable injury.
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Appellees submit that the remaining properties secured by Appellant's mortgage interests
provide adequate security to cover any indebtedness to Appellant, even absent the Locust Park
Parcel. See Dkt. No. 13 at 10; Dkt. No. 12 at ¶ 13. Appellees are currently indebted to Appellant
for $1,054,009.28.3 The total value of the properties secured by Appellant's mortgages is
$1,815,282.00. The value of the Locust Park Parcel is $260,000.00. If the mortgage to the
Locust Park Parcel is released, Appellant still has $1,555,282.00 worth of collateral from the
remaining properties subject to its mortgages. See Dkt. No. 13 at 10; Dkt. No. 12 at ¶ 13. Thus,
even if the Locust Park Parcel is released, Appellant's claim against Appellees is secured by
properties valuing $501,273.00 in excess of the indebtedness. Appellant has failed to show that,
absent a stay, there would be any risk that it would not be able to recover sufficient money from
foreclosure sales on the remaining properties to satisfy the indebtedness in the event of a default.
Appellant's failure to satisfy the irreparable injury requirement is sufficient to deny the
instant request for a stay. See In re Turner, 207 B.R. 373, 375 (2d Cir. B.A.P. 1997). In addition,
the Court finds that Judge Littlefield's decision that Appellant did not have a substantial
possibility of success on the merits was not an abuse of discretion. Appellant failed to address
what evidence Judge Littlefield considered in denying its previous application for a stay. See
Dkt. No. 8-1 at ¶ 30. Rather, it directs us to review the entire appellate brief submitted for its
appeal. See id. Appellant does not contend that any information presented in its brief was not
also before Judge Littlefield for the June 23, 2015 order. Further, Appellees state that the basis
for the instant application is "on the very same facts and circumstances present" before Judge
Littlefield. Dkt. No. 12 at ¶ 26. Thus, based on Judge Littlefield's extensive familiarity with this

The values listed in this section are reported in Appellees' memorandum of law and
corresponding affidavit without objection from Appellant. See Dkt. No. 13 at 10; Dkt. No. 12 at ¶
13.
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case, Judge Cangilos-Ruiz's day long meeting with the parties prior to her March 24, 2015 order,
a review of the parties' appellate briefs on this matter, the lack of any discussion concerning the
basis for Judge Littlefield's June 23, 2015 order, and the lack of irreparable injury to Appellant
absent a stay, the Court finds that Judge Littlefield's denial of Appellant's motion for a stay
pending appeal was not an abuse of discretion. As Appellant has failed to prove each of the four
required elements to grant a stay under Rule 8007, the Court denies the instant motion for a stay
pending appeal.

IV. CONCLUSION
After carefully reviewing the entire record in this matter, the parties' submissions and the
applicable law, and for the above-stated reasons, the Court hereby
ORDERS that Appellant's motion for a stay pending appeal is DENIED; and the Court
further
ORDERS that the Clerk of the Court shall serve a copy of the Memorandum-Decision
and Order on all parties in accordance with the Local Rules.

IT IS SO ORDERED.
Dated: November 25, 2015
Albany, New York

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