In Re: Everton Aloysius Sterling
OPINION AND ORDER: In sum, a strong argument can be made that the entirety of this appeal is precluded by Appellant's appeal from the December 22 Order last year. However, giving Appellant the strongest argument this record can support, he has a challenge to Judge Lane's evidentiary issues, which challenge (assuming a permissible basis for appeal exists) fails because Judge Lane properly exercised his discretion in taking evidence on the Lift-Stay Motion. There is no basis to challenge the Bankruptcy Court's evidentiary rulings, and no basis to disturb the April 12 (or, for that matter, the December 22) Orders. For the foregoing reasons, the April 12 Order is AFFIRMED, and Appellant's appeal from that order is DENIED. The Clerk of the Court is directed to close this case. (As further set forth in this Opinion and Order.) (Signed by Judge Katherine Polk Failla on 3/3/2017) (mro)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
EVERTON ALOYSIUS STERLING,
EVERTON ALOYSIUS STERLING,
1279 ST. JOHNS PLACE, LLC,
DOC #: _________________
DATE FILED: March 3, 2017
16 Civ. 3296 (KPF)
Bankr. No. 14-12608 (SHL)
OPINION AND ORDER
KATHERINE POLK FAILLA, District Judge:
Over the course of his Chapter 7 bankruptcy proceeding, Appellant
Everton Aloysius Sterling has appealed several decisions of the presiding
United States Bankruptcy Judge, Sean H. Lane, to the United States District
Court for the Southern District of New York. See, e.g., In re Everton Aloysius
Sterling, No. 16 Civ. 351 (KPF); In re Everton Aloysius Sterling, No. 16 Civ. 1446
(PKC); In re Everton Aloysius Sterling, No. 16 Civ. 6639 (AJN); In re Everton
Aloysius Sterling, No. 17 Civ. 248 (ALC). In a prior Order, this Court dismissed
one of his appeals — from a December 22, 2015 order of the Bankruptcy Court
(the “December 22 Order”) — for lack of subject matter jurisdiction because of
its untimeliness. See In re Everton Aloysius Sterling, No. 16 Civ. 351 (KPF),
Dkt. #9 (S.D.N.Y. Mar. 30, 2016). The instant appeal is a second challenge to
the proceedings that resulted in the December 22 Order, and it also fails. To
the extent that this Court may consider Appellant’s current claims on appeal,
they fall in the face of the Bankruptcy Court’s proper exercise of its
The relevant timeline is detailed in the Bankruptcy Court’s December 22
Order, from which this summary is excerpted. (See Bankr. Dkt. #65 at 2-4).
Appellant does not seriously dispute this sequence of events, though he
vigorously disputes whether certain entities had rights in (and, by extension,
had the legal ability to assign or transfer their rights in) the properties in
At issue here are three real properties, located at 551 Knickerbocker
Avenue, Brooklyn, New York (the “Brooklyn Property”); 1320 East 222 Street,
Bronx, New York (the “Bronx Property”), and Block and Lot 4730/7 on East
222 Street, also in the Bronx (the “Bronx Lot,” and together with the Brooklyn
Property and the Bronx Property, the “Three Properties”). On December 23,
2011, Appellant executed a note in favor of Columbia Capital Co. in the
amount of $190,000.00 (the “Brooklyn Note”). The Note was secured by the
For ease of reference, the Court uses “Bankr. Dkt. #[ ]” to refer to docket entries in
Appellant’s Chapter 7 bankruptcy proceeding, which docket has been assigned
bankruptcy number 14-12608; “Adv. Pro. Dkt. #[ ]” to refer to docket entries for a
tangentially related adversary proceeding in Appellant’s Chapter 7 proceeding, which
docket was assigned adversary proceeding number 15-01288; “16 Civ. 351 Dkt. #[ ]” to
refer to docket entries in Appellant’s earlier appeal to this Court from the December 22
Order; and “Dkt. #[ ]” to refer to the docket in this appeal.
Brooklyn Property, pursuant to a mortgage executed by Appellant on December
23, 2011 (the “Brooklyn Mortgage”). On August 20, 2012, the Brooklyn
Mortgage was assigned by Columbia Capital Co. to 222 Funding Associates.
Subsequently, an “allonge” — a sheet of paper on which additional
endorsements can be made — was attached to the Brooklyn Note and signed by
Columbia Capital Co., paying the Note to the order of 222 Funding Associates.
On August 23, 2012, Appellant, in his role as President of Latou Realty
Corp. (“Latou”), executed a note in favor of 222 Funding Associates in the
amount of $275,000.00 (the “Second Note”). The Second Note was, in turn,
secured by each of the Three Properties, pursuant to a mortgage that Appellant
executed that same day (the “Second Mortgage”). An allonge was later attached
to the Second Note and signed by 222 Funding Associates, paying this Note to
the order of Appellee 1279 St. Johns Place LLC.
On August 23, 2012, the Brooklyn Note and the Second Note were
consolidated into the principal sum of $465,000.00 (the “Consolidated Note”).
On the same date, Appellant, as President of Latou, consolidated the Brooklyn
Mortgage and the Second Mortgage in favor of 222 Funding Associates by
executing a consolidation modification spreader agreement on all of the
Properties (the “Consolidated Mortgage”). To facilitate the execution of the
Consolidated Note and the Consolidated Mortgage, on August 23, 2012,
Appellant deeded the Three Properties to Latou.
A few months later, however, in November 2012, Latou defaulted on the
Consolidated Mortgage. 222 Funding Associates subsequently filed a
foreclosure action against the Bronx Property and the Bronx Lot in Bronx
Supreme Court. See 222 Funding v. Latou Realty, Index No. 380272/2013 (the
“Foreclosure Action”). 2 On November 26, 2013 — on the eve of a pending
motion for the entry of a judgment of foreclosure and sale — Latou deeded the
Three Properties back to Appellant without the knowledge of 222 Funding
Associates or Appellee. Appellee, to which 222 Funding Associates had
assigned the Consolidated Mortgage in June 2014 by means of an allonge on
the Consolidated Note, claims that these transfers were undertaken to delay
the Foreclosure Action.
The Chapter 7 Petition
Appellant filed a voluntary petition under Chapter 7 of the Bankruptcy
Code on September 14, 2014. (Bankr. Dkt. #1). The progress of the petition,
according to the U.S. Trustee, was hindered by Appellant’s conduct, including
(i) his incomplete financial disclosures; (ii) his filing of an “Affidavit of
Discharge,” which included a “final counter offer” pursuant to which any effort
to take Appellant’s property would result in “damages of Five Million Dollars
($5,000,000.00) in lawful United [S]tates dollars”; (iii) his imposition on various
court documents of the watermark “REFUSAL FOR CAUSE WITHOUT
DISHONOR — DO NOT CONSENT — Return Without Prejudice,” followed by
his signature as “Authorized Representative All Rights Reserved UCC 1-308”;
and (iv) his refusal to answer questions posed by the U.S. Trustee on the
After purchasing the Consolidated Mortgage, Appellee obtained a vacatur of the original
foreclosure judgment, in order to add the Brooklyn Property to the Foreclosure Action.
(See Bankr. Dkt. #40 at ¶ 28).
grounds that “pursuant 12 U.S.C. § 95a(2) [a statute specifying regulatory
powers of the President in times of war] the matter has been discharged.”
(Bankr. Dkt. #29). 3
On July 27, 2015, the U.S. Trustee filed a complaint to commence an
adversary proceeding (the “Adversary Proceeding”) objecting to Appellant’s
discharge pursuant to 11 U.S.C. §§ 727(a)(3), 727(a)(5), and 727(a)(6). (Bankr.
Dkt. #39). In his supporting papers, the Trustee detailed Appellant’s longstanding refusal to disclose fully his financial situation.
The Lift-Stay Motion, the Motion for Injunctive Relief, and the
Motion to Strike
On September 25, 2015, Appellee moved to lift the stay in order to
commence a foreclosure action against the Three Properties (the “Lift-Stay
Motion”); it sought as well in rem relief with respect to the Properties
themselves. Among other facts, Appellee related that: (i) Appellant had listed
the Three Properties in his bankruptcy filings without listing any secured
mortgages or claims against them; (ii) Appellant had failed to list Appellee (or
its predecessor in interest, 222 Funding Associates) as a secured creditor; and
Relatedly, in proceedings in the Bankruptcy Court, the individual Everton Aloysius
Sterling, whom the Court here refers to as “Appellant,” has sought to distinguish
himself from the Chapter 7 petitioner, “EVERTON ALOYSIUS STERLING,” which
Appellant claims is merely “a U.S. vessel.” (Bankr. Dkt. #60 at 12 (transcript of
October 27, 2015 conference); see also Bankr. Dkt. #34 (“Affidavit of Fact and
Surrender of the [Alleged] Debtor Defendant/Legal Person/Legal Entity ‘Everton
Aloysius Sterling,’” filed March 12, 2015)). In these efforts, Appellant is taking a page
from the book of the Sovereign Citizen movement, which the Second Circuit has
described as “a loosely affiliated group who believe that the state and federal
governments lack constitutional legitimacy and therefore have no authority to regulate
their behavior.” United States v. Ulloa, 511 F. App’x 105, 106 n.1 (2d Cir. 2013)
(summary order). This Court adds its voice to the judicial chorus rejecting, as legally
unsupportable, Sovereign-Citizen-based challenges to federal law.
(iii) Appellee believed that the timing of various assignments and the petition
itself were designed to delay the foreclosure sale of the Bronx Property and the
Bronx Lot. (Bankr. Dkt. #40). Among other exhibits to the motion, Appellee
included copies of the underlying mortgages, notes, and allonges thereto. (Id.).
Appellant responded on October 15, 2015, by seeking an order to show
cause why a temporary restraining order and/or a preliminary injunction
should not be imposed to stay foreclosure proceedings (the “Motion for
Injunctive Relief”). (Bankr. Dkt. #42). In his supporting affidavit, Appellant
contended that (i) Appellee was barred under the doctrine of laches from
raising a claim to the Three Properties because it had filed the Lift-Stay Motion
more than one year after the petition was filed; (ii) Appellant had obtained a
discharge with respect to the Three Properties by “pledging the Reversionary
Interest and everything in the name of the infant EVERTON ALOYSIUS
STERLING for the beneficial interest of the UNITED STATES who agreed to
perform and indemnify Everton Aloysius and hold him harmless in accord with
[12 U.S.C. § 95a(2)]”; and (iii) Appellee lacked standing to raise a claim to the
Properties. (Id.). Appellant’s motion papers also included a “Notice of Demand
for Offer of Proof,” in which he outlined various supporting documents and
affidavits he sought from Appellee. (Id.). 4
Appellant also included various documents from the Foreclosure Action, UCC financing
statements, a copy of his birth certificate, and a sheet of paper on which he had written,
“Pay to the order of United States lawful money and full discharge is demanded for all
transactions, 12 USC 411, 95a(2), 50 USC APP 7(e),” and to which he had affixed his
By Order dated October 19, 2015, the Bankruptcy Court denied
Appellant’s request for a temporary restraining order and scheduled a hearing
for both the Lift-Stay Motion and the Motion for Injunctive Relief to take place
on October 27, 2015. (Bankr. Dkt. #43). That same day, Appellant filed a
Motion to Strike Appellee’s Lift-Stay Motion (the “Motion to Strike”), on the
grounds that counsel for Appellee had failed to file an application to appear pro
hac vice in the Bankruptcy Court. (Bankr. Dkt. #45). Appellee filed a joint
opposition memorandum to the Motion for Injunctive Relief and the Motion to
Strike on October 23, 2015. (Bankr. Dkt. #47).
A hearing on the Lift-Stay, Injunctive Relief, and Strike Motions was held
before Judge Lane on October 27, 2015. (Bankr. Dkt. #60). 5 Among other
issues, Judge Lane inquired into (i) the propriety of in rem relief where the
challenged transfers had occurred approximately one year prior to the filing of
the Chapter 7 petition; and (ii) the degree to which Appellee derived standing
from any of the allonges at issue. (Id. at 4-8). During the conference,
Appellant reiterated his argument that Appellee’s claim had been filed too late,
and further claimed that Appellee lacked standing because it could not
“substantiate or validate [the] debt.” (Id. at 9). Judge Lane engaged Appellant
on the issue of the proper documentation for Appellee’s claims, and specifically
considered Appellant’s arguments that the documentation was fraudulent. (Id.
The Bankruptcy Court later indicated that the Motion for Injunctive Relief was not on
for a hearing that day. (Bankr. Dkt. #60 at 17).
The Bankruptcy Court then discussed with Appellant the bases on which
the stay could be lifted. (Bankr. Dkt. #60 at 12-16). After numerous attempts
to question him on this point, Appellant conceded that, to the best of his
knowledge, no payments had been made on the underlying mortgages in the
preceding three years. (Id. at 12-14). The Court then heard further argument
from Appellant on his laches defense, his claim that counsel for the Appellee
was improperly acting as a witness at the hearing by presenting evidence to the
Court and answering the Court’s questions, and his belief that “all matters in
the name of ‘EVERTON ALOYSIUS STERLING’ have been assigned to and on
behalf of the United States of America. And pursuant to 12 U.S.C. [§ 95a(2)],
issued a full discharge and acquittal.” (Id. at 14-16).
The Bankruptcy Court rendered a preliminary oral opinion on the LiftStay Motion, but then determined to adjourn the matter, in order to permit
Appellee to “produce the physical consolidated note with the allonge, so that
the Court can just determine that the allonge is properly attached to the
consolidated note.” (Bankr. Dkt. #60 at 26; see generally id. at 21-33).
Assuming that to be the case, the Court opined that the facts warranted a
lifting of the stay. (Id. at 26-29). Considering next the application for in rem
relief, the Court found tentatively that Appellee had not met its burden of
justifying such relief. (Id. at 30-32).
At the conclusion of the proceeding, the Bankruptcy Court discussed a
schedule for further briefing; pursuant to those discussions, Appellant filed a
Motion for Declaratory Relief with Request for Preliminary Injunction and for
an Opportunity to Conduct Discovery on November 18, 2015 (the “Declaratory
Relief Motion”). (Bankr. Dkt. #59). This motion was equal parts a reply brief to
the Lift-Stay Motion and a request for additional discovery to substantiate
Appellee’s claims. Again, Appellant advanced claims of laches and lack of
standing. (Id. at 3-6). To these he added new claims under (i) the Organic Act
of 1871, which, according to Appellant, transformed the United States into a
Municipal Corporation with no sovereign immunity (id. at 8) 6; (ii) the Clearfield
Trust doctrine, which Appellant claimed deprived the United States of sovereign
immunity where corporate commercial paper and securities were concerned
(id.) 7; and (iii) the Fair Debt Collection Practices Act (the “FDCPA”), which
Appellant claimed was implicated by the assignments of the notes (id. at 13).
The hearing resumed on November 24, 2015. (Bankr. Dkt. #64). The
Bankruptcy Court began by examining the originals of several of the notes,
For a discussion of this tenet of the Sovereign Citizen movement, see United States v.
Harding, No. 13 Cr. 008 (MFU), 2013 WL 1832564, at *1-2 (W.D. Va. May 1, 2013).
See Hillman v. United States, No. 10 Civ. 201 (SKB), 2011 WL 797315, at *5 (S.D. Ohio
Jan. 11, 2011), report and recommendation adopted, No. 10 Civ. 201 (SSB), 2011 WL
795732 (S.D. Ohio Mar. 1, 2011):
[T]he Clearfield Trust Doctrine does not constitute a waiver of
sovereign immunity. In Clearfield Trust v. United States, 318 U.S.
363, 366-67, 63 S. Ct. 573, 574-75, 87 L.Ed. 838 (1943), the
Supreme Court held that federal law governs questions concerning
the rights of the federal government under federal programs, such
that, in the absence of an act of Congress applicable to the
functioning of such programs, the federal courts may fashion an
appropriate and governing rule of law according to their own
standards. The primary doctrine derived from Clearfield is that
federal common law will displace state law, and can be created by
federal courts, only when “uniquely federal interests” are involved
and the application of state law would “significantly conflict” with
federal policy or objectives. Boyle v. United Techs, 487 U.S. 500,
507-08, 108 S. Ct. 2510, 2516, 101 L.Ed.2d 442 (1988). Like
nearly every other authority cited by Plaintiff, Clearfield Trust has
no application to any issue in this case.
including the Consolidated Note and the allonge attached thereto. (Id. at 4-8).
Appellant was given an opportunity to inspect the documents as well, and
reiterated his objection to the documents being presented by counsel for
Appellee. (Id. at 9). Appellant again claimed that Appellee had validated
neither a debt nor its claim in the Bankruptcy Court, and briefly restated his
arguments for laches, lack of standing, the FDCPA, and due process violations.
(Id. at 10-15).
At the end of the hearing, the Court sought to clarify for Appellant an
apparent misconception concerning the Lift-Stay Motion:
[T]he one thing I will tell you is that you have to
understand what a lift-stay motion is. It’s a motion to
say that the automatic stay that arises out of the
bankruptcy shouldn’t apply to a particular set of
proceedings. And here, a foreclosure dealing with these
three notes and the properties in question.
And what that means then is that that party has asked
for those proceedings to go forward. And if those
proceedings do go forward, parties in those proceedings
retain whatever rights they have to make whatever
arguments they want to make in those proceedings.
Whether it’s a foreclosure, whether it’s an eviction,
whatever it is. And so these sort of lift-stay motions are
very common in bankruptcy.
So, I understand that you’re raising a lot of arguments,
and I will consider them all to the extent that they
address the lift-stay motion. And some of them may
also address the underlying merits. So, first I’ll decide
whether the lift-stay motion should happen, and should
be granted. If I deny it, then I deny it. If I grant it, then
you’ll proceed in that other court with whatever
arguments and merit arguments on the merits that you’re
entitled to make. And nothing that’s happened here in
connection with this motion changes that fact.
(Bankr. Dkt. #64 at 20-21 (emphases added)).
The December 22 Order
In a Memorandum Opinion and Order issued on December 22, 2015, the
Bankruptcy Court decided the Lift-Stay Motion and the Preliminary Injunction
Motion, and resolved the Motion to Strike by deeming it an objection to the LiftStay Motion. (Bankr. Dkt. #65 at 2 & n.1). 8 The Court began by reviewing the
real estate transactions that led to Appellee’s assertion of a claim against the
Three Properties. (Id. at 2-4). It then considered the antecedent issue of
whether Appellee had standing to make a motion to lift the stay. (Id. at 4-7).
After reviewing New York law on the issue, the Bankruptcy Court concluded
that Appellee had standing because it was the assignee and possessor of the
Consolidated Note and the Consolidated Mortgage, which had been endorsed to
it by means of an allonge. (Indeed, Appellee also had the originals of the
Brooklyn Note and the Second Note, as well as the allonges attached to each.)
In this regard, the Court specifically addressed, and rejected, Appellant’s
several prior requests for discovery: “[Appellant] requests numerous items in
discovery. But [Appellant] has not identified any legitimate issue of fact that
would warrant discovery, and the Court will not permit him to seek discovery
in these circumstances based on mere speculation.” (Id. at 7 (collecting cases)).
The Bankruptcy Court then considered the merits of the Lift-Stay
Motion. (Bankr. Dkt. #65 at 8-11). After reviewing the documentary and
testimonial evidence supporting Appellee’s claim that no one was making post-
The decision is also reported at In re Everton Aloysius Sterling, 543 B.R. 385 (Bankr.
petition payments on the Three Properties (and thus that its interests in same
were not adequately protected), the Court noted that “[Appellant] does not
appear to contest that no payments have been made on the Properties, that
taxes are not being paid, or that [Appellee] is, in fact, not adequately
protected.” (Id. at 9). The Court then reviewed the factors set forth in Sonnax
Indus., Inc. v. Tri Component Prods. Corp. (In re Sonnax Indus., Inc.), 907 F.2d
1280, 1286 (2d Cir. 1990), and concluded that the majority of those factors
applicable to the case supported lifting the stay. (Id. at 9-11).
However, while willing to lift the stay, the Bankruptcy Court was
unwilling to grant Appellee’s application for in rem relief pursuant to 11 U.S.C.
§ 362(d)(4). (Bankr. Dkt. #65 at 11-14). Even as it acknowledged that certain
acts by Appellant — including the transfer of the deeds on the Three Properties
from Latou to Appellant during the pendency of the Foreclosure Action — may
have been part of a scheme to hinder, delay, or defraud, the Court found an
“[in]sufficient evidentiary record to conclude at this time that the bankruptcy
filing was intended to be part of such a scheme.” (Id. at 13).
Finally, the Bankruptcy Court addressed Appellant’s Motion for
Injunctive Relief. (Bankr. Dkt. #65 at 14-20). The Court noted Appellant’s
failure to address how he would be harmed by the lifting of the automatic stay,
particularly since lifting the stay would only allow the Foreclosure Action to
proceed, and would not immediately (if ever) result in foreclosure. It also found
no likelihood of success on the merits. Considering first Appellant’s laches
argument, the Bankruptcy Court rejected it, finding no time limitation on
Appellee’s ability to vindicate any rights it might have by filing the Lift-Stay
Motion — and, indeed, no missed deadlines by Appellee in the Chapter 7
proceeding. More broadly, the Court found laches, an equitable doctrine, to be
inapplicable to a situation where Appellant had demonstrated neither
inexcusable delay nor any prejudice to him resulting from the delay:
To begin with, nothing in the Bankruptcy Code requires
that a lift stay motion be filed for a secured creditor to
maintain its rights. And for the same reasons discussed
above, [Appellant] has not been prejudiced by any time
that has passed since the filing of the bankruptcy case.
His rights with respect to the Properties have not been
impaired by the passage of time since the filing. In fact,
the opposite is true. During this time, [Appellant] has
benefitted from the automatic stay, which is the only
thing that has prevented the Foreclosure Action from
proceeding. With the Lift Stay Motion granted,
[Appellant] will simply have to return to the State Court
and defend himself in the Foreclosure Action. Even if
so much time had passed that [Appellant] had received
a bankruptcy discharge, Section 524(a) of the
Bankruptcy Code “bars only ‘acts or actions to collect a
discharged debt “as a personal liability.” This provision
does not prevent foreclosure of a lien on property.’”
(Id. at 18-19 (citations omitted)). The Court also rejected Appellant’s
arguments for discharge under 12 U.S.C. § 95a(2), inasmuch as any
conveyances purportedly made by Appellant were plainly not related to the
President’s powers to regulate transactions during wartime. (Id. at 20). And
the Court rejected, in a footnote, certain arguments raised for the first time in
Appellant’s reply brief. (Id. at 20-21 n.9).
In sum, in the December 22 Order, the Bankruptcy Court granted
Appellee’s application to lift the automatic stay; denied its request for in rem
relief; and denied Appellant’s request for injunctive relief.
Appellant’s First Appeal
On December 31, 2015, Appellant mailed a copy of the December 22
Order back to the Bankruptcy Court. (Bankr. Dkt. #68). On each page,
Appellant had superimposed a red watermark with the legend: “REFUSAL FOR
CAUSE WITHOUT DISHONOR — DO NOT CONSENT — Return Without
Prejudice,” followed by his signature as “Authorized Representative All Rights
Reserved UCC 1-308.” (Id.).
On January 13, 2016, Appellant filed a notice of appeal with respect to
the December 22 Order. (Bankr. Dkt. #69). The appeal was assigned to the
undersigned. After an initial conference held on February 24, 2016, at which
Appellant failed to appear, this Court issued an order to show cause why the
case should not be dismissed (i) for failure to prosecute under Federal Rule of
Civil Procedure 41(b), or (ii) as untimely pursuant to Federal Rule of
Bankruptcy Procedure 8002(a). (16 Civ. 351 Dkt. #4). After receiving a written
submission from Appellant that explained satisfactorily his absence from the
conference (16 Civ. 351 Dkt. #8), but not the untimeliness of his notice of
appeal (id.), this Court dismissed the matter for lack of jurisdiction (16 Civ. 351
Dkt. #9; see also id. at 3 (explaining that the time limit contained in Fed. R.
Bankr. P. 8002 is jurisdictional)). That decision is now on appeal to the United
States Court of Appeals for the Second Circuit. See In re Everton Aloysius
Sterling, No. 16-1120.
Appellant’s Motion for Additional Findings
After the notice of appeal had been filed, in February 2016, the
Bankruptcy Court received a document that Appellant had dated January 7,
2016 (the “Motion for Additional Findings”). (Bankr. Dkt. #73 (entered
February 2, 2016)). The document recited that it was a “Motion to Make
Additional Findings of Fact Pursuant to Federal Rules of Bankruptcy Procedure
§§ 7052, 9014 and 7062.” 9 It contained the caption of the adversary
proceeding that had been commenced in July 2015 by the U.S. Trustee, and as
to which Appellant had filed a “Third-Party Complaint/Counterclaim” that
named as third-party defendants, among others, the Secretary of the Treasury,
representatives of the Office of the U.S. Trustee, the Attorney General, and the
Comptroller of the Currency. (See Adv. Pro. 15-01288 Dkt. #1 (complaint),
#3 (third-party complaint), #11 (amended third-party complaint)).
Significantly, Appellee was not a party to that adversary proceeding. But
though it outlined a portion of the procedural history of the adversary
Federal Rule of Bankruptcy Procedure 7052 adopts, in substantial part, Federal Rule of
Civil Procedure 52, which pertains to a court’s findings and conclusions. As relevant
here, Rule 7052 permits a party to move within 14 days of the entry of an order or
judgment for the court to amend or make additional findings, and to amend the
relevant order or judgment accordingly. Notably, Appellant’s motion was dated 16 days
after the December 22 Order, and was docketed by the Bankruptcy Court 42 days after
Federal Rule of Bankruptcy Procedure 9014 pertains to the resolution of contested
matters, and includes provisions regarding service, the application of certain of the Part
VII rules (i.e., the rules that govern adversary proceedings) to contested matters, the
taking of testimony from witnesses, and the attendance of witnesses.
Federal Rule of Bankruptcy Procedure 7062 applies Federal Rule of Civil Procedure 62,
which concerns stays of proceedings in order to enforce a judgment, to adversary
proceedings brought under the Bankruptcy Code.
proceeding, the motion also recited that it sought the additional findings of fact
in connection with the December 22 Order. (See, e.g., Bankr. Dkt. #73 at 2).
As best as this Court can discern, Appellant contends in the Motion for
Additional Findings that the Bankruptcy Court should have had an evidentiary
hearing with respect to Appellee’s Lift-Stay Motion because (i) Appellee’s claims
were unsubstantiated and (ii) Appellant had filed various factual affidavits in
the Bankruptcy Court that controverted facts in issue. (Bankr. Dkt. #73 at 2-4
(citing Fed. R. Bankr. P. 9014)). Appellant also listed docket entries that he
believed to be relevant to the issue, several of which post-dated the
December 22 Order and several of which pertained only to the adversary
proceeding to which Appellee was not a party. (Id. at 4-8).
The April 12 Order on Appeal
By Order dated April 12, 2016 (the “April 12 Order”), the Bankruptcy
Court denied Appellant’s Motion for Additional Findings. (Bankr. Dkt. #88).
The Court began by explaining its understanding that the motion sought both
an evidentiary hearing and to amend or set aside the December 22 Order.
Focusing on the former, the Bankruptcy Court found that Appellant had
previously requested an evidentiary hearing in connection with the Lift-Stay
Motion, and that the Court had denied this request, as it had the discretion to
do. (Id. at 1-2). The Court found no “factual or legal basis to revisit the Court’s
conclusion that an evidentiary hearing was not necessary.” (Id. at 2).
Similarly, the Bankruptcy Court found no reason to revisit its prior holding
that Appellee had standing to seek to lift the stay. (Id.). Finally, in a footnote,
the Court rejected efforts to obtain relief under Federal Rules of Civil Procedure
59 or 60, to the extent such arguments could be located in Appellant’s motion
papers, after concluding that Appellant was merely seeking to relitigate issues
that had already been decided. (Id. (citing, inter alia, Associated Press v. U.S.
Dep’t of Def., 395 F. Supp. 2d 17, 19 (S.D.N.Y. 2005) (“[A] motion for
reconsideration [under Rule 59] is neither an occasion for repeating old
arguments previously rejected nor an opportunity for making new arguments
that could have been previously advanced.”)).
Appellant filed his notice of appeal from the April 12 Order on April 26,
2016. (Dkt. #1). The matter was initially assigned to the Honorable George B.
Daniels, United States District Judge, and reassigned to the undersigned in
October 2016. (Dkt. Entry dated October 20, 2016). This Court observed
certain inconsistencies in Appellant’s filings on the Court’s ECF system, and
these issues were resolved by December 2016. (See Dkt. #9-12).
By letter dated February 1, 2017, Appellee moved to dismiss for lack of
jurisdiction, claiming that the instant appeal contravened the Court’s prior
dismissal of Appellant’s first appeal. (Dkt. #14; see also Dkt. #7 (letter dated
August 10, 2016, from counsel for Appellee, seeking leave to file motion to
dismiss in lieu of appellate brief, and observing that Appellant’s brief was not
properly filed on ECF)). 10 Appellant filed his reply on February 15, 2017,
The docket for this appeal discloses a problem with Appellee’s February 1, 2017 filing.
However, both the Court and Appellant have received copies of the filing. Counsel for
advancing several complaints about the conduct of Appellee’s counsel,
including purported violations of Local Civil Rule 1.3. (Dkt. #15; see also Dkt.
#13 (memorandum endorsement dated January 9, 2017, rejecting Appellant’s
earlier assertion of arguments under Rule 1.3)).
The Standard of Review
A district court reviewing an appealable order from a bankruptcy court is
instructed to review the bankruptcy court’s findings of facts for clear error, its
conclusions of law de novo, and its evidentiary rulings for an abuse of
discretion. In re Residential Capital, LLC, 552 B.R. 50, 62 (S.D.N.Y. 2015)
(citing In re Bayshore Wire Prods. Corp., 209 F.3d 100, 103 (2d Cir. 2000);
Manley v. AmBase Corp., 337 F.3d 237, 247 (2d Cir. 2003)), appeal dismissed
(Mar. 9, 2016). See generally Fed. R. Bankr. P. 8013. “[A] finding is ‘clearly
erroneous’ when” the reviewing court is “left with the definite and firm
conviction that a mistake has been made.” ASM Capital, LP v. Ames Dep’t
Stores, Inc. (In re Ames Dep’t Stores), 582 F.3d 422, 426 (2d Cir. 2009) (quoting
United States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948)).
A district court “may affirm [the bankruptcy court’s decision] on any
ground that finds support in the record, and need not limit its review to the
bases relied upon in the decision below.” Freeman v. Journal Register Co.,
452 B.R. 367, 369 (Bankr. S.D.N.Y. 2010). That said, the district court may
Appellee has been contacted by Chambers about this ECF filing deficiency on several
occasions, and is ordered to remedy the deficiency at once.
not consider evidence outside the record below. See In re Bear Stearns HighGrade Structured Credit Strategies Master Fund, Ltd., 389 B.R. 325, 339
(Bankr. S.D.N.Y. 2008). Further, any argument not raised in the bankruptcy
court is considered waived and will not be considered by the district court,
unless such a waiver would result in manifest injustice. See Klein v. Civale &
Trovato, Inc. (In re Lionel Corp.), 29 F.3d 88, 92 (2d Cir. 1994); see also Best
Payphones, Inc. v. Manhattan Telecomms. Corp. (In re Best Payphones, Inc.), 432
B.R. 46, 60 (Bankr. S.D.N.Y. 2010), aff’d, 450 F. App’x 8 (2d Cir. 2011)
Defining the Instant Appeal
Analysis of this appeal — Appellant’s second appeal relating to the
December 22 Order — is informed by the first. To begin, Appellee argues with
some force that this appeal is wholly precluded in light of this Court’s prior
order dismissing the first appeal for lack of jurisdiction. (Dkt. #7, 14). After
all, this Court’s prior ruling is dispositive of the propriety of the December 22
Order; it would be an end-run around that decision to contest the process by
which Judge Lane arrived at that order, and certainly an end-run to challenge
Judge Lane’s failure to amend or set aside that order. In this regard, it is
worth noting that Appellant’s arguments have transformed dramatically since
they were first presented to the Bankruptcy Court on January 7, 2016.
(Compare Bankr. Dkt. #73 (memorandum in support of Motion for Additional
Findings), with Dkt. #5 (memorandum in support of appeal)). While the bulk of
Appellant’s Motion for Additional Findings focused on the need for and scope of
an evidentiary hearing, the bulk of the instant appeal from the denial of that
motion is a reargument of various doctrinal issues, including issues that were
raised impermissibly for the first time in Appellant’s reply brief to the
Bankruptcy Court. (See Dkt. #5 (addressing ostensible evidentiary deficiencies
at page 9 of a 12-page submission)).
The Court continues to extend solicitude to Appellant because of his pro
se status. See Pabon v. Wright, 459 F.3d 241, 248 (2d Cir. 2006) (directing
courts to read pro se filings “liberally and interpret them to raise the strongest
arguments that they suggest”). As such, it considered in the first instance
whether the Motion for Additional Findings should have been deemed by this
Court or the Bankruptcy Court to be a motion for reconsideration of the
December 22 Order that would have tolled the deadline for appeal. Ultimately,
this Court concludes that it should not have been. The Motion for Additional
Findings was received by the Bankruptcy Court several weeks after the notice
of appeal of the December 22 Order had been filed; it was captioned for, and
made extensive reference to, the adversary proceeding in which Appellee was
not involved; and at no point did Appellant advise the Bankruptcy Court or this
Court that the motion ought to be considered in connection with the first
appeal. Perhaps more significantly, even accepting as true the January 7,
2016 date that is affixed to the motion, Appellant’s motion was untimely as a
reconsideration motion. See Fed. R. Bankr. P. 8002(a) (specifying a 14-day
deadline for filing notices of appeals, absent certain exceptions), 8002(b)(1)(A)
(permitting tolling of the deadline for filing a notice of appeal for a “timely
file[d]” motion to amend or make additional findings under Fed. R. Bankr.
P. 7052), 7052 (specifying a 14-day deadline for filing motions under this
provision), 9024 (permitting reconsideration of orders and judgments in certain
circumstances), 9023 (requiring motions pursuant to Rule 9024 to be filed
within 14 days of entry of judgment); cf. Coe v. RJM, LLC, 372 F. App’x 188,
189 n.* (2d Cir. 2010) (summary order) (“Rule 8002 was amended effective
December 1, 2009, to provide that a motion for reconsideration filed pursuant
to Bankruptcy Rule 9024 within 14 days after the entry of judgment ... tolls the
time to appeal.”).
This Court agrees with Appellee that, to the extent that Appellant is now
challenging the Bankruptcy Court’s refusal, in the April 12 Order, to set aside
or amend the December 22 Order, those arguments are precluded by its prior
decision. “Under the doctrine of res judicata, or claim preclusion, a final
judgment on the merits of an action precludes the parties or their privies from
relitigating issues that were or could have been raised in that action.”
TechnoMarine SA v. Giftports, Inc., 758 F.3d 493, 499 (2d Cir. 2014) (emphasis
omitted) (quoting St. Pierre v. Dyer, 208 F.3d 394, 399 (2d Cir. 2000)). See
generally Marcel Fashions Grp., Inc. v. Lucky Brand Dungarees, Inc., 779 F.3d
102, 107 (2d Cir. 2015) (discussing claim and issue preclusion).
Given that conclusion, the Court finds it difficult to address the propriety
of the evidentiary rulings by the Bankruptcy Court, including its decision to
have an evidentiary hearing that was smaller in scope than that sought by
Appellant. That is because, were the Court to agree with Appellant on his
claims of procedural infirmities, the remedy would be vacatur of the
December 22 Order — a remedy foreclosed by this Court’s prior decision. That
said, it is significant to this Court that both Appellant and the Bankruptcy
Court addressed the Motion for Additional Findings as a standalone motion,
with the Bankruptcy Court focusing on Appellant’s evidentiary challenges. For
purposes of this appeal, this Court will consider the April 12 Order as the
denial of a standalone evidentiary challenge, and not a second attempt at
challenging the propriety of the December 22 Order.
Permissible Bankruptcy Appeals
Appeals from Final and Interlocutory Orders
With this construction in mind, the Court must determine whether any
of the potential bases for appeal of a bankruptcy court order applies. It
considers first whether the April 12 Order is a “final judgment, order, and
decree” from which Appellant can appeal under 28 U.S.C. § 158(a)(1). The
Supreme Court has observed in the bankruptcy context as follows:
The rules [as to what constitutes an appealable final
order] are different in bankruptcy. A bankruptcy case
involves “an aggregation of individual controversies,”
many of which would exist as stand-alone lawsuits but
for the bankrupt status of the debtor. 1 Collier on
Bankruptcy ¶ 5.08[b], p. 5-42 (16th ed. 2014).
Accordingly, “Congress has long provided that orders in
bankruptcy cases may be immediately appealed if they
finally dispose of discrete disputes within the larger
case.” Howard Delivery Service, Inc. v. Zurich American
Ins. Co., 547 U.S. 651, 657, n. 3, 126 S. Ct. 2105, 165
L.Ed.2d 110 (2006) (internal quotation marks and
emphasis omitted). The current bankruptcy appeals
statute reflects this approach: It authorizes appeals as
of right not only from final judgments in cases but from
“final judgments, orders, and decrees ... in cases and
proceedings.” § 158(a).
Bullard v. Blue Hills Bank, — U.S. —, —, 135 S. Ct. 1686, 1692-93 (2015)
(concluding that orders denying confirmation of a plan with leave to
amend are not “final” for purposes of appeal; defining relevant “proceedings” to
include “the entire process culminating in confirmation or dismissal”). 11
While offering a comparatively stringent standard for final orders,
however, the Supreme Court in Bullard noted that interlocutory appeals were
available under 28 U.S.C. § 158(a)(3), and expressed its “expectation that lower
courts will certify and accept interlocutory appeals from plan denials in
appropriate cases.” 135 S. Ct. at 1696; see also Fed. R. Bankr. P. 8004(d) (“If
an appellant timely files a notice of appeal under this rule but does not include
a motion for leave, the district court ... may ... treat the notice of appeal as a
See also In re Segal, 557 B.R. 46, 49-50 (E.D.N.Y. 2016):
The concept of finality is more relaxed in the bankruptcy context
than in normal civil litigation. See In re Penn Traffic Co., 466 F.3d
75, 77-78 (2d Cir. 2006); In re Am. Preferred Prescription, Inc., 255
F.3d 87, 92 (2d Cir. 2001) (recognizing the “flexible standard of
finality” applicable in bankruptcy setting (internal quotation marks
and citation omitted)). Finality requirements are relaxed because
“bankruptcy proceedings often continue for long periods of time,
and discrete claims within those proceedings are frequently
resolved prior to the conclusion of the entire bankruptcy....” In re
Ionosphere Clubs, Inc., 139 B.R. 772, 777 (S.D.N.Y. 1992). Still,
“even that flexibility is limited by the requirement that there be a
final decision on the discrete issue at bar.” LTV Corp. v. Farragher
(In re Chateaugay Corp.), 838 F.2d 59, 61-62 (2d Cir. 1988)
(internal quotation marks and citation omitted); see also In re
Pegasus Agency, Inc., 101 F.3d 882, 885 (2d Cir. 1996) (recognizing
that a bankruptcy order is interlocutory unless it “completely
resolves all of the issues pertaining to a discrete claim, including
issues as to the proper relief” (internal quotation marks, citation,
and alterations omitted)).
motion for leave and either grant or deny it.”). Even then, however, courts
must consider whether the matter involves (i) a controlling question of law
(ii) as to which there is a substantial ground for difference of opinion, (iii) where
immediate appeal may materially advance the termination of the litigation. See
28 U.S.C. § 1292(b). See generally Kassover v. Kassover (In re Kassover), 343
F.3d 91, 94 (2d Cir. 2003). “[A]ll three requirements set forth in section
1292(b) must be met for a Court to grant leave to appeal.” Thaler v. Estate of
Arbore (In re Poseidon Pool & Spa Recreational, Inc.), 443 B.R. 271, 275
(E.D.N.Y. 2010). “In addition, a party seeking leave to appeal a non-final order
must demonstrate exceptional circumstances to overcome the general aversion
to piecemeal litigation and to justify a departure from the basic policy of
postponing appellate review until after the entry of a final judgment.” In re
Coudert Bros. LLP Law Firm Adversary Proceedings, 447 B.R. 706, 711
(S.D.N.Y. 2011) (internal quotation marks and citation omitted).
The Collateral Order Doctrine
A final basis of appellate jurisdiction stems from the collateral order
doctrine, “a judicially created exception to the final decision principle; it allows
immediate appeal from orders that are collateral to the merits of the litigation
and cannot be adequately reviewed after final judgment.” Germain v. Conn.
Nat’l Bank, 930 F.2d 1038, 1039-40 (2d Cir. 1991); see also In re Adelphia
Commc’ns Corp., 333 B.R. 649, 657-58 (S.D.N.Y. 2005) (explaining that a
bankruptcy decision may be appealed under this doctrine only if all three of the
following requirements are met: “the decision would [i] conclusively determine
the disputed question, [ii] resolve an important issue completely separate from
the merits of the action[ ], and [iii] be effectively unreviewable on appeal from a
final judgment” (citations omitted)). The Supreme Court has characterized the
collateral order doctrine as a “narrow exception ... whose reach is limited to
trial court orders affecting rights that will be irretrievably lost in the absence of
an immediate appeal.” Richardson-Merrell, Inc. v. Koller, 472 U.S. 424, 430-31
(1985) (internal quotation marks and citations omitted). In consequence, “the
conditions for collateral order appeal [are] stringent,” Dig. Equip. Corp. v.
Desktop Direct, Inc., 511 U.S. 863, 868 (1994), lest the exception swallow the
rule against piecemeal appeals.
Appellant’s appeal of the April 12 Order does not fit neatly into any of
these three categories. To the extent that it is construed as an appeal from the
Bankruptcy Court’s evidentiary ruling, it does not appear to qualify as an
appeal of a “final decision on the discrete issue at bar,” and thus would not
constitute a final order under § 158(a)(1). See LTV Corp. v. Farragher (In re
Chateaugay Corp.), 838 F.2d 59, 61-62 (2d Cir. 1988) (internal quotation
marks and citation omitted).
Nor is the April 12 Order a proper subject for an interlocutory appeal.
The Bankruptcy Court’s decision not to have a more extensive evidentiary
proceeding was plainly a matter committed to its discretion, and thus did not
implicate a controlling question of law “to which there is a substantial ground
for difference of opinion[.]” 28 U.S.C. § 1292(b). Nor can this Court discern
how an immediate appeal of the order will “materially advance the termination
of the litigation,” id., given the resolution of the first appeal.
Finally, the Court does not believe this is the rare case where resort to
the collateral order doctrine is warranted. As discussed throughout this
Opinion, Appellant’s dissatisfaction with the resolution of the Lift-Stay Motion
has been resolved by the first appeal, which is now before the Second Circuit.
The corollary issue of the scope of the evidentiary hearing is hardly an
“important issue completely separate from the merits of the action.”
Richardson-Merrell, Inc., 472 U.S. at 31 (internal citation omitted).
For all of these reasons, the Court does not believe that the April 12
Order, properly construed, is appealable. However, again according deference
to Appellant’s pro se status and to the manner in which the Bankruptcy Court
and Appellant construed the Motion for Additional Findings, the Court will
consider whether Judge Lane erred in declining Appellant’s request for an
The Bankruptcy Court Did Not Err in Denying Appellant’s Motion for
A bankruptcy court has the discretion to decide an issue without holding
an evidentiary hearing, and a district court can reverse such a decision only if
it amounts to an abuse of discretion. See Key Mech. Inc. v. BDC 56 LLC (In re
BDC 56 LLC), 330 F.3d 111, 119 n.5 (2d Cir. 2003), abrogated on other
grounds, In re Zarnel, 619 F.3d 156 (2d Cir. 2010); see also D.A. Elia Constr.
Corp. v. Damon & Morey, LLP (In re D.A. Elia Constr. Corp.), No. 04 Civ. 975A
(RJA), 2006 WL 1720361, at *7 (W.D.N.Y. June 19, 2006) (“The bankruptcy
court’s decision to deny a full evidentiary hearing was not an abuse of
discretion. The nature of the hearing lies within the sound discretion of the
bankruptcy judge, and does not necessarily require the presentation of oral
testimony.” (citation omitted)), aff’d sub nom. Bernheim v. Damon & Morey, LLP,
Lead Dkt. No. 06-3386-bk, 2007 WL 1858292 (2d Cir. June 28, 2007).
A bankruptcy court judge does not abuse his discretion in reaching a
decision without holding an evidentiary hearing where “the record provided
ample evidence on which the court could make such a decision.” C-TC 9th Ave.
P’ship v. Norton Co. (In re C-TC 9th Ave. P’ship), 113 F.3d 1304, 1313 (2d Cir.
1997). What is more, “[a] ruling is an abuse of discretion only if the
bankruptcy court ‘bases its ruling on a mistaken application of the law or a
clearly erroneous finding of fact.’” Stasko v. Motors Liquidation Co. (In re Motors
Liquidation Co.), No. 10 Civ. 4322 (JGK), 2011 WL 2462773, at *2 (S.D.N.Y.
June 20, 2011) (quoting Duane Reade, Inc. v. St. Paul Fire & Marine Ins. Co.,
411 F.3d 384, 388 (2d Cir. 2005)); see also Peskin v. Picard, 440 B.R. 579, 584
Judge Lane did not abuse his broad discretion in denying Appellant’s
Motion for Additional Findings. To be clear, while couched as a “motion to
make additional findings of fact” (Bankr. Dkt. #73 at 1, 2), the motion was in
substance a retread of two prior requests for discovery that the Bankruptcy
Court had considered and rejected in connection with the October 27 and
November 24 hearings. (See Bankr. Dkt. #42, 59; see also Bankr. Dkt. #65 at
7 (noting that Appellant “requests numerous items in discovery”)).
Furthermore, Appellant’s requests for discovery, which continue through this
appeal, bespeak a misapprehension of the law. Judge Lane had two questions
to answer in connection with the Lift-Stay Motion: First, he needed proof that
Appellee had standing to move to lift the stay and seek in rem relief. He
obtained this proof by reviewing the real estate transaction documents
submitted in connection with the parties’ motions (see Bankr. Dkt. #40, 42,
45); questioning counsel for Appellee on standing during the October 27
hearing (see Bankr. Dkt. #60 at 4-5); explaining to Appellant the laws under
which Appellee claimed standing (see id. at 8-12, 18-21, 24-26; see also Bankr.
Dkt. #65 at 4-8); and then deferring decision on the motion until he and
Appellant could examine the originals of the relevant documents, including the
original allonges (see Bankr. Dkt. #64 at 4-9).
Second, Judge Lane needed proof of a basis to lift the stay. In this case,
the proffered basis was Appellant’s failure to make post-petition payments on
the Three Properties. See 11 U.S.C. § 362(d)(1) (“On request of a party in
interest and after notice and a hearing, the court shall grant relief from the
stay ... (1) for cause, including the lack of adequate protection of an interest in
property of such party in interest[.]”). Judge Lane obtained this proof by
reviewing the documentation of arrearages that had been submitted by
Appellee with the Lift-Stay Motion (see Bankr. Dkt. #40 at ¶¶ 8, 31), and then
confirming with Appellant at the October 27 hearing that, indeed, no such
payments had been made (see Bankr. Dkt. #60 at 14). With this information,
the Bankruptcy Court could make an informed evaluation of the Sonnax
factors; it did, and did not err in concluding that they favored lifting the stay.
Much of the evidence that Appellant sought then and seeks now was
irrelevant to the issues before the Bankruptcy Court. In large part, that is
because Appellant continues to confuse the standards for lifting the stay with
the standards for foreclosing on the Three Properties. (See Bankr. Dkt. #60 at
20-21). As Judge Lane explained, once the stay was lifted, Appellant retained
the ability to make his arguments in the Foreclosure Action. (See id. (“If I grant
it, then you’ll proceed in that other court with whatever arguments and merit
arguments on the merits that you’re entitled to make. And nothing that’s
happened here in connection with this motion changes that fact.”)). Appellant
remains free to make them in that forum.
In sum, a strong argument can be made that the entirety of this appeal is
precluded by Appellant’s appeal from the December 22 Order last year.
However, giving Appellant the strongest argument this record can support, he
has a challenge to Judge Lane’s evidentiary issues, which challenge (assuming
a permissible basis for appeal exists) fails because Judge Lane properly
exercised his discretion in taking evidence on the Lift-Stay Motion. There is no
basis to challenge the Bankruptcy Court’s evidentiary rulings, and no basis to
disturb the April 12 (or, for that matter, the December 22) Orders.
For the foregoing reasons, the April 12 Order is AFFIRMED, and
Appellant’s appeal from that order is DENIED. The Clerk of the Court is
directed to close this case.
March 3, 2017
New York, New York
KATHERINE POLK FAILLA
United States District Judge
Sent by First Class Mail to:
Everton Aloysius Sterling
c/o General Post 341
Bronx, NY 10469-9998
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