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In Re Ninotchka Jannetje Manus, Debtor. v. Ninotchka Jannetje Manus

November 10, 2011

IN RE NINOTCHKA JANNETJE MANUS, DEBTOR.
FAMILY M FOUNDATION AND ELIZABETH MANUS,
APPELLANTS,
v.
NINOTCHKA JANNETJE MANUS,
APPELLEE.



MEMORANDUM OPINION AND ORDER

The appellants, Family M Foundation Ltd. ("Family M") and Elizabeth Manus, appeal from an Order of the United States Bankruptcy Court for the Southern District of New York (Chapman, S.) dated September 2, 2010,*fn1 denying a motion for reconsideration of that Court's prior oral ruling of June 17, 2009.

I.

The underlying factual and procedural history of this case is complicated. Appellant Family M is an investment company founded by Allen Manus in 1992 under the laws of the Cayman Islands. (Memorandum and Order of Judge Buchwald dated September 12, 2005, attached as Ex. K to App. to the R. Accompanying Mem. of Law of Appellants ("Appellants Ex. K") at 1.) Before Allen Manus' death, he divided the shares of Family M equally between Elizabeth Manus, his third wife; Jane von Richthofen, his daughter from his first wife; and Ellen Sue Goldberg, his niece. (Appellants Ex. K at 1-2.) Elizabeth Manus is one of the appellants in this case. Mr. Manus' second wife, Ninotchka Manus, is the appellee in this case.

In 1994, Family M entered into an agreement to loan $400,000 to the appellee, Ninotchka Manus. (Order of Justice Fried dated July 1, 2004, attached as Appellants Ex. A at 1.) In 1998, Family M brought an action against the appellee in the New York State Supreme Court, New York County, for breach of the loan agreement, and the parties thereafter entered into a settlement agreement whereby the appellee agreed to pay the sum owed and pledged as security a certificate representing her entire ownership in her New York City apartment. (Appellants Ex. A at 2.) In 2004, Family M brought a motion seeking to enforce this settlement agreement, which was granted by Justice Fried of the New York State Supreme Court, New York County. (Appellants Ex. A at 7.)

On January 18, 2005, appellee Ninotchka Manus filed for bankruptcy protection pursuant to Chapter XI of the Bankruptcy Code. On October 20, 2006, the appellants filed a motion to dismiss the Chapter XI proceeding and, in January 2007, appellant Elizabeth Manus filed a proof of claim on behalf of Family M in the amount of $870,000. Raymond Kalley, a trustee of the EB Trust and PB Trust*fn2 who claims that he possesses an ownership interest in Family M, also filed a proof of claim for $985,397 on behalf of Family M. On February 9, 2007, the appellee filed (I) Objection to and Motion to Disallow Claim of Family M Foundation Ltd. and/or Elizabeth Manus (Claim No. 5) and Claim of Raymond Kalley (Claim No. 4) pursuant to sections 502(B) and (D) and 105(A) of the Bankruptcy Code and Bankruptcy Rule 3007 (II) Request for Turnover of Property of the Debtor, namely the Debtor's stock certificate and her New York City cooperative apartment, pursuant to section 542 of the Bankruptcy Code and (III) Request for Related Relief (collectively the "First Objection"). (Order of Judge Beatty dated April 2, 2008, attached as Appellants Ex. H.) In essence, Ninotchka Manus sought to disallow claims against her and to assure she could keep her apartment that she had pledged as security for her settlement agreement with Family M.

At a hearing on January 30, 2008, Bankruptcy Judge Prudence C. Beatty indicated that there was no basis to dismiss the case at that point. (Tr. of Jan. 30, 2008 Hr'g before Judge Beatty, attached as Ex. S to Answering Br. of Appellee Ninotchka Jannetje Manus ("Appellee Ex. S") at 46.) On April 2, 2008, Judge Beatty issued a written order placing the First Objection and all cross-motions in abeyance pending the final adjudication of civil litigation in the New York State Supreme Court, New York County (the "Written Order"). (Appellants Ex. H.) The civil litigation ("Manus II") concerns a dispute over the ownership of Family M.*fn3

On May 28, 2009, the appellants moved to renew the motion to lift the automatic stay or alternatively to dismiss the bankruptcy proceeding. During a hearing on June 17, 2009, Judge Beatty denied this motion and clarified that her intention in issuing the Written Order in 2008 had been to stay the entire bankruptcy proceeding until the conclusion of the Manus II litigation, rather than simply to place the First Objection and cross-motions in abeyance (the "Oral Ruling"). (Tr. of June 17, 2009 Hr'g before Judge Beatty, attached as Appellants Ex. G ("Beatty Hr'g Tr.") at 4-6, 10, 14, 19.) Judge Beatty explained that she viewed the question of the ownership of Family M raised in the Manus II litigation to be a threshold issue that required resolution before the bankruptcy proceeding could move forward. (Beatty Hr'g Tr. at 5, 8, 10.) Judge Beatty invited the appellants to settle an order incorporating this oral ruling (Beatty Hr'g Tr. at 21-22), but no written order was entered and no appeal was taken.

On May 5, 2010, the appellants filed a motion in the Bankruptcy Court for relief from the stay or dismissal of the bankruptcy proceeding, and to reconsider Judge Beatty's June 17, 2009 oral ruling pursuant to Federal Rule of Civil Procedure 60(b). Bankruptcy Judge Shelly C. Chapman*fn4 held a hearing on August 12, 2010, and listened to argument on the appellants' motion. (Tr. of Aug. 12, 2010 Hr'g before Judge Chapman, attached as Appellants Ex. M ("Chapman Hr'g Tr.").) Judge Chapman indicated at the hearing that she considered the motion for reconsideration to be a threshold issue that must be decided before she could reach the appellants' remaining motions. (Chapman Hr'g Tr. at 3, 19.) Judge Chapman also explained at several points during the hearing that she saw no basis for reconsidering Judge Beatty's previous order. (Chapman Hr'g Tr. at 3, 12, 19.) Judge Chapman issued a written order dated September 2, 2010, denying the appellants' motion and placing the appellee's requests in abeyance. (Appellee Ex. U.) The appellants now appeal this September 2, 2010 Order of Judge Chapman denying their Rule 60(b) motion for reconsideration of Judge Beatty's oral ruling of June 17, 2009.

II.

The appellants contend that the Bankruptcy Court erred in denying their motion to reconsider Judge Beatty's oral ruling of June 17, 2009 pursuant to Federal Rule of Civil Procedure 60(b). They assert that Judge Beatty's oral ruling misconstrued her prior written order of April 2, 2008 and that this constituted a "mistake" or "other reason that justifies relief" within the meaning of Rule 60(b). Thus, they argue, Judge Chapman erred in not granting their motion for reconsideration.

A.

In general, a district court reviews the bankruptcy court's findings of fact for clear error and its legal conclusions de novo. See In re Bell, 225 F.3d 203, 209 (2d Cir. 2000); In re Metaldyne Corp., 421 B.R. 620, 624 (S.D.N.Y. 2009); Fed. R. Bankr. P. 8013. A district court reviews the bankruptcy court's denial of a Rule 60 motion for abuse of discretion. See, e.g., In re Lawrence, 293 F.3d 615, 623 (2d Cir. 2002); In re Teligent, Inc., 326 B.R. 219, 224 (S.D.N.Y. 2005). "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.'" Peskin v. Picard, 440 B.R. 579, 584 (S.D.N.Y. 2010) (quoting Duane Reade, Inc. v. St. Paul Fire & Marine Ins. Co., 411 F.3d 384, 388 (2d Cir. 2005)).

Rule 60(b) sets forth the grounds on which a court, in its discretion, can provide relief from a final judgment or order. See Fed. R. Civ. P. 60(b); Nemaizer v. Baker, 793 F.2d 58, 61 (2d Cir. 1986). Rule 60(b) allows a court to relieve a party from a final judgment for, among other reasons, "(1) mistake, inadvertence, surprise, or excusable neglect"; "(2) newly discovered evidence that, with reasonable diligence, could not have been discovered in time to move for a new trial under Rule 59(b)"; or "(6) any other reason that justifies relief." Fed. R. Civ. P. 60(b). Rule 60(b) exists to "strike[] a balance between serving the ends of justice and preserving the finality of judgments." Nemaizer, 793 F.2d at 61. While Rule 60(b) should be read broadly to do "substantial justice," final judgments should not be reopened casually. Id. Relief under Rule 60(b) should be granted "only upon a showing of exceptional ...


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