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Squires Motel, LLC v. Gance

March 19, 2010


The opinion of the court was delivered by: Gary L. Sharpe District Court Judge


I. Introduction

Appellant Squires Motel, LLC filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code, which was dismissed by the bankruptcy court pursuant to 11 U.S.C. § 1112(b). (Dkt. No. 1:3.) Squires subsequently filed an appeal of the bankruptcy court's order with this court. (Dkt. No. 1.) Pending are Squires's appeal and appellee Michael Gance's motion to dismiss Squires's appeal. (Dkt. No. 7.) For the reasons that follow, Gance's motion to dismiss is granted, the appeal is dismissed, and the bankruptcy court's order is affirmed.

II. Background*fn1

Southside Storage, LLC, a non-debtor entity related to appellant Squires Motel, LLC, transferred six properties located in Broome County to Squires on May 19, 2009. (See Bankr. Order at 2-3, Dkt. No. 1:3.) The properties consisted of two small apartment buildings located on Squires Avenue, Endicott, New York, and a restaurant, motel, and rental complex on Watson Boulevard, Endicott, New York. The following day, Squires filed for bankruptcy with the United States Bankruptcy Court for the Northern District of New York. Squires alleged that the property transfer was meant to reorganize the distressed properties without affecting Southside's operation of its other properties or bringing unrelated creditors into the bankruptcy proceeding.

In December 2006, two years before, Anthony Gance had sold the properties to Wilson Rigdon, III, a principal of both Squires and Southside, and his father, Wilson Rigdon, Jr., who both personally guaranteed the obligations. On June 19, 2008, after learning that Southside stopped paying the real property taxes on the properties, Gance commenced foreclosure actions in New York State Supreme Court, Broome County, for each property, and subsequently moved for the appointment of a referee in each case. Southside opposed the foreclosure actions. In September 2008, Gance moved for summary judgment, to which Judge Ferris Lebous conditionally granted summary judgment unless Southside paid the property taxes by October 19, 2008. Southside paid the taxes in early November 2008. During this time, Anthony Gance died and appellee Michael Gance was appointed executor of his estate.

On February 20, 2009, Judge Lebous appointed a temporary receiver. And on April 8, judgments of foreclosure were entered regarding the properties, and foreclosure sales were scheduled to be held on May 21. Both parties agreed to the amount set forth in the judgments of foreclosure, and Southside did not appeal the judgments. On May 19, two days prior to the scheduled foreclosure sale, Southside transferred the foreclosed properties to Squires, a newly formed entity at the time. It is unclear whether any consideration was given for the transfer or whether the transfer was made in exchange for an issuance of stock in Squires. Squires has continued to operate the properties.

On May 20, 2009, Squires filed a voluntary chapter 11 petition, allegedly to reorganize and initiate a chapter 11 plan. Shortly thereafter, Gance filed a motion to dismiss, to which Squires filed a response. On September 17, the bankruptcy court issued a Memorandum Decision, Findings of Fact, Conclusions of Law and Order granting Gance's motion to dismiss under 11 U.S.C. § 1112(b) based on its determination that Squires would be unable to confirm a plan and that the chapter 11 petition was filed in subjective bad faith. (See Bankr. Order at 12, Dkt. No. 1:3.)

On September 26, 2009, Squires filed a notice of appeal of the bankruptcy court's order with the United States District Court for the Northern District of New York. (See Dkt. No. 1.) Squires and Gance each filed a Designation of Contents for Inclusion in the Record and Statement of Issues. (See Dkt. Nos. 2, 3.) Both parties also filed their briefs with the court. (See Dkt. Nos. 5, 8.) However, on January 4, 2010, Gance filed a motion to dismiss the appeal, contending that the appeal is moot due to the foreclosure sale of the properties. (See Dkt. No. 7.)

III. Discussion

A. Mootness

There is no requirement that an appellant obtain a stay as a precondition to a bankruptcy appeal. See Trans World Airlines, Inc. v. Texaco, Inc. (In re Texaco Inc.), 92 B.R. 38, 44 (S.D.N.Y. 1988). However, absent a stay, "[t]he law is clear that once a foreclosure sale has taken place, the appeal [from a bankruptcy court's order] is moot." Young v. Shabot (In re Young), 242 F.3d 369, at *1 (2d Cir. 2000) (unpublished); see also Sullivan Cent. Plaza, I, Ltd. v. BancBoston Real Estate Capital Corp., 914 F.2d 731, 733 (5th Cir. 1990) ("If the debtor fails to obtain a stay, and if the property is sold in the interim,... the appeal will be moot."). An appeal is considered moot where "the court has no remedy that it can fashion even if it would have determined the issues differently." Licensing by Paolo, Inc. v. Sinatra (In re Gucci), 105 F.3d 837, 840 (2d Cir. 1997) (internal quotation marks and citation omitted). "It necessarily follows that when, pending an appeal from the judgment of a lower court... an event occurs which renders it impossible for [the] court... to grant [the appellant] any effectual relief whatever, the court... will dismiss the appeal." Mills v. Green, 159 U.S. 651, 653 (1895). Therefore, where an appellant does not obtain a stay pending appeal of an order of dismissal, a subsequent foreclosure of the property at issue leaves the court unable to grant effective relief and consequently renders the appeal moot and subject to dismissal. See Tornheim v. Source One Mortgage Servs. Corp., 108 F.3d 329, at *1 (2d Cir. 1997) (unpublished); see, e.g., Club Candlewood Assocs., L.P. v. Home Fed. Sav. & Loan Ass'n (In re Club Candlewood Assocs., L.P.), 106 B.R. 758 (N.D. Ga. 1989).

Here, the parties concede that following the bankruptcy court's dismissal of the case, the properties were sold pursuant to the April 8, 2009 judgment of foreclosure entered by the state supreme court. (See Appellant Resp. ¶ 1, Dkt. No. 11.) In addition, Squires has neither alleged nor shown any bad faith by the third-party purchaser. Furthermore, it is undisputed that the properties at issue here were the sole assets of Squires at the time the chapter 11 petition was filed. (See Appellant Br. at 1, Dkt. No. 5.) And lastly, it is clear that upon the issuance of the bankruptcy court's order of dismissal, the automatic stay was set aside*fn2 and has not since been reimposed.

Nevertheless, Squires asserts that despite these uncontested facts, the appeal is not moot because an effective remedy remains under N.Y. C.P.L.R. § 5523. However, Squires's loose reliance on § 5523 is misplaced in the present context. Under § 5523, "[a] court reversing or modifying a final judgment or order... may order restitution of property or rights lost by the judgment or order...." As clarified by the New York Court of Appeals, § 5523 applies where "an unstayed judgment or order that has been wholly or partially enforced during pendency of an appeal is subsequently reversed or modified." Da Silva v. Musso, 76 N.Y.2d 436, 440-41 (N.Y. 1990). Here, the relevant judgments for § 5523 purposes are the state supreme court's foreclosure judgments, not the bankruptcy court's order. The foreclosure judgments were never appealed and accordingly constitute final state court judgments. This ...

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