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In Re 347 Linden LLC

July 20, 2011

IN RE 347 LINDEN LLC


The opinion of the court was delivered by: Matsumoto, United States District Judge:

MEMORANDUM & ORDER

On the afternoon of July 18, 2011, 347 Linden LLC ("347 Linden," "Debtor," or "Appellant") brought a second "Emergency Order to Show Cause with Temporary Restraints" to this court, requesting that the court order Federal National Mortgage Association ("Fannie Mae," or "Appellee") to show cause why an order should not be entered (1) staying two March 8, 2011 orders by the United States Bankruptcy Court, Eastern District of New York (Rosenthal, J.) granting relief from a stay and dismissing 347 Linden's Chapter 11 petition, and (2) staying a state court foreclosure sale, scheduled for a third time by Fannie Mae, of the property known as 347 Linden Street, Brooklyn, New York 11237, Block 3328, Lot 47 (the "Property"), for July 21, 2011 at 3:00 p.m. Although petitioner has had notice of the third scheduled pending foreclosure sale for several weeks, petitioner has, for the second time, brought this "Emergency" motion to this court on the eve of the sale. Fannie Mae opposes debtor's emergency application. For the reasons set forth below, the debtor's request for a stay of the bankruptcy court's orders and of the foreclosure sale is denied, and debtor's appeals of the bankruptcy court's March 8, 2011 order lifting the stay and dismissing the debtor's Chapter 11 proceeding are denied in their entirety.

BACKGROUND

I.Facts

The court set forth the relevant factual background in its Memorandum and Order dated June 8, 2011, familiarity with which is presumed. (Docket 11-cv-1990, ECF No. 16, Memorandum and Order, dated June 8, 2011.)

II.Procedural History

On November 3, 2010, the day before the first scheduled foreclosure sale of the Property, debtor filed a petition for reorganization under Chapter 11 of Title 11 of the United States Code, 11 U.S.C. § 101 et seq. (the "Bankruptcy Code"), in the United States Bankruptcy Court for the Eastern District of New York. (Docket 11-cv-1990, ECF No. 9, [Fannie Mae's] Memorandum of Law in Opposition to Appellant's Emergency Application for a Stay of the Bankruptcy Court's Orders Granting Relief from Stay and Dismissing the Chapter 11 Bankruptcy Case and a Stay of the Foreclosure Sale for Property Known as 347 Linden Street, Brooklyn, New York ("Fannie Mae Opp.") at 5; Docket 11-cv-1990, ECF No. 1, [Debtor's] Emergency Order to Show Cause with Temporary Restraints, filed April 22, 2011 ("Debtor Pet.") at ¶ 24; Docket 11-cv-1990, ECF No. 28, Docket 11-cv-2201, ECF No. 26, Docket 11-cv-2202, ECF No. 25, [Debtor's] Emergency Order to Show Cause with Temporary Restraints, filed July 18, 2011 ("Debtor Second Pet.").)*fn1

On January 14, 2011, Fannie Mae filed a motion for entry of an order (a) dismissing the Chapter 11 petition; or (b) modifying the automatic stay. (Fannie Mae Opp. at 5; Debtor Pet. at ¶ 35; Debtor Second Pet. at ¶ 30.) Debtor objected to the motion on February 16, 2011 and filed an Amended Disclosure Statement and Amended Plan of Reorganization on March 7, 2011. (Fannie Mae Opp. at 5; Debtor Pet. at ¶¶ 43, 57; Debtor Second Pet. at ¶¶ 38, 52.) Fannie Mae thereafter withdrew the portion of its motion seeking dismissal, due to a service defect on the I.R.S. (Fannie Mae Opp. at 5 n.2; Debtor Pet. at ¶ 53.)

On March 8, 2011, the Bankruptcy Court heard argument on Fannie Mae's motion. (Fannie Mae Opp. at 5; Debtor Pet. at ¶ 61; Debtor Second Pet. at ¶ 56.) Debtor did not request to call any witnesses to testify. (Fannie Mae Opp. at 11.) On the same day, the Bankruptcy Court granted Fannie Mae's motion requesting relief from the automatic stay, based on the court's findings that there was cause for lifting the stay, that there was no equity in the property, and that an effective reorganization plan was not possible. (Fannie Mae Opp. at 11-13; Debtor Pet. at ¶¶ 71, 72; Debtor Second Pet. at ¶¶ 66, 67.) The Bankruptcy Court also dismissed debtor's petition sua sponte, on the ground that debtor had failed to comply with the U.S. Trustee's requests for information and documents, and because the debtor was unable to demonstrate that there was a reasonable prospect of reorganization. (Fannie Mae Opp. at 12; Debtor Pet. at ¶ 73; Debtor Second Pet. at ¶ 68.) The Bankruptcy Court entered a "Lift Stay Order" and a "Dismissal Order" on March 8, 2011. (Fannie Mae Opp. at 12; Debtor Pet. at ¶¶ 75, 76; Debtor Second Pet. at ¶¶ 70, 71.)

On March 22, 2011, debtor filed in the bankruptcy court a notice of appeal of the Lift Stay Order and the Dismissal Order. (Fannie Mae Opp. at 13; Debtor Pet. at ¶¶ 77, 78; Debtor Second Pet. at ¶¶ 72, 73.) On April 8, 2011, Fannie Mae filed in the state court foreclosure proceeding a notice of sale of the property, scheduled for April 28, 2011. (Fannie Mae Opp. at 13; Debtor Pet. at ¶ 79; Debtor Second Pet. at ¶ 74.)

On April 22, 2011, six days before the foreclosure sale was scheduled, debtor filed his first "Emergency" petition in this court. (See generally Debtor Pet.) The court ordered Fannie Mae to show cause why an order should not be entered staying the bankruptcy court's Lift Stay Order and Dismissal Order and the foreclosure sale of the Property. (ECF No. 3, Emergency Order to Show Cause with Temporary Restraints, dated April 22, 2011.) After hearing argument, and based upon debtor's admission at its March 1, 2011 Rule 2004 Examination that the Property experienced ongoing drug and crime problems, the court agreed to stay the Lift Stay Order, the Dismissal Order and the foreclosure sale on the condition that debtor provide a bond in the amount of $100,000 and supporting documentation by April 27, 2011. (Fannie Mae Opp. at 10 (citing Transcript of Rule 2004 Examination, dated March 1, 2011, at 85).) Upon debtor's posting of the bond, the court continued the stay pending further order of the court. (Order dated April 27, 2011.)

On May 5, 2011, debtor filed in this court two notices of appeal of the bankruptcy court's orders, one to appeal the Lift Stay Order and one to appeal the Dismissal Order. (See Dockets 11-cv-2201; 11-cv-2202.) The motions were fully briefed on June 17, 2011. (See Docket 11-cv-2201, ECF No. 14, Debtor-Appellant's Reply Brief; Docket 11-cv-2202, ECF No. 13, Debtor-Appellant's Reply Brief.)

On June 8, 2011, the court denied the debtor's request for a stay of the bankruptcy court's orders and of the foreclosure sale. (Docket 11-cv-1990, ECF No. 16, Memorandum and Order, dated June 8, 2011.) Specifically, the court found that pursuant to Federal Rule of Bankruptcy Procedure 8005, debtor should have brought the motion to stay to the bankruptcy court in the first instance, rather than in the district court. (Id.)

Nearly six weeks later, and again six days before the third scheduled foreclosure sale, on July 15, 2011, debtor made an application before the bankruptcy court to stay the foreclosure sale pending appeal. (Docket 11-cv-1990, ECF No. 28-25, Emergency Order to Show Cause with Temporary Restraints, filed on July 15, 2011 in the United States Bankruptcy Court for the Eastern District of New York.) The bankruptcy court denied the motion on the same date. (Docket 11-cv-1990, ECF No. 28-28, Order Denying Motion to Prohibit/Enjoin/Restrain, Denying Motion to Stay Order Pending Appeal, dated July 15, 2011.)

On July 18, 2011, three days before the scheduled foreclosure sale, debtor brought the instant second "Emergency Order to Show Cause with Temporary Restraints." (See generally Debtor Second Pet.)

This opinion constitutes the court's opinion on debtor's emergency motion (Debtor Second Pet.), as well as a decision on the merits of debtor's appeals of the bankruptcy court's March 8, 2011 Lift Stay Order and Dismissal Order (Docket 11-cv-2201, ECF No. 1; Docket 11-cv-2202, ECF No. 1).

DISCUSSION

I.Debtor's Appeals of the Lift Stay Order and the ...


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