Ellis v. NBT Bank, N.A.

Filing 9

MEMORANDUM-DECISION AND ORDER denying 3 Motion for TRO: The Court ORDERS that Appellant's motion for stay pending appeal (Dkt. No. 3) is DENIED; andthe Court further ORDERS that the Clerk of the Court shall serve a copy of this Memorandum-Decision and Order on all parties in accordance with the Local Rules. Signed by U.S. District Judge Mae A. D'Agostino on 1/11/13. (ban)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK
____________________________________________
CONSTANCE S. ELLIS,
Appellant,
vs.

5:12-cv-01803
(MAD)

NBT BANK, N.A.,
Appellee.
____________________________________________
APPEARANCES:

OF COUNSEL:

OFFICE OF PETER A. ORVILLE
30 Riverside Drive
Binghamton, New York 13905
Attorneys for Appellant

PETER A. ORVILLE, ESQ.

GETNICK, LIVINGSTON LAW FIRM
258 Genesee Street
Suite 401
Utica, New York 13502
Attorneys for Appellee

PATRICK G. RADEL, ESQ.

OFFICE OF MARK W. SWIMELAR
250 South Clinton Street
Suite 203
Syracuse, New York 13202
Attorneys for Trustee

LYNN HARPER WILSON, ESQ.
MARK W. SWIMELAR, ESQ.

MAE A. D'AGOSTINO, U.S. District Judge

MEMORANDUM-DECISION AND ORDER
I. INTRODUCTION
Currently before the Court is Appellant's motion for an order staying enforcement of an
order of the United States Bankruptcy Court entered on November 1, 2012 granting Appellee's

motion to dismiss the bankruptcy case with prejudice and for a temporary restraining order to stay
a foreclosure proceeding. See Dkt. No. 3.

II. BACKGROUND
Appellant owns four parcels of real property located in Onondaga County, New York.
Appellee holds mortgages with respect to all four parcels. Appellant operated a dairy farm on the
property. In 2008, Appellant began experiencing financial difficulties and defaulted on her farm
loan payments. Appellee started a foreclosure action in November of 2009. On December 23,
2010, a Judgment of Foreclosure and Sale was granted in New York State court.
On February 11, 2011, the day before a foreclosure sale scheduled by Appellee, Appellant
filed a Petition for Relief under Chapter 12 of the Bankruptcy Code. By operation of 11 U.S.C. §
362(d), Appellee's foreclosure action was stayed during the pendency of the bankruptcy case.
Bankruptcy proceedings filed under Chapter 12, 11 U.S.C. §§ 1201 et seq., are intended
for "family farmers" and "family fishermen" who propose a plan for reorganization that
restructures debts and repays creditors over time. See 11 U.S.C. §§ 1221, 1222. The bankruptcy
court will approve or "confirm" the reorganization plan only if certain statutory requirements are
met. See 11 U.S.C. § 1225. One of the requirements is that the plan be "feasible," i.e., the debtor
must prove that he or she will be able to make the payments proposed as part of the
reorganization. See id. § 1225(a)(6).
On July 3, 2012, the bankruptcy court issued a Memorandum-Decision and Order denying
confirmation of Appellant's Chapter 12 plan and granting Appellee's motion for relief from
automatic stay, thereby permitting Appellee to continue its foreclosure proceeding. See In re
Ellis, 478 B.R. 132, 135 (Bankr. N.D.N.Y. 2012). The court found that Appellant failed to carry
2

her burden of establishing the plan's "feasibility" pursuant to 11 U.S.C. § 1225(a)(6). See id. at
140. On August 14, 2012, the Chapter 12 Trustee filed a motion to dismiss Appellant's first
bankruptcy case. Appellant did not oppose the motion and her first bankruptcy case was
dismissed by order of the bankruptcy court on September 21, 2012. See Dkt. No. 1-12 at Exhibit
"D." Appellant did not appeal the bankruptcy court's decision denying confirmation of her
Chapter 12 plan or the order dismissing that first bankruptcy action.
On September 26, 2012, one day before Appellee's rescheduled foreclosure sale,
Appellant filed a second bankruptcy case. Appellee moved to dismiss the second bankruptcy
action pursuant to 11 U.S.C. § 1208(c). See Dkt. No. 1-12. Appellant opposed the motion,
arguing that she should be permitted to propose and pursue another reorganization plan based
upon alleged changes in her financial circumstances.
In a ruling delivered from the bench on October 30, 2012, the bankruptcy court dismissed
Appellant's second bankruptcy case. The bankruptcy court memorialized its decision in an order
dated November 1, 2012. See Dkt. No. 3-2. In dismissing the second bankruptcy case, the
bankruptcy court found that Appellant's invocation of the court's jurisdiction and the triggering of
the automatic stay was an abuse of the bankruptcy process in that the "refiled case" constitutes an
impermissible collateral challenge to the prior orders of the court from the first bankruptcy action.
See id. at 2 (citations omitted). Moreover, the bankruptcy court noted that, if Appellant made a
motion for a stay pending appeal, which is generally required to be made before the bankruptcy
court, the court would deny the application. See id.
On December 7, 2012, Appellant filed this appeal challenging the bankruptcy court's
dismissal of her second bankruptcy action. See Dkt. No. 1. On December 26, 2012, Appellant
filed an emergency motion for a temporary restraining order, which Appellee has opposed. See
3

Dkt. Nos. 3, 7. In her motion, Appellant asks the Court for an order pursuant to Rule 8005 of the
Federal Rules of Bankruptcy Procedure staying the foreclosure proceeding pending the
disposition of her appeal. See Dkt. No. 3-3 at 1.

III. DISCUSSION
A.

Standard of review
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 Directors of Hopewell Intern. Ins. Ltd., 275 B.R. 699, 703 (Bankr. S.D.N.Y. 2002) (citation
omitted); Fed. R. Bankr. P. 8013.
Federal Rule of Bankruptcy Procedure 8005 governs motions to stay pending appeal of
bankruptcy court orders. See Fed. R. Bankr. P. 8005. Although Rule 8005 generally requires a
motion for such relief to be first presented to the bankruptcy court, the motion may be presented
to the district court so long as it demonstrates "why the relief, modification, or termination was
not obtained from the bankruptcy judge." Id.
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
(2d Cir. 1993); accord In re Country Squire Assoc. 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,
4

pending an appeal to the district court. See, e.g., In re Rossi, No. 08–MC–0081, 2008 WL
4519008, *1 (N.D.N.Y. Sept. 26, 2008); In re Brunswick Baptist Church, No. 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." In
re Turner, 207 B.R. 373, 375 (2d Cir. B.A.P. 1997); 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.

Substantial possibility of success
Pursuant to 11 U.S.C. § 1208, a Chapter 12 case may be dismissed for "cause." 11 U.S.C.

§ 1208(c). The statute provides a non-exhaustive list of circumstances that constitute "cause" for
dismissing a case, including "unreasonable delay, or gross mismanagement, by the debtor that is
prejudicial to creditors" and "denial of confirmation of a plan under section 1225 of this title and
denial of a request made for additional time for filing another plan or a modification of a plan[.]"
Id. § 1208(c)(1), (5). Moreover, a Chapter 12 case may be dismissed if the filing is considered to
be an abuse of the bankruptcy process. See In re Kennedy, 181 B.R. 418, 419-20 (Bankr. D. Neb.
1995); In re Beswick, 98 B.R. 900, 902 (Bankr. N.D. Ill. 1989) (citations omitted).
In the present matter, the Court must consider the decision rendered by the bankruptcy
court in Appellant's first Chapter 12 case (which was not appealed) to determine if Appellant has
shown a substantial possibility of success in her appeal of the bankruptcy court's dismissal of her
second Chapter 12 petition. In the first bankruptcy case, the bankruptcy court issued a
5

memorandum-decision and order denying plan confirmation which included the following
findings: (1) Appellant's reorganization plan was "entirely speculative" and, therefore, did not
satisfy the Bankruptcy Code's "feasibility" requirement; (2) Appellant had "more than a
reasonable amount of time to construct a confirmable plan necessary for a successful
reorganization;" (3) Appellant failed to make any payments to the Trustee as of fourteen months
into the case; (4) the case was pending for more than one year; and (5) there was "no reasonable
possibility of a successful reorganization within a reasonable time." In re Ellis, 478 B.R. at 13941. As such, the bankruptcy court refused to approve Appellant's plan and permitted Appellee to
proceed with foreclosure. See id. at 141. Thereafter, Appellant allowed her first bankruptcy case
to be dismissed without opposition and did not appeal.
In the second bankruptcy case, which was filed five-days later, Appellant argued that her
financial circumstances had changed and that she should be given an additional opportunity and
more time to attempt bankruptcy reorganization. See Dkt. No. 1. In the order dismissing the
second bankruptcy petition, the bankruptcy found that the "changes" in Appellant's circumstances
could have been actively pursued by Appellant in the first bankruptcy case and that the second
filing was an abuse of the bankruptcy process, which was, "in effect, an impermissible collateral
challenge to the orders of this court in her prior case." See Dkt. No. 8-16 at 2. The court
determined that Appellant's proper course of action was to appeal the decisions in the first action,
not to file a second bankruptcy appeal arguing that she should be afforded more time to
reorganize. See id. Further, the court noted that the first bankruptcy case was pending for
nineteen months, that three successive plans were proposed, and that no plan was ever confirmed.
See id. The court found that Appellant was given more than a reasonable amount of time to
attempt to reorganize in the first bankruptcy proceeding. See id.
6

Having reviewed the parties submissions and the applicable law, the Court finds that
Appellant has not established a substantial possibility of success on the merits of her appeal and,
therefore, is not entitled to the stay pending appeal she seeks. As discussed, section 1208 allows
the court to dismiss a case for "cause," which includes "unreasonable delay, or gross
mismanagement, by the debtor that is prejudicial to creditors" and "denial of confirmation of a
plan under section 1225 of this title and denial of a request made for additional time for filing
another plan or a modification of a plan[.]" 11 U.S.C. § 1208(c)(1), (5). Dismissal of the first
bankruptcy action after it had been pending for nineteen months, after Appellant had submitted
three successive plans and the court held "numerous hearings" and an evidentiary hearing
following which the court denied plan confirmation was not an abuse of discretion. See In re
Rice, 357 B.R. 514, 519 (8th Cir. B.A.P. 2006) (holding that the bankruptcy court did not abuse
its discretion dismissing the debtor's Chapter 12 case where the "debtors failed to create a
workable plan despite three chances, eight months, and the help of the court"); In re Novak, 934
F.2d 401, 403-04 (2d Cir. 1991).
Moreover, the bankruptcy court's decision dismissing the second bankruptcy petition as an
abuse of the bankruptcy process and an impermissible collateral challenge to the dismissal of the
predecessor case was not improper. Appellant failed to demonstrate, with substantive evidence,
that her changed circumstances were not available to her during the first bankruptcy proceeding
or that they would make any new amended plan feasible. Moreover, Appellant failed to appeal
the bankruptcy court's decision denying confirmation of her proposed plan and eventual dismissal
of her first bankruptcy petition. Instead, Appellant filed a second Chapter 12 action five days
after the bankruptcy court's order dismissing the first action and one day before Appellee's
rescheduled foreclosure sale. As the bankruptcy court correctly found, the filing of the second
7

bankruptcy action was an abuse of the judicial process and an impermissible collateral challenge
to the orders of the bankruptcy court in the first Chapter 12 case. See In re Kennedy, 181 B.R. at
419-20 (holding that it "would constitute an impermissible collateral challenge to Bankruptcy
Judge Mahoney's order to permit the debtor to proceed in a serial Chapter 12 bankruptcy case de
novo, within four days of dismissal of the predecessor case . . ." and that "the filing of this
[second] bankruptcy case constitutes an abuse of the judicial and bankruptcy process").
In In re Beswick, the Chapter 12 debtors second amended plan was denied confirmation
following an evidentiary hearing and their case was dismissed. See In re Beswick, 98 B.R. at 901.
Less than one month after the first case was dismissed, the debtors filed another bankruptcy
action. See id. at 902. Dismissing the second case, the court noted that "[b]y refiling a second
case, rather than taking an appeal in the first case, the Debtors [were] circumventing the appeal
process." Moreover, the court held that,
[i]n the present case, the circumstances warrant the finding that the
second Chapter 12 case was not filed in good faith. The Debtors'
actions involve several of the "badges" considered by the courts to
indicate a lack of good faith. The first Chapter 12 was filed just
before a hearing was to be held on Clinton's Complaint to Foreclose
its mortgage in state court. That fact, standing alone, would not
constitute a lack of good faith; but the Debtors were then granted
the opportunity, over more than a year, to present a Plan of
Reorganization that met the confirmation requirements of Chapter
12, and they failed to do so. Indeed, the Debtors were granted
additional time to file a third Amended Plan, but chose not to do so.
Then, after the case was dismissed, and after Deere and Clinton
proceeded with actions in state court to recover their collateral, the
Debtors obtained new counsel and filed another Chapter 12, thereby
imposing additional delays.
Id. at 903.
In the present matter, as in Kennedy and Beswick, the bankruptcy court properly found that
Appellant's second Chapter 12 petition was an impermissible collateral attack to the decisions
8

rendered in the first bankruptcy case and that it amounted to an abuse of the bankruptcy process.
See id.
Based on the foregoing, the Court finds that Appellant has failed to establish a substantial
possibility of success on the merits of her appeal; and, therefore, the Court denies Appellant's
motion for a stay pending resolution of her 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 stay pending appeal (Dkt. No. 3) is DENIED; and
the Court further
ORDERS that the Clerk of the Court shall serve a copy of this Memorandum-Decision
and Order on all parties in accordance with the Local Rules.
IT IS SO ORDERED.
Dated: January 11, 2013
Albany, New York

9