In Re: Frontier Insurance Group, LLC

Filing 10

OPINION AND ORDER: For the foregoing reasons, the bankruptcy court's order is AFFIRMED in all respects. The Clerk of Court is respectfully directed to close the case. (Signed by Judge Cathy Seibel on 3/18/2019) (mml) Transmission to Orders and Judgments Clerk for processing.

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
------------------------------------------------------------------------x
In re:
FRONTIER INSURANCE GROUP, INC. and
FRONTIER INSURANCE GROUP, LLC,

OPINION AND ORDER
18-CV-3211 (CS)

Debtor/Reorganized Debtor.
------------------------------------------------------------------------x
BENJAMIN LAWSKY, SUPERINTENDENT OF
FINANCIAL SERVICES OF THE STATE OF NEW YORK,
AS LIQUIDATOR OF FRONTIER INSURANCE
COMPANY,
Plaintiff-Appellant,
- against FRONTIER INSURANCE GROUP, LLC,
Defendant-Appellee.
------------------------------------------------------------------------x
Appearances:
William F. Costigan
Costigan Law PLLC
New York, New York
Counsel for Plaintiff-Appellant
Robert E. Malchman
Allegaert Berger & Vogel LLP
New York, New York
Counsel for Defendant-Appellee
Seibel, J.
Before the Court is the appeal of Plaintiff-Appellant Benjamin Lawsky, Superintendent
of Financial Services of the State of New York1 in his capacity as Liquidator (the “Liquidator”)

1

The current Superintendent of Financial Services is Maria T. Vullo.
1

of Frontier Insurance Company (“FIC”), from the bankruptcy court’s February 15, 2018
Memorandum of Decision After Trial, (Bankr. Doc. 66 (“Trial Dec.”),)2 and March 12, 2018
Partial Judgment, (Bankr. Doc. 72), ruling that Defendant-Appellee Frontier Insurance Group,
LLC (“FIGL”) holds title to, and all reversionary interests in, land and improvements thereon in
Sullivan County, New York, that the parties have labeled in this litigation “Parcels B and C.”
For the following reasons, the bankruptcy court’s orders are AFFIRMED.
BACKGROUND
A.

Facts
1.

Parties

In 2001, the Supreme Court of the State of New York placed FIC in a temporary
rehabilitation proceeding under the New York Insurance Law, and subsequently entered a final
rehabilitation order. (Bankr. Doc. 74-23.) The rehabilitation order vested the Superintendent of
Insurance (the “Rehabilitator”) with ownership and possession of FIC’s property. (Bankr. Doc.
55 ¶ 46.) The Superintendent of Insurance is the statutory predecessor of the Superintendent of
Financial Services, meaning the Rehabilitator is Plaintiff-Appellant’s predecessor. (Id. ¶ 45.)
Frontier Insurance Group, Inc. (“FIGI”) was the corporate parent of FIC, and on July 5,
2005, FIGI filed a voluntary petition in the U.S. Bankruptcy Court for the Southern District of
New York for relief under chapter 11 of title 11 of the United States Code. In re Frontier Ins.
Grp., Inc., No. 05-36877 (Bankr. S.D.N.Y.), Doc. 1. Under FIGI’s chapter 11 plan, FIGL
became FIGI’s successor. (See Bankr. Doc. 52-4 (the “Plan”).)

“Bankr. Doc.” refers to documents filed in the U.S. Bankruptcy Court for the Southern District
of New York under docket number 14-9022.
2

2

2.

Parcels A, B, and C

In 1991, FIC purchased a 15.23-acre site in Sullivan County, (Bankr. Doc. 74-1), which
is now considered Parcel A. In 1993, FIGI purchased an adjacent 15.667-acre site, (See Bankr.
Doc. 74-2), 2.7 acres of which are now considered Parcel B and 12.967 acres of which are now
considered Parcel C. At the outset and through FIGI’s bankruptcy proceedings, the properties
were not referred to as Parcels A, B, and C, (together, the “Rock Hill property”); those
designations were not used until the events giving rise to the instant dispute occurred. (See
Bankr. Doc. 60 at 99:2-6, 137:4-19; see also Trial Dec. at 2.)
Prior to FIGI’s bankruptcy proceedings, FIC and FIGI shared a building as their
headquarters on Parcel A, with an address of 195 Lake Louise Marie Road, Rock Hill, New York
(the “Headquarters”). (See Bankr. Doc. 52-1; Trial Dec. at 2.) There were two additional
structures on the Rock Hill property: a daycare center referred to as “Nana’s House” and a tool
shed referred to as the “pole barn,” both on Parcel C. (See Bankr. Doc. 52-2.) Nana’s House’s
address was 16 Frontier Drive, Rock Hill, New York, and the pole barn’s address was 195 Lake
Louise Marie Road, the same as the Headquarters. (Id.) Other portions of Parcel C as well as
Parcel B were used for parking. (See Doc. 7 (“Mem.”) at 7 (aerial photo of the Rock Hill
property.)
In connection with development of the Rock Hill property, FIGI, FIC, and the County of
Sullivan Industrial Development Authority (“CSIDA”) entered into a Payment in Lieu of Taxes
(“PILOT”) agreement, which provided tax relief to FIGI and FIC subject to periodic payments
for a twenty-year period commencing on February 28, 1994. (Bankr. Doc. 74-12 at 2.) As
collateral under the PILOT agreement, FIC transferred Parcel A to CSIDA in 1993, FIGI
transferred Parcel B to CSIDA in 1994, and, in 1997, FIGI deeded Parcel C to FIC, which that

3

same day deeded Parcel C to CSIDA. (Bankr. Docs. 74-5, 74-7, 74-8, 74-9.) At the end of the
twenty-year payment period, CSIDA would transfer the deeds back to the “Company,” which
under the PILOT agreement was defined as FIC. (Bankr. Doc. 74-5 at 24.) In 1997 and 1999,
the parties expanded the PILOT agreement to include improvements FIGI and FIC were making
to the Rock Hill property, which ultimately included the additions of Nana’s House and the pole
barn. (See Bankr. Doc. 74-12 at 2-3.) The two supplemental PILOT agreements also provided
that, upon completion of the payments, CSIDA would convey title to the Parcels back to the
“Company,” which is defined in both agreements as FIC. (Bankr. Doc. 74-11 at 15; Bankr. Doc.
74-13 at 12-13.)
3.

FIGI’s Bankruptcy

In 2003, the Insurance Management Group, Inc. (“IMG”) bought the debt secured by a
first lien on substantially all of FIGI’s assets. (Bankr. Doc. 48 ¶¶ 3-4.) FIGI then commenced its
chapter 11 case with the goal of enabling IMG to obtain FIGI’s interest in FIC, along with FIGI’s
other property. (Id. ¶ 4.) In connection with its chapter 11 petition, pursuant to 11 U.S.C. § 521,
FIGI filed a Schedule A listing all of the real property in which it had any legal, equitable, or
future interest. (Bankr. Doc. 52-1.) FIGI listed Nana’s House, the Headquarters, and the pole
barn – by name and address – as property in which it was a successor in interest to CSIDA, and
listed that it was the “100% owner” of a property at an address in Monticello, New York. (Id.)
On August 16, 2005, FIGI filed an Amended Schedule A, which omitted reference to the
Headquarters but was otherwise the same as the first Schedule A. (Bankr. Doc. 52-2; In re
Frontier Ins. Grp., Inc., No. 05-36877, Doc. 56.) FIGI did not specify any interest in the land on
which any of the structures sat. Suzanne Loughlin, FIGI’s Executive Vice President in 2005,
(Doc. 49 ¶ 1), testified that she did not distinguish between the structures and the land on which

4

they sat because the reference to the structure implied a claim over the property underneath it,
(see Bankr. Doc. 60 at 108:25-109:10).3 Loughlin further testified that she provided no
description for the land on which the Monticello property sat, but that land was sold and the
proceeds transferred into a litigation trust. (See id. at 109:3-6)
On August 29, 2005, Neal Conolly, the administrator of FIC designated by the
Rehabilitator, filed a $43,230,580 proof of claim against FIGI, but it made no claim to Nana’s
House, the pole barn, the neighboring parking lots, any real estate, or any rights concerning real
estate. (See Bankr. Doc. 52-12 at 92:22-93:4; Bankr. Doc. 52-7.) FIC and FIGI then entered
into negotiations to “resolve everything that was outstanding.” (Bankr. Doc. 52-11 at 50:2451:4.) During the negotiations, it was Conolly’s and FIC’s understanding that FIGI owned
Nana’s house, the pole barn, and the adjacent parking lots, which together make up Parcels B
and C. (Id. at 50:9-20.) Even though the PILOT agreements indicated that the reversionary
interest belonged to FIC, FIC believed those provisions of the PILOT agreements were drafted in
error. (Bankr. Doc. 52-12 at 87:6-9, 89:14-19, 90:5-24.) FIGI too believed that it owned the
reversionary interest in Parcels B and C. (Doc. 49 ¶ 5.)
FIC and FIGI reached an agreement, which was later incorporated into the Plan. (Bankr.
Doc. 52-6 ¶ 1; see Bankr. Doc. 52-8.) Pursuant to the settlement agreement and the Plan, FIC
was to receive, among other things, a $12 million allowed unsecured claim and certain
personalty. (Bankr. Doc. 52-8 ¶¶ 3, 5.)4 At no point during the bankruptcy proceedings did FIC

The transcript of Loughlin’s testimony reads that she was asked if she “separated[d] in her
mind the structures from the [indiscernible],” (Doc. 60 at 109:7-8 (alteration in original)), but
based on the context, it is clear that the question was whether Loughlin separated the structure
from the land on which it sat.
3

4

The settlement agreement never became effective because it was not approved by the state
court supervising FIC’s rehabilitation. (Trial Dec. at 29.)
5

make a claim to or assert an interest in Parcels B and C. (Bankr. Doc. 52-12 at 92:22-93:4; see
Bankr. Doc. 52-11 at 37:22-39, 42:14-17, 44:2-20.) After reaching an agreement with FIGI, FIC
voted affirmatively to accept FIGI’s Plan. (Bankr. Doc. 52-9 ¶ 10.)
On October 17, 2005, FIGI filed the Plan with the bankruptcy court. The Plan defined
FIGI’s “Assets” as including “all . . . real property interests.” (Plan at 3.) FIGI’s First Amended
Disclosure Statement noted that “the Assets of the Debtor [FIGI], except for the Trust Assets
[not relevant here], shall revest in the Reorganized Debtor [FIGL] free and clear of all Liens,
Claims and Equity Interests pursuant to Section 11.01 of the Plan.” (Bankr. Doc. 52-5
(“Disclosure Statement”) at 33.) The Disclosure Statement also made specific reference to the
Schedule A and Amended Schedule A that FIGI had filed with the court. (See id. at 20.) The
only assets that the Disclosure Statement actually identified, however, were FIGI’s “significant
assets,” which did not include the Rock Hill property. (Id. at 13-17.)
As a condition precedent to confirmation of the Plan, FIGI required the bankruptcy court
to enter a final order approving its Disclosure Statement. (Plan § 10.01). On December 1, 2005,
the bankruptcy court confirmed the Plan and Disclosure Statement. (Bankr. Doc. 52-10 at 14
¶ 2.)
4.

FIC’s Liquidation Proceedings

In 2012, the Albany County Supreme Court converted FIC’s rehabilitation proceeding to
a liquidation proceeding, vesting the Liquidator with “title to all of [FIC’s] property, contracts
and rights of action” and directing the Liquidator to liquidate all of FIC’s business and affairs in
accordance with New York insurance law. (Trial Dec. 3-4 (quoting In re Liquidation of Frontier
Ins. Co., No. 97-06 (Sup. Ct. Nov. 9, 2012)). FIGL did not make any claim in the FIC

6

receivership proceeding asserting an interest in Parcels B or C. (Bankr. Doc. 60 at 126:22127:9.)
B.

The Proceedings Below

On February 24, 2014, the Liquidator filed a verified petition in Albany County Supreme
Court, requesting an order declaring that FIC is the sole beneficial owner of the Rock Hill
property and directing CSIDA to execute a deed conveying the Rock Hill property to FIC. See
Lawski v. Frontier Ins. Grp., LLC (In re Frontier Ins. Grp., LLC.), 517 B.R. 496, 502-03 (Bankr.
S.D.N.Y. 2014). FIGL subsequently removed the case to the United States District Court for the
Northern District of New York and filed counterclaims claiming the reversionary interest in
Parcels B and C. Id. at 503. On April 28, 2014, the Liquidator moved to remand the case to
state court, but the Northern District judge transferred the case and pending motion to the
Southern District of New York, where the chapter 11 case had been filed. Id.
Chief Judge Cecelia G. Morris of the bankruptcy court denied the Liquidator’s motion to
remand, and added:
The Court need not step on the toes of the state court by making a determination on
whether the various contracts between and among the parties grant a right of
reversion to the Reorganized Debtor. The Court need only look to the plan and
confirmation order to determine whether [Parcels B and C were] included in the
plan, whether the Liquidator’s claim was dealt with in the plan, whether the
Liquidator is enjoined from proceeding against the Debtor, whether the
Reorganized Debtor is released from any liability and whether a violation of the
discharge has occurred, as was alleged by the Reorganized Debtor. The Court
believes that it is in a better position than the state court to make such
determinations and that doing so would assist, rather than hinder, the state court. If
the Court determines that this issue was not covered by the plan, it will send the
matter back to state court so that the issue can be decided under state law.
Id. at 504. Thus, the bankruptcy court needed to “decide whether [Parcels B and C] w[ere] part
of the plan, and as such, whether res judicata attaches or whether the FIC is enjoined from
bringing its claims against [FIGL].” Id. at 507.
7

On January 6, 2015, the case was transferred from Judge Morris to Judge Robert D.
Drain, (Bankr. Doc. 25). Judge Drain recognized the principle that a creditor with an interest in
an asset may lose it if, knowing the debtor claims a contrary interest, the creditor allows a plan to
be confirmed without contesting the issue. (Trial Dec. at 12.) Under 11 U.S.C. § 1141(c),
property “dealt with” in a confirmed plan is free and clear of the claims and interests of creditors,
provided the holder of the claim or interest participated in the bankruptcy case. City of Concord
v. N. New England Tel. Operations (In re N. New England Tel. Operations), 795 F.3d 343, 348
(2d Cir. 2015). To address those issues, Judge Drain needed to decide “the issue of whether
Parcels B and C were covered by, included in, or dealt with by the Plan and confirmation order,
and, more specifically, the context in which those documents should be read,” which in turn
required the court to engage in “fact-finding regarding the nature of FIGI’s disclosure of its
asserted property interests during its bankruptcy case, the extent of the involvement of the
Liquidator’s predecessor, the Rehabilitator, in that case, and the parties’ mutual understanding of
their respective claims to the property at issue when the Plan was confirmed.” (Trial Dec. at 5.)
Accordingly, the bankruptcy court held a trial on those issues. (Id.)
After trial, Judge Drain found (and the Liquidator does not dispute) that “the
Rehabilitator (and thus his successor, the Liquidator), ‘participated’ in FIGI’s case for purposes
of section 1141(c) of the Bankruptcy Code under In re Northern New England Telephone
Operations, 795 F.3d at 350.” (Trial Dec. at 14.) Judge Drain further held that because the Plan
provided that all of the property of FIGI’s estate with the exception of the “Trust Assets” would
vest post-confirmation in FIGL, and because Parcels B and C were not listed as “Trust Assets,”
they vested in FIGL “in a way that satisfies the ‘identification’ or ‘dealt with’ requirement of In
re Northern New England Telephone Operations, 795 F.3d at 349,” and thus the Liquidator

8

could not contest FIGL’s free and clear ownership of them, so long as the Plan actually identified
those assets as property of the estate for purposes of the Plan. (Trial Dec. at 16.)
Then, turning to the issue most critical to this appeal, Judge Drain found that FIGI’s
reversionary interest in Parcels B and C was sufficiently identified during FIGI’s chapter 11
case. Under the pre-bankruptcy documents, i.e., the PILOT agreements, “FIC, not FIGI had the
reversionary interest in all three parcels.” (Id. at 18.) But Judge Drain found that the trial record
was equally clear that during FIGI’s bankruptcy case, “both FIGI and the Rehabilitator treated
the reversionary interests in the land on which Nana’s house and the pole barn sit and the
adjacent parking lot, or Parcels B and C, as FIGI’s property and that the Plan was confirmed with
that understanding.” (Id.) For example, FIGI’s Amended Schedule A listed FIGI as the
“[s]uccessor in [i]nterest” to the CSIDA in Nana’s House and the pole barn, which clearly
indicates a reversionary interest, and “one can reasonably assume that by listing Nana’s House
and the pole barn in its schedule of assets, FIGI was including the land on which those structures
sit among its assets, as well.” (Id. at 19-20.) Further, Judge Drain found that because “Nana’s
House and the pole barn did not have an address separate from the general Rock Hill Property
address,” (id. at 20) – which is true for the pole barn but not for Nana’s House, (Doc. 52-2) –
“[i]t would have been misleading to have identified Parcel C by the Rock Hill Property address
because that address also applied to Parcel A, which FIGI did not claim as its property in its
amended schedule of assets,” (Trial Dec. at 20). Thus, “[b]y listing the buildings on Parcel C in
its schedule of assets FIGI sufficiently put the Rehabilitator and other parties in interest on notice
of its claim to the land on which they sit.” (Id. at 21.) The court added that in its experience,
“parties in bankruptcy cases routinely identify real property by its address, not by a metes and
bounds description, or by [identifying] a building on the site.” (Id.)

9

Next, the bankruptcy court took up whether FIGL was judicially estopped from claiming
Parcel B as an asset due to FIGI’s failure to specifically disclose Parcel B in its Disclosure
Statement or Schedule A. First, the court found that FIGI’s failure to disclose Parcel B was
harmless and not malicious. (Id. at 26-27.) Parcel B would not revert to FIGI for several years
“even if FIGI had the wherewithal to make the PILOT payments – which it lacked without the
assistance of FIGL’s parent, IMG – [and thus] the asset’s disclosure on FIGI’s schedules would
not have been material” to the general creditors or any party other than IMG and the
Rehabilitator. (Id. at 26.) Further, the non-disclosure was by FIGI, not FIGL or IMG which
were now claiming an interest in Parcel B. (Id. at 26.) Moreover, the terms “Parcel B” and
“Parcel C” were not used at the time of the bankruptcy proceedings, but rather, the property was
referred to as Nana’s House, the pole barn, and their neighboring parking lots. (Id. at 27.)
Accordingly, the bankruptcy court found that by scheduling Nana’s House and the pole barn,
“FIGI came almost as close to identifying what the parties now refer to as Parcel B, the parking
lot next to them, as they did to identifying Parcel C.” (Id.)
The bankruptcy court concluded that “most importantly, . . . FIGI, IMG and – critically –
the Rehabilitator understood when the Plan was confirmed that FIGI, not FIC, had the
reversionary interest not only in Parcel C but also Parcel B.” (Id.) The court primarily relied on
Mr. Conolly who stated that as administrator of FIC, he entered into the settlement with FIGI
with the understanding that FIGI had the reversionary interest in Nana’s House, the pole barn,
and the adjacent parking lots, otherwise known as Parcels B and C. (Id. at 28-29.) Among the
evidence corroborating Mr. Conolly’s testimony was the testimony of Al Escobar – the Chief
Executive Officer of FIC during Rehabilitation – that Nana’s House, the pole barn, and some of
the parking lots heading towards [the Headquarters]” were to revert back to FIGI under the

10

PILOT agreements, (Bankr. Doc. 60 at 79:1-3), and the testimony of FIGI’s representative “that
the reversionary interest in Parcels B and C would belong to FIGL as FIGI’s successor,” (Trial
Dec. at 30; see Bankr. Doc. 49 ¶ 5). Because the Plan was confirmed with the understanding that
FIGL had the reversionary interest in Parcels B and C, “as between FIGL and the Liquidator
judicial estoppel should not overcome the effect of 11 U.S.C. § 1141(a)-(c) and res judicata to
unwind it.” (Trial Dec. at 27.) “To rule otherwise based on judicial estoppel or any other
equitable doctrine would provide the Liquidator, as the Rehabilitator’s successor, with an
improper windfall contrary to 11 U.S.C. § 1141(a)-(c) and undo the Plan and Confirmation
Order.” (Id. at 31.)
The bankruptcy court held that “under the Plan the reversionary interests in Parcels B and
C are property of FIGL, and the Liquidator is precluded by the Plan and the Confirmation Order
from interfering with those interests,” and thus the CSIDA was ordered to promptly transfer title
to Parcels B and C to FIGL. (Id.; Bankr. Doc. 72 at 3.)
Judge Drain entered partial judgment on March 13, 2018, (Bankr. Doc. 72), and on April
12, 2018, Plaintiff-Appellant filed his notice of appeal, (Doc. 1).
LEGAL STANDARD
This Court has jurisdiction pursuant to 28 U.S.C. § 158(a)(1) to hear appeals from final
judgments, orders, and decrees of a bankruptcy court. A district court reviews a bankruptcy
court’s findings of fact for clear error and its legal conclusions de novo. Overbaugh v. Houshold
Bank, N.A. (In re Overbaugh), 559 F.3d 125, 129 (2d Cir. 2009) (per curiam). “When reviewing
for clear error, [I] may reverse only if [I am] left with the definite and firm conviction that a
mistake has been committed.” United States v. Bershchansky, 788 F.3d 102, 110 (2d Cir. 2015)
(internal quotation marks omitted). “Thus, if the factual findings of the bankruptcy court are

11

plausible in light of the record viewed in its entirety, this Court may not reverse it even though
convinced that had it been sitting as the trier of fact, it would have weighed the evidence
differently.” Savage & Assocs., P.C. v. Williams Commc’ns (In re Teligent Servs., Inc.), 372
B.R. 594, 599 (S.D.N.Y. 2007) (internal quotation marks omitted). And “where there are two
permissible views of the evidence, the factfinder’s choice between them cannot be clearly
erroneous.” Id. (internal quotation marks omitted).
DISCUSSION
A.

Judge Drain Properly Considered FIGI’s Amended Schedule A

Plaintiff-Appellant argues that Judge Drain erred because neither the Amended Plan nor
the Amended Disclosure Statement indicated that FIGI claimed any interest in Parcels B or C,
and the court’s confirmation order made no reference to them. (Mem. at 20; see id. at 22 (citing
Baeshen v. Arcapita Bank B.S.C.(c) (In re Arcapita Bank B.S.C.(c)), 520 B.R. 15, 21 (Bankr.
S.D.N.Y. 2014) (“The preclusive effect of a confirmation order is limited by the content of the
reorganization plan and the confirmation order.”)).) Accordingly, Plaintiff-Appellant argues
even though FIGI’s Amended Schedule A may have claimed an interest in those Parcels, because
FIGI did not “explicitly incorporate” its Amended Schedule A into its Disclosure Statement or
Plan, Judge Drain erred by considering it. (Id. at 21-22.)
Plaintiff-Appellant offers no support for the notion that a Schedule A must be “explicitly
incorporated” into a Disclosure Statement or Plan to be considered by the bankruptcy court. The
case on which Plaintiff-Appellant relies, In re Arcapita, involved a plan in which the debtor
defined its “Assets,” in part, as “all property disclosed in the Debtor’s respective Schedules and
the Disclosure Statement,” 520 B.R. at 23 n.6 (emphasis in original), but that case did not hold
that the language emphasized above is required to give effect to a debtor’s schedules. To the

12

contrary, cases often discuss whether a debtor sufficiently disclosed or identified assets in “its
Schedules, Disclosure Statement or confirmed Plan.” MF Glob. Holdings USA Inc. v. Heartland
Co-Op (In re MF Glob. Holdings Ltd.), No. 11-CV-15059, 2017 WL 1373267, at *1 (Bankr.
S.D.N.Y. Apr. 13, 2017) (emphasis added); see Heritage Hotel Ltd. P’ship v. Valley Bank of
Nev. (In re Heritage Hotel P’ship I), 160 B.R. 374, 378 (B.A.P. 9th Cir. 1993) (“a party is
equitably estopped from asserting a cause of action not raised in a reorganization plan or
otherwise mentioned in the debtor’s schedules or disclosure statement”), aff’d, 59 F.3d 175 (9th
Cir. 1995); cf. Kunica v. St. Jean Fin., Inc., 233 B.R. 46, 57 (Bankr. S.D.N.Y. 1999) (finding
disclosure insufficient only because the debtor’s schedule was never submitted to bankruptcy
court or seen by creditors). Here, FIGI filed with the bankruptcy court its Schedule A and
Amended Schedule A, (see Bankr. Docs. 52-1, 52-2), and referenced those schedules repeatedly
in its Disclosure Statement as the source from which FIGI listed, among other things, its assets
and creditors’ claims, (see Disclosure Statement at 15, 20, 22, 26, 28-29). Thus, I see no reason
why it would be error to consider FIGI’s Amended Schedule A.
Additionally, where a reorganization plan is ambiguous, bankruptcy courts are permitted
to examine the case context to determine what creditors are bound by the plan and what property
was within the debtor’s estate. See Harper v. Oversight Comm. (In re Conco, Inc.), 855 F.3d
703, 711-14 (6th Cir. 2017). Here, the Plan defined “Assets” broadly as “any . . . real property
interests,” (Plan at 3), but the Disclosure Statement only identified FIGI’s “significant assets,”
(see Disclosure Statement at 13-17). There is thus an ambiguity as to what other assets FIGI
had, if any, making reference to other documents appropriate. The Amended Schedule A would
be the obvious place to look to determine FIGI’s real property interests, and it identified Nana’s
House and the pole barn. As the parties would have during the bankruptcy proceedings, Judge

13

Drain was permitted to consider FIGI’s Amended Schedule A to determine its assets and estate
under the Plan.
B.

Judge Drain Did Not Clearly Err in Finding Parcels B and C Sufficiently
Identified

Following trial, Judge Drain found that Parcels B and C were included among FIGI’s
assets under the Plan because of the Amended Schedule A’s reference to Nana’s House and the
pole barn, as well as the parties’ understanding that FIGI possessed the reversionary interest in
Nana’s House, the pole barn, and their adjacent parking lots. (Trial Dec. at 20.) “Where . . . a
contract is ambiguous, its interpretation in the presence of extrinsic evidence of meaning is a
question of fact. Therefore, a district court may reverse a bankruptcy court’s interpretation of an
ambiguous contract only if it is clearly erroneous.” Castillo v. Gen. Motors, LLC (In re Motors
Liquidation Co.), 500 B.R. 333, 339 (S.D.N.Y. 2013) (internal quotation marks and citations
omitted), aff’d, 578 F. App’x 43 (2d Cir. 2014) (summary order). Further, “[t]here is simply no
denying that [the lower court] is much more familiar with this Plan – and with the parties’
expectations regarding it – than [I am].” Dow Corning Corp. v. Claimants’ Advisory Comm. (In
re Settlement Facility Dow Corning Tr.), 628 F.3d 769, 772 (6th Cir. 2010). Accordingly, Judge
Drain’s factual findings regarding the interpretation of the Plan are due considerable deference.
Id.
Judge Drain found that it would have been misleading to identify Parcel C by the Rock
Hill property address on the Amended Schedule A because that address also applied to Parcel A.
(Trial Dec. at 20). Judge Drain also relied on the fact that the designations Parcels A, B, and C
were not used by the parties while the bankruptcy proceedings were taking place, so identifying
Parcel C by listing buildings on that property was a reasonable means to put creditors and others
on notice of FIGI’s claim to those buildings and the land on which they sat, and would also have
14

flagged FIGI’s interest in the neighboring area on Parcel B. (Id. at 2, 21, 27.) Finally, and “most
importantly,” Judge Drain relied on testimony from representatives of FIC, the Rehabilitator, and
FIGI to conclude that all of the parties “understood when the Plan was confirmed that FIGI, not
FIC, had the reversionary interest not only in Parcel C but also Parcel B.” (Id. at 27.)
Except for Judge Drain’s erroneous finding that Nana’s House, the pole barn, and the
Headquarters shared an address, (id. at 20), all of the bankruptcy court’s factual findings above
are supported by evidence in the record. And that error was only a partial one, as Judge Drain
was correct that the pole barn and the Headquarters shared an address, and thus it would have
been at least confusing to attempt to identify Parcel C by that address or to refer to it by the
address of Nana’s House, which might suggest FIGI was claiming an interest in less than the full
Parcel. Further, as noted, the designations “Parcel A,” “Parcel B,” and “Parcel C” were not used
until the events giving rise to this dispute occurred. (See Bankr. Doc. 60 at 99:2-6, 137:4-19.)
Thus, as a practical matter, at the time the settlement and Plan were negotiated and consented to
by all parties, including the Liquidator’s predecessor, the Rock Hill property consisted of 1) the
Headquarters, 2) Nana’s House and the pole barn, and 3) the parking lots between them.
Nobody thought of the land as three parcels. By disclaiming any interest in the Headquarters and
the parking lot on its Parcel but claiming an interest in Nana’s House, the pole barn and their
neighboring parking lots, FIGI indicated – clearly enough for the Liquidator to understand, as he
plainly did – that it was claiming an interest in what is now regarded as Parcels B and C but not
A.
Finally, testimony from FIC, the Rehabilitator, and FIGI support the finding that they
understood, at the time of FIGI’s bankruptcy proceeding, that FIGI owned the reversionary
interests in Parcels B and C. (See Bankr. Doc. 49 ¶ 5; Bankr. Doc. 52-11 at 50:2-20; Bankr.

15

Doc. 60 at 78:22-79:3.) Even assuming that sitting as the trier of fact I might have “weighed the
evidence differently,” that is insufficient to find that Judge Drain clearly erred, as there is ample
evidence in the record (even discounting, as I am, Judge Drain’s erroneous finding that Nana’s
House did not have an address of its own) that FIGI’s interests in Parcels B and C were among
its assets under the Plan. See In re Teligent Servs., Inc., 372 B.R. at 599. Accordingly, I find
that Judge Drain did not clearly err by so finding.
C.

Development History of Parcels B and C

Plaintiff-Appellant further argues that even assuming it was understood that FIGI had a
reversionary interest in the “parking lots” during the bankruptcy proceeding, the parking lots
cannot be considered part of Parcels B and C because they were developed to provide parking for
the Headquarters on Parcel A before Nana’s House and the pole barn were built. (Mem. at 18.)
Thus, Plaintiff-Appellant asserts that Judge Drain erred by treating Parcel B as “appurtenant to
the two small structures built five years later on the corner of Parcel C,” (id. at 18), and by
considering FIGI’s reference to “two ancillary structures . . . to extend to the 12.967 acre parcel
on which they sit,” (id. at 24). But Judge Drain never determined that the parking lots on Parcels
B and C were “appurtenant” to Nana’s House and the pole barn rather than to the Headquarters.
Rather, he found that the reversionary interest that FIGI claimed – and that FIGI was understood
to possess by all relevant parties involved during the bankruptcy proceeding – included Nana’s
House, the pole barn, and their adjacent parking lots, which together make up Parcels B and C.
(Trial Dec. at 27.) Whether the cars parked in Parcels B and C were driven by people who
worked in a building on Parcel A, C, or anywhere else does not seem relevant to the issues
presented here. All parties understood that FIC had the reversionary interest only in the first
parcel deeded to CSIDA, and that FIGI claimed the reversionary interest in the remaining deeded

16

land. Accordingly, the development history of Parcels B and C does not change my analysis
above.
D.

CSIDA Contracts

Plaintiff-Appellant also argues that Judge Drain erred by operating on the mistaken
premise that the reversionary interest in Parcel B was an undisclosed asset of FIGI, when it was
in fact an FIC asset pursuant to the CSIDA contracts. (Mem. at 15.) But, to the contrary, Judge
Drain acknowledged that “under the pre-bankruptcy documents,” i.e., the CSIDA contracts,
“FIC, not FIGI had the reversionary interest in all three parcels.” (Trial Dec. at 18.) Judge Drain
noted, however, that the record was “equally clear” that during the bankruptcy proceedings and
post-confirmation, FIGI and the Rehabilitator treated the reversionary interest in Parcel B (and
Parcel C) as FIGI’s property. (Id.) Thus, Judge Drain did not rely on any mistaken premises. In
fact, Judge Drain avoided “step[ping] on the toes of the state court by making a determination on
whether the various contracts between and among the parties grant a right of reversion.” In re
Frontier Ins. Grp., LLC., 517 B.R. at 504. Instead, he looked to the Plan, the parties’
understanding at the time the Plan was made, and FIGI’s Amended Schedule A to determine that
Parcel B was properly treated as an asset of FIGI, all of which was permissible.
E.

Judicial Estoppel

Plaintiff-Appellant further argues that because FIGI failed to list Parcel B as an asset in
its bankruptcy proceedings, it should be judicially estopped from claiming it now. (Mem. at 1517.)5 “Judicial estoppel will,” generally, “prevent a party who failed to disclose a claim in
bankruptcy proceedings from asserting that claim after emerging from bankruptcy.” BPP
Illinois, LLC v. Royal Bank of Scotland Grp. PLC, 859 F.3d 188, 192 (2d Cir. 2017). But “the

5

Plaintiff-Appellant makes a judicial estoppel argument only as to Parcel B.
17

exact criteria for invoking judicial estoppel will vary based on ‘specific factual contexts.’”
Adelphia Recovery Tr. v. Goldman, Sachs & Co., 748 F.3d 110, 116 (2d Cir. 2014) (quoting New
Hampshire v. Maine, 532 U.S. 742, 751 (2001)).
Judicial estoppel will generally apply where (1) a party’s later position is clearly
inconsistent with its earlier position; (2) the party’s former position has been
adopted in some way by the court in the earlier proceeding; and (3) the party
asserting the two positions would derive an unfair advantage or impose an unfair
detriment on the party seeking estoppel.
Edwards v. CGI Grp. Inc., No. 11-CV-8611, 2018 WL 4043142, at *4 (S.D.N.Y. Aug. 10, 2018)
(internal quotation marks omitted). Because the purpose of judicial estoppel is to protect the
integrity of the judicial process by prohibiting parties from deliberately changing positions
according to the exigencies of the moment, “the Second Circuit limits judicial estoppel to
situations where the risk of inconsistent results with its impact on judicial integrity is certain.”
Azuike v. BNY Mellon, 962 F. Supp. 2d 591, 598 (S.D.N.Y. 2013) (alteration omitted) (quoting
Derosa v. Nat’l Envelope Corp., 595 F.3d 99, 103 (2d Cir. 2010)).
There is no dispute that FIGI failed to specifically identify Parcel B on its Amended
Schedule A, Disclosure Statement, or elsewhere during the bankruptcy proceedings. Judge
Drain, however, found that FIGI’s non-disclosure was harmless and not malicious, and thus
presents a “unique fact pattern” under which judicial estoppel does not prevent FIGL from now
claiming Parcel B. I agree.
FIGL’s current position is not “clearly inconsistent” with its own or its predecessor’s
positions during FIGI’s bankruptcy proceeding. Evidence in the record shows that during the
bankruptcy proceedings, it was FIGI’s understanding that it possessed the reversionary interest in
Parcel B, (Bankr. Doc. 49 ¶ 5), and that is the same position FIGL takes now. Its failure to list
“Parcel B” at a time when nobody thought of the area as “Parcel B” is – given FIGI’s
identification of the area by reference to nearby structures – not clearly contrary to the position it
18

takes now. Thus, there is no prior inconsistency that would necessitate application of judicial
estoppel. And because there was no former inconsistent position taken by FIGI, there was no
inconsistent position adopted by the bankruptcy court.
Finally, refraining from applying judicial estoppel will not result in FIGL deriving an
unfair advantage, nor would it impose an unfair detriment on the Liquidator. Despite the
Liquidator’s claims to the contrary now, the evidence is that the Rehabilitator understood during
the bankruptcy proceedings that FIGI, not FIC, had the reversionary interest in Parcel B, despite
the “mistakes made in paper” in the PILOT agreements with CSIDA. (Bankr. Doc. 52-12 at
89:12-90:12; see Bankr. Doc. 52-11 at 50:16-20 (describing the “realty owned by FIGI” as “the
Pole Barn and adjacent parking lot, and Nana’s House and adjacent parking lot”). The
Rehabilitator acknowledged as much at the time, stating that what is now known as Parcel B was
not material to FIC. (Bankr. Doc. 52-12 at 111:2-5.) The Rehabilitator knew that FIGI was
claiming the reversionary interest in Parcel B, (Bankr. Doc. 52-11 at 34:2-8, 37:22-38:21, 50:220; Bankr. Doc 52-12 at 89:14-93:4), but made no claim to Parcel B and raised no objection to
confirmation of the Plan relative to Parcel B, (Bankr. Doc. 52-11 at 42:14-17), likely because the
complex settlement it reached with FIGI was beneficial to it.6 Because the Rehabilitator
essentially disclaimed any interest of FIC in Parcel B, the Liquidator cannot now claim surprise
or prejudice as a result of FIGI’s failure to specifically identify Parcel B in its Disclosure
Statement or Schedule A. Indeed, for the reasons explained by Judge Drain, (Trial Dec. at 22),
nobody with a conceivable interest in Parcels B or C was deceived.

6

That this settlement never became effective is immaterial to the issue of whether both parties
operated with the understanding that FIGI had the reversionary interest in Parcel B.
19

These facts thus present the “‘unusual case’ in which a debtor’s nondisclosure had at
most a ‘de minimis effect’ on a prior bankruptcy proceeding” and judicial estoppel is
inappropriate. Clark v. AII Acquisition, LLC, 886 F.3d 261, 267 (2d Cir. 2018)
(quoting Adelphia, 748 F.3d at 120); see Maines v. Last Chance Funding, Inc., No. 17-CV-5453,
2018 WL 4558408, at *6 (E.D.N.Y. Sept. 21, 2018) (not applying judicial estoppel where no risk
of debtor deriving unfair advantage or risk of unfair detriment on opposing party), amended on
other grounds by 2018 WL 4610898 (E.D.N.Y. Sept. 25, 2018). Accordingly, I find that Judge
Drain was correct in not applying judicial estoppel to FIGL’s claim to Parcel B.
F.

The Extent to Which New York Law Applies

Plaintiff-Appellant argues that because New York law requires that any transfer of
property be made via a document containing words of conveyance and a sufficient description of
the property to be conveyed, the previous bankruptcy proceedings could not vest the reversionary
interest in Parcels B and C in FIGI. (Mem. at 16-17.) But Judge Drain correctly held that
Bankruptcy Code § 1141(a)-(c) provides for the vesting of real property upon confirmation of the
Plan, even without a deed, and the Plan provides that New York law controls “[e]xcept to the
extent that the Bankruptcy Code or Bankruptcy Rules or other federal laws are applicable.”
(Plan § 14.05.) Here, the Bankruptcy Code is applicable, and thus under the terms of the Plan,
the Bankruptcy Code controls in this situation. Therefore, no written conveyance is needed
pursuant to New York law.
G.

Limiting Effect of FIC’s Rehabilitation Status

Plaintiff-Appellant also argues that the bankruptcy court failed to consider that FIC’s
rehabilitation status granted the state court exclusive jurisdiction over the Parcels and prohibited
FIC from transferring any property interests to FIGI without permission from the state court.

20

(Mem. at 24-26.) But Judge Drain did not order that the Liquidator transfer anything to FIGL or
find that it had. He only found that under the Plan, the reversionary interests in Parcels B and C
rested with FIGL, regardless of who might have owned them pre-bankruptcy. He did not purport
to strip the Liquidator of FIC’s interests, but rather only found that even assuming FIC had a
right to those interests, the Liquidators’ predecessor had lost it when, knowing that FIGI claimed
the same interests, it consented to the Plan that would vest them in FIGL.
Further, the Bankruptcy Code’s concept of “property of the estate is not concerned with
title or possession; it expressly embraces all legal or equitable interests of the debtor in property
where located, as of the commencement of the case.” In re Hudson Valley Ambulance Serv.,
Inc., 11 B.R. 860, 863 (Bankr. S.D.N.Y. 1981); see Troutman v. Compton (In re Greyling Realty
Corp.), 74 F.2d 734, 736 (2d Cir. 1935) (“The court thus acquiring jurisdiction over the property
of the debtor does so throughout the United States as against any state or federal receiver
theretofore appointed in any other proceeding.”). “Once it is determined that the property in
question is ‘property of the estate,’ it [would] not matter,” for instance, “if a state court receiver
had actual possession” of it. In re Hudson Valley, 11 B.R. at 863-64; see Troy Indus. Catering
Serv. v. Michigan (In re Troy Indus. Catering Serv.), 2 B.R. 521, 523 (Bankr. E.D. Mich. 1980)
(rejecting contention that debtor was divested of property interest because state seized the
property). FIC and the Rehabilitator would have been well within their rights to contest FIGI’s
claims to Parcels B and C (or Nana’s House or the pole barn) during the bankruptcy proceedings,
but they may not now claim that the bankruptcy court did not have jurisdiction over the property
during those proceedings. See In re Hudson Valley, 11 B.R. at 864 (“the question of turnover
and parties’ entitlement to the protection of their interests are [to be] resolved in the light of
principles under the Bankruptcy Code,” not in disputes over jurisdiction). Accordingly, I reject

21

Plaintiff-Appellant’s argument that Judge Drain erred by failing to consider the limiting effect of
FIC’s rehabilitation status.
CONCLUSION
For the foregoing reasons, the bankruptcy court’s order is AFFIRMED in all respects.
The Clerk of Court is respectfully directed to close the case.
SO ORDERED.
Dated: March 18, 2019
White Plains, New York

_____________________________
CATHY SEIBEL, U.S.D.J.

22