BOARD OF MANAGERS OF THE BAYARD VIEWS CONDOMINIUM v. FPG BAYARD, LLC, Fortis Property Group, LLC
2017 WL 1435430 (N.Y.Sup.) (Trial Order)
Supreme Court of New York.
IAS Term, Commercial Part 4
Kings County
BOARD OF MANAGERS OF THE BAYARD VIEWS CONDOMINIUM, on behalf of individual unit owners, Plaintiff,
v.
FPG BAYARD, LLC, Fortis Property Group, LLC, Joel Kestenbaum, and Jonathan Landau, Defendants.
No. 502885/14.
April 21, 2017.
Decision and Order
Lawrence Knipel, J.S.C.
*1 Mot. Seq. #1
The following e-filed papers read herein:
NYSCEF#:
Notice of Motion, Affirmation, Memorandum of Law, and Exhibits Annexed
23, 24, 25-43
Affidavit in Opposition, Memorandum of Law, and Exhibits Annexed
46-56, 57Reply Affirmation and Memorandum of Law
58-59
Upon the foregoing papers and after oral argument, the post-answer motion of defendants FPG Bayard, LLC (FPG), Fortis Property Group, LLC (Fortis), and Joel Kestenbaum and Jonathan Landau (collectively, the individual defendants) for an order, pursuant to CPLR 3211 (a) (1), (3), (5), and (7), dismissing the complaint in its entirety, is granted to the extent that (1) the first cause of action of the complaint is dismissed insofar as it seeks any recovery for the conditions or defects existing at the Bayard Views Condominium (the condominium) before the effective date of the chapter 11 plan of reorganization of 20 Bayard Views LLC, the initial sponsor of the condominium,1 (2) the second and third causes of action of the complaint are dismissed in their entirety, and (3) all claims against Fortis (but not against the individual defendants2) are dismissed; and the motion is otherwise denied. The action is severed and continued against the remaining defendants, FPG Bayard, LLC, Joel Kestenbaum, and Jonathan Landau.
1
See In re 20 Bayard Views LLC, Chapter 11 Case No. 1:09-BK-50723 (Bankr ED NY); Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, as Modified, dated July 25, 2011; Findings of Fact, Conclusions of Law and Order (i) Approving the Disclosure Statement, and (ii) Confirming the Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code for 20 Bayard Views, LLC, dated July 29, 2011; Amended Order on Motion to Reopen and for an Order in Aid of Plan Confirmation, dated July 29, 2015. See also 11 USC § 1141 (c); In re Orleans Homebuilders, Inc., 561 BR 46, 51-52 (Bankr D Del 2016); In re Johns-Manville Corp., 552 BR 221, 235-237 (Bankr SD NY 2016); In re Johns-Manville Corp., 57 BR 680, 690 (Bankr SD NY 1986).
2
See Board of Managers of Beacon Tower Condominium v 85 Adams St., LLC, 136 AD3d 680, 682 (2d Dept 2016); Birnbaum v Yonkers Contr. Co., 272 AD2d 355, 357 (2d Dept 2000). Cf. Board of Managers of 184 Thompson St. Condominium v 184 Thompson St. Owner LLC, 106 AD3d 542, 544 (1st Dept 2013).
The Note of Issue/No Appearance Date, which expired on January 27, 2017, is hereby extended to June 30, 2017, [illegible text]
This constitutes the decision and order of the Court.
ENTER FORTHWITH,
<>
J.S.C.
Justice Lawrence Knipel
End of Document
© 2020 Thomson Reuters. No claim to original U.S. Government Works.
UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NEW YORK
——————————————————————-X
In re:
20 BAYARD VIEWS, LLC,
Debtor.
——————————————————————-X
Chapter 11
Case No. 09-50723
AMENDED ORDER ON MOTION TO REOPEN AND FOR AN ORDER IN AID OF
PLAN CONFIRMATION
WHEREAS, on December 4, 2009, 20 Bayard Views, LLC, the developer and sponsor of
the Bayard Views Condominium (the “Condominium”), filed a Chapter 11 bankruptcy petition;
and
WHEREAS, in the Debtor’s bankruptcy schedules, it listed the Board of Managers of
Bayard Views Condominium (the “Board”) as a creditor holding a $64,000 unsecured claim for
pre-petition Condominium charges, which the Board did not dispute; and
WHEREAS, on July 20, 2011, the Court issued an order (the “Confirmation Order”)
confirming a plan of reorganization for the Debtor (the “Plan”), which provided for the transfer
of the Condominium’s unsold units and parking spaces to a “NewCo” transferee.
The FPG Purchase
WHEREAS, the record shows that, in October 2011, FPG Bayard LLC (“FPG Bayard”)
acquired the thirty-seven unsold residential units and forty unsold parking spaces at the
Condominium and the ability to become a right to become the sponsor of the Condominium, and
was designated the NewCo transferee under the terms of the Plan; and
WHEREAS, the record shows that, on December 9, 2012, FPG Bayard issued an
amendment to the Condominium offering plan, which designated FPG Bayard as the new
Case 1-09-50723-ess Doc 466 Filed 07/29/15 Entered 07/29/15 15:32:23
sponsor (the “FPG Offering Plan”). FPG Bayard has since sold the remaining units.
The State Court Action
WHEREAS, on September 2, 2014, the Board filed a complaint against FPG Bayard,
Fortis Property Group, LLC (“Fortis”), and two FPG principals in Supreme Court of the State of
New York, Kings County (the “State Court Action”); and
WHEREAS, in the State Court Action, the Board asserts three causes of action – breach
of contract, breach of the Housing Merchant Implied Warranty, and an accounting and return of
monies collected in connection with the Condominium’s storage units – and seeks damages for
alleged costs of repairs including from water damage and for a boiler replacement.
The Motion To Reopen and for an Order in Aid of Plan Confirmation
WHEREAS, on November 21, 2014, FPG Bayard, Fortis, and the two FPG principals
(together, “FPG” or the “Movants”) filed a motion in this Court seeking an order: (1) reopening
the Debtor’s case, (2) finding that the Confirmation Order and the injunctions that are
incorporated in that order prohibit the assertion of claims against the Movants that arise from the
Debtor’s pre-effective date conduct, and (3) enjoining the State Court Action; and
WHEREAS, FPG argues, among other things, that the State Court Action asserts claims
that arise only from successor liability for the pre-effective date conduct of the Debtor, that such
claims did not survive confirmation of the Debtor’s Chapter 11 plan, and that, as a result, the
State Court Action violates the Confirmation Order; and
WHEREAS, on January 5, 2015, the Board filed opposition to the Motion; and
WHEREAS, the Board argues, among other things, that its claims in the State Court
Action arise only from the post-effective date conduct of FPG Bayard and its contractual and
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statutory obligations and are not based in successor liability for the Debtor’s conduct; and
WHEREAS, on January 19, 2015, FPG filed a Reply to the Board’s Opposition, in which
FPG argues, among other things, that the complaint in the State Court Action conflates the
actions of the Debtor and FPG Bayard and that the Board asserts claims for construction defects
caused by the Debtor, for which FPG bears no responsibility; and
WHEREAS, on January 30, 2015, the Court issued an order reopening the Debtor’s case
on consent of both parties; and
WHEREAS, on April 29, 2015, the Court heard argument by the parties on the Motion
and the remaining relief sought therein; and
WHEREAS, on May 19, 2015, the Court issued an oral decision on the Motion.
Jurisdiction To Enforce the Confirmation Order
WHEREAS, the U.S. Supreme Court has confirmed that “the Bankruptcy Court plainly
ha[s] jurisdiction to interpret and enforce its own prior orders.” Travelers Indemnity Co. v.
Bailey, 557 U.S. 138, 151 (2009); and
WHEREAS, the Second Circuit has similarly held that a bankruptcy court has
jurisdiction to enforce its orders and injunctions with respect to the confirmation of a plan. In re
Petrie Retail, Inc., 304 F.3d 223, 231 (2d Cir. 2002).
Confirmation Orders and Free and Clear Property Transfers
WHEREAS, Bankruptcy Code Section 1141(c) provides protection to reorganized
debtors and the purchasers of estate assets from pre-effective date claims against a debtor. In
relevant portion, it states that, “after confirmation of a plan, the property dealt with by the plan is
free and clear of all claims and interests of creditors, equity security holders, and of general
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partners in the debtor;” and
WHEREAS, as the Second Circuit explained in Douglas v. Stamco, in the analogous
context of a sale of estate property under Bankruptcy Code Section 363, the Code limits liability
against “free and clear” asset transferees for claims relating to pre-petition conduct where the
claimant has had notice of and participated in the bankruptcy. Douglas v. Stamco, 363 F. Appx.
100, 102 (2d Cir. 2010); and
WHEREAS, with respect to post confirmation claims and creditors, “Section 1141(c) . . .
does not embrace . . . post-confirmation creditors, whose dealings with the debtor after
confirmation, gave rise to post-confirmation claims . . . . Upon confirmation, the reorganized
debtor returns to the commercial world without protection from post-confirmation creditors.” In
re Prudential Lines, Inc., 114 B.R. 27, 29 n.1 (Bankr. S.D.N.Y. 1989); and
WHEREAS, post-petition contracts constitute new legal obligations, outside the scope of
Section 1141’s protection. See, e.g., Grubin v. Sallie Mae Servicing Corp., L.P. (In re Grubin),
476 B.R. 699, 710 (Bankr. E.D.N.Y. 2010); Century Indemnity Co. v. NGC Settlement Trust (In
re Nat’l Gypsum Co.), 208 F.3d 498, 508 (5th Cir. 2000); Morgan Olson LLC v. Federico (In re
Grumman Olson Indus.), 445 B.R. 243 (Bankr. S.D.N.Y. 2011), aff’d, 467 B.R. 694 (S.D.N.Y.
2012) (noting that “[t]he Sale Order did not give [buyer] a free pass on future conduct, and the
suggestion that it could is doubtful”); and
WHEREAS, Section 1141 similarly does not eliminate a debtor or purchaser’s obligation
to comply with post-petition statutory requirements. As one court has explained, “reorganized
debtors and their successors are bound to comply with state and federal statutes after discharge
like any other corporation.” Conseco, Inc. v. Schwartz (In re Conseco, Inc.), 330 B.R. 673, 688
4
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(Bankr. N.D. Ill. 2005) (citing Ohio v. Kovacs, 469 U.S. 274, 285 (1985)).
Violations of a Discharge Injunction
WHEREAS, Bankruptcy Code Section 524(a)(2) provides that “A discharge in a case
under this title . . . operates as an injunction against the commencement or continuation of an
action, the employment of process, or an act, to collect, recover or offset any such debt as a
personal liability of the debtor, whether or not discharge of such debt is waived;” and
WHEREAS, the Second Circuit has held that a transferee may obtain an order enforcing
confirmation injunctions barring the prosecution of litigation that seeks to impose liability on the
transferee for pre-petition obligations. In re Petrie Retail, Inc., 304 F.3d 223, 223 (2d Cir.
2002).
The Permissive Abstention Doctrine
WHEREAS, 28 U.S.C. § 1334(b) provides, in part, that “the district courts shall have
original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in
or related to cases under title 11;” and
WHEREAS, “a proceeding is related to a case under the Bankruptcy Code if the outcome
of the litigation might have any conceivable effect on the bankruptcy estate, or has any
significant connection with the bankrupt estate.” In re Allou Distribs. Inc., 2012 WL 6012149,
at *6 (Bankr. E.D.N.Y. Dec. 3, 2012) (citing Lead I JV, LP v. North Fork Bank, 401 B.R. 571,
581 (E.D.N.Y. 2009)); and
WHEREAS, 28 U.S.C. § 1334(c)(1) provides, in part, that “nothing in this section
prevents a district court in the interest of justice, or in the interest of comity with state courts or
respect for state law, from abstaining from hearing a particular proceeding arising under title 11
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or arising in or related to a case under title 11;” and
WHEREAS, in considering whether permissive abstention is appropriate, courts consider
several factors, including
(1) the effect or lack thereof on the efficient administration of the estate if a court
recommends abstention, (2) the extent to which state law issues predominate over
bankruptcy issues, (3) the difficulty or unsettled nature of the applicable state law,
(4) the presence of a related proceeding commenced in state court or other
non-bankruptcy court, (5) the jurisdictional basis, if any, other than 28 U.S.C.
§ 1334, (6) the degree of relatedness or remoteness of the proceeding to the main
bankruptcy case, (7) the substance rather than the form of an asserted ‘core’
proceeding, (8) the feasibility of severing state law claims from core bankruptcy
matters to allow judgments to be entered in state court with enforcement left to
the bankruptcy court, (9) the burden of [the court’s] docket, (10) the likelihood
that the commencement of the proceeding in a bankruptcy court involves forum
shopping by one of the parties, (11) the existence of a right to a jury trial, and (12)
the presence in the proceeding of non-debtor parties.
In re Taub, 413 B.R. 81, 92-93 (Bankr. E.D.N.Y. 2009).
Whether the Confirmation Order Protects FPG from Liability Arising from the Pre-Effective
Date Conduct of the Debtor
WHEREAS, FPG argues, among other things, that FPG Bayard’s purchase of the
Debtor’s rights as sponsor of the Condominium and of the remaining Condominium units and
parking spaces, pursuant to Section 1141(c), was free and clear of all claims against the Debtor
that arose prior to the entry of the Confirmation Order; and
WHEREAS, FPG also argues that all of the claims in the State Court Action arise from
defects to the Condominium that were caused by pre-effective date conduct of the Debtor and, as
a result, all such liability was discharged by the Confirmation Order; and
WHEREAS, the Board, in substance, does not dispute that Section 1141 provides for the
sale of estate property free and clear of claims against a debtor, and similarly does not dispute
that the Debtor’s Plan and the Confirmation Order provides for a free and clear sale; and
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WHEREAS, the Board argues that none of the claims asserted in the State Court Action
arises from successor liability for the Debtor’s conduct; and
WHEREAS, as with a purchaser of estate property under Section 363, a purchaser of
assets though a confirmed plan is protected from successor liability for claims based on the preeffective
date conduct of a debtor; and
WHEREAS, the record shows that, pursuant to Bankruptcy Code Section 1141(c),
Article 5(f) of the Debtor’s Plan provides that the Debtor transferred to NewCo all of its rights,
title, and interests as the Condominium sponsor and in the remaining units and parking spaces at
the Condominium, free and clear of any and all liens, claims, security interest, encumbrances,
rights, or interests of any kind or nature, excluding permitted encumbrances, and that the
Confirmation Order contains similar language providing for a free and clear sale; and
WHEREAS, the record shows that FPG Bayard was designated as the NewCo transferee
under the Plan; and
WHEREAS, FPG Bayard is protected from claims, including claims by the Board, based
on liability arising from the pre-effective date conduct of the Debtor, including successor
liability for faulty construction of the Condominium; and
WHEREAS, for these reasons and based on the entire record, to the extent that the claims
asserted in the State Court Action arise from the pre-effective date conduct of the Debtor, the
transferee, FPG Bayard, is protected by the Confirmation Order against the assertion of such
claims.
Whether the Confirmation Order Protects FPG from Liability Arising from its Conduct After the
Entry of the Confirmation Order
WHEREAS, FPG argues, in substance, that the Confirmation Order protects it from all
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claims that seek damages related to defects at the Condominium that existed prior to the
effectiveness date; and
WHEREAS, FPG further argues, among other things, that the Board has not asserted any
claims in the State Court Action that arise from the post-effective date conduct of any of the
Movants; and
WHEREAS, the Board argues that the State Court Action asserts claims based only on
the post-effective date conduct of the Movants, including claims related to the FPG Offering
Plan, that arise from the Movants’ contractual and statutory obligations; and
WHEREAS, the Board argues that its contract claims are based on FPG Bayard’s posteffective
date conduct because, among other reasons, FPG Bayard made representations that did
not put buyers on notice of defects at the Condominium, and because in the FPG Offering Plan,
FPG Bayard stated that it did not omit material facts, contain untrue statements, or contain false
representations; and
WHEREAS, the Board argues that these claims do not come within the scope of
successor liability and that the Confirmation Order does not insulate the Movants from the
assertion of such claims; and
WHEREAS, the Board argues that the Movants’ substantive arguments under New York
state law should be heard in the State Court Action; and
WHEREAS, pursuant to Bankruptcy Code Section 1141, a confirmation order does not
protect a purchaser from liability for its own post-effective date conduct, including liability that
arises from contractual or statutory obligations; and
WHEREAS, the Confirmation Order and the Plan provide for the sale of the Debtor’s
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rights as sponsor of the Condominium and ownership of the remaining units and parking spaces,
but neither their terms nor Section 1141 extend such free and clear protection to liability arising
from the purchaser’s own post-effective date conduct; and
WHEREAS, the Movants are not protected from liability that arises from their own posteffective
date conduct, including claims arising from FPG Bayard’s own representations to
buyers of Condominium units; and
WHEREAS, for these reasons and based on the entire record, to the extent that claims
asserted in the State Court Action arise from the post-effective date conduct of the transferee,
FPG Bayard, or other Movants, they are not protected by the Confirmation Order against the
assertion of such claims.
Whether the Board’s Commencement of the State Court Action Violates the Confirmation Order
and Whether the Court Should Abstain from Deciding that Question
WHEREAS, FPG argues, among other things, that the Board’s claims in the State Court
Action arise only from successor liability for the conduct of the Debtor; and
WHEREAS, FPG argues, in substance, that the Board was on notice of the Debtor’s
bankruptcy case and that any claims arising from construction defects, including liability for
representations about those defects, are barred by the Confirmation Order; and
WHEREAS, FPG also argues that the Board has asserted claims based on FPG Bayard’s
representations in the FPG Offering Plan on behalf of all owners at the Condominium, including
on behalf of owners who purchased units from the Debtor; and
WHEREAS, FPG acknowledges that the Confirmation Order would not prevent the
Board from pursing some claims, including ones based on any defective construction that FPG
Bayard undertook after the effective date to repair the Condominium; and
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WHEREAS, the Board argues that the State Court Action asserts only claims arising
from the Movants’ post-effective date conduct, including alleged misrepresentations in the FPG
Offering Plan; and
WHEREAS, it is appropriate for a bankruptcy court to interpret its own confirmation
order; and
WHEREAS, the Court entered the Confirmation Order in the Debtor’s case and thus has
jurisdiction to enforce that order, including to enjoin litigation that violates the order by seeking
to collect debts against the Debtor or based on the Debtor’s conduct; and
WHEREAS, assessing whether the State Court Action violates the Confirmation Order
requires the Court to analyze the Board’s complaint to determine whether, as pled, the claims
asserted arise from the Debtor’s conduct or from the conduct of the Movants; and
WHEREAS, the parties dispute the legal basis for the Board’s claims, and whether they
arise from the Debtor’s pre-effective date conduct or from conduct after the entry of the
Confirmation Order; and
WHEREAS, to the extent that the issue to be decided is limited to the interpretation of
the bankruptcy court’s own confirmation order, that court should not abstain from adjudicating
the issue; and
WHEREAS, where, as here, the parties dispute the nature and merits of the state law
claims asserted by the Board, it may be appropriate for the Court to abstain from determining
whether the Board has asserted claims that violate the Confirmation Order; and
WHEREAS, the first factor relevant to permissive abstention, the effect of abstention on
the efficient administration of the estate, weighs in favor of abstention as to determining whether
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the State Court Action violates the Confirmation Order because, inasmuch as the estate has been
fully administered, abstention would not impede the efficient administration of the estate; and
WHEREAS, the second permissive abstention factor, the extent to which state law issues
predominate over bankruptcy issues, weighs in favor of abstention because assessing the Board’s
complaint would require an analysis of the pleading of state law claims; and
WHEREAS, the third permissive abstention factor, the difficulty or unsettled nature of
the applicable state law, weighs in favor of abstention because the parties have raised claims and
defenses under New York state real estate and condominium law, including with respect to the
existence of a private right of action, that may be unsettled and that can be resolved by a New
York state court; and
WHEREAS, the fourth permissive abstention factor, the presence of a related proceeding
commenced in state court or other non-bankruptcy court, weighs in favor of abstention because
there is already an action pending in New York state court; and
WHEREAS, the fifth permissive abstention factor, the jurisdictional basis, weighs in
favor of abstention because there do not appear to be grounds for jurisdiction in this Court other
than bankruptcy jurisdiction and the State Court Action claims do not arise under the
Constitution or laws of the United States and there is no apparent diversity of citizenship; and
WHEREAS, the sixth permissive abstention factor, the degree of relatedness or
remoteness of the proceeding to the main bankruptcy case, weighs in favor of abstention
because, among other things, the Debtor is not a party to the State Court Action; and
WHEREAS, the seventh permissive abstention factor, whether this action is, in
substance, a core proceeding, weighs against abstention because the Movants request that the
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Court interpret its own Confirmation Order; and
WHEREAS, the eighth permissive abstention factor, the feasibility of severing state law
claims from core bankruptcy matters to allow judgments to be entered in state court with
enforcement left to the bankruptcy court, weighs in favor of abstention because the state court
can adjudicate the entire State Court Action, including deciding whether claims asserted by the
Board may proceed; and
WHEREAS, the ninth permissive abstention factor, the burdens on the court’s docket,
weighs neither for nor against abstention; and
WHEREAS, the tenth permissive abstention factor, the likelihood that the
commencement of the proceeding in a bankruptcy court involves forum shopping by one of the
parties, weighs neither for nor against abstention; and
WHEREAS, the eleventh permissive abstention factor, the existence of a right to a jury
trial, weighs neither for nor against abstention; and
WHEREAS, the twelfth permissive abstention factor, the presence in this proceeding of
non-debtor parties, weighs in favor of abstention because the parties to the proceeding are both
non-debtors; and
WHEREAS, taken individually and as a whole, these factors cumulatively weigh in favor
of the Court abstaining from determining whether each State Court Action claim is based on the
pre-effective date conduct of the Debtor or on the post-effective date conduct of the Movants,
and whether the State Court Action was initiated in violation of the Confirmation Order; and
WHEREAS, for these reasons and based on the entire record, the Court abstains from
determining whether the Board has asserted claims in the State Court Action that violate the
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Confirmation Order.
NOW THEREFORE, it is hereby
ORDERED, that for these reasons and based on the entire record including the oral
decision issued by the Court on May 19, 2015, to the extent that the claims asserted in the
Board’s State Court Action arise from the pre-effective date conduct of the Debtor, the
transferee, FPG Bayard, is protected by the Confirmation Order against the assertion of such
claims; and it is further
ORDERED, that for these reasons and based on the entire record including the oral
decision issued by the Court on May 19, 2015, to the extent that claims asserted in the Board’s
State Court Action arise from the post-effective date conduct of the transferee, FPG Bayard, or
the conduct of other Movants, they are not protected by the Confirmation Order against the
assertion of such claims; and it is further
ORDERED, that for these reasons and based on the entire record including the oral
decision issued by the Court on May 19, 2015, and in the interests of justice, the Court abstains
from determining whether the Board has asserted in the State Court Action claims that violate
commencement of the proceeding in a bankruptcy court involves forum shopping by one of the
parties, weighs neither for nor against abstention; and
WHEREAS, the eleventh permissive abstention factor, the existence of a right to a jury
trial, weighs neither for nor against abstention; and
WHEREAS, the twelfth permissive abstention factor, the presence in this proceeding of
non-debtor parties, weighs in favor of abstention because the parties to the proceeding are both
non-debtors; and
WHEREAS, taken individually and as a whole, these factors cumulatively weigh in favor
of the Court abstaining from determining whether each State Court Action claim is based on the
pre-effective date conduct of the Debtor or on the post-effective date conduct of the Movants,
and whether the State Court Action was initiated in violation of the Confirmation Order; and
WHEREAS, for these reasons and based on the entire record, the Court abstains from
determining whether the Board has asserted claims in the State Court Action that violate the
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Confirmation Order.