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Nkl Enterprises, LLC v. Oyster Bay Management Co.

April 25, 2013

NKL ENTERPRISES, LLC,
APPELLANT,
v.
OYSTER BAY MANAGEMENT CO., LLC, APPELLEE.



The opinion of the court was delivered by: Spatt, District Judge.

FILED CLERK

4/25/2013 4:20 pm

U.S. DISTRICT COURT EASTERN DISTRICT OF NEW YORK LONG ISLAND OFFICE MEMORANDUM OF DECISION AND ORDER

Presently before the Court is the Appellant's appeal of an order entered by the United States Bankruptcy Court for the Eastern District of New York, dated August 28, 2012, which granted the motion of the Appellee seeking relief from the automatic stay, nunc pro tunc. For the reasons set forth below, the appeal is dismissed.

I. BACKGROUND

On July 25, 2012 (the "Petition Date"), the Appellant NKL Enterprises, LLC ("NKL") filed a voluntary petition for Chapter 11 bankruptcy. NKL's sole asset was its purported ownership of a certain piece of real property, located at 53-55 Main Street, Cold Spring Harbor, New York (the "Cold Spring Harbor Property"). NKL had acquired this ownership from Clear Blue Water LLC ("Clear Blue") by a deed in lieu of foreclosure.

The bankruptcy petition was filed less than an hour before a scheduled foreclosure sale on the Cold Spring Harbor Property. Thus, according to the Appellee Oyster Bay Management Co., LLC ("OBM"), NKL's bankruptcy petition was filed solely to improperly delay the foreclosure sale of the Cold Spring Harbor Property. In support of this position, OBM explains that the day before the bankruptcy filing, July 24, 2012, NKL had appeared in New York Supreme Court, Suffolk County, seeking an Order to Show Cause to delay the foreclosure sale on the ground that its interests as the second mortgagee on the Cold Spring Harbor Property would be adversely affected if the foreclosure sale were permitted to be consummated. This application was denied. Furthermore, the Appellee contends that NKL appears to have been formed solely to work with Clear Blue to further delay the foreclosure of the Cold Spring Harbor Property.

As stated above, on July 25, 2012, NKL filed for bankruptcy. On behalf of NKL, Steven R. Hafner appeared at the foreclosure sale that occurred later that day. It is undisputed that he provided notice to OBM's representative of NKL's bankruptcy. According to the Appellant, Hafner also notified OBM of NKL's interest in the real property. However, according to the Appellee, the person who appeared at the foreclosure sale did not present any evidence that the Cold Spring Harbor Property was owned by NKL. Thus, the referee for the foreclosure went forward and conducted the auction. OBM made the sole bid----one million dollars----and was declared the winning bidder.

On July 31, 2012, the Appellee OBM filed a motion with the Bankruptcy Court seeking to vacate the automatic stay, nunc pro tunc, to the Petition Date. If granted, this would permit OBM to complete the foreclosure sale of the Cold Spring Harbor Property without the minimum 45 day delay that would have been required if OBM were forced to renotice the foreclosure sale.

On August 14, 2012, the Bankruptcy Court held a hearing on OBM's motion. NKL's principals were unable to retain an attorney by this date, and therefore they appeared before the Bankruptcy Court pro se. At the August 14, 2012 hearing, United States Bankruptcy Judge Dorothy Eisenberg heard from both NKL's principals and OBM's counsel. Judge Eisenberg observed during the course of this proceeding that NKL had improperly filed the bankruptcy petition pro se by its principals without an attorney, and that the case could be dismissed on that ground alone. She also took note of the fact that NKL had failed to file any opposition to OBM's motion. The Bankruptcy Court then explored NKL's motivations for filing the bankruptcy petition, concluding that the case was likely filed in bad faith for reasons of delaying the scheduled foreclosure. She then granted OBM's motion and directed OBM to submit a proposed order to that effect.

On August 22, 2012, NKL filed an objection to the proposed order, again doing so pro se. Although it was untimely, the Bankruptcy Court scheduled a hearing on NKL's objection.

On August 28, 2012, a second hearing was held by the Bankruptcy Court. At that time, Lawrence F. Morrison, Esq. appeared on NKL's behalf as its counsel. Morrison argued before Judge Eisenberg that the relief from the stay should not have been granted on a nunc pro tunc basis. He pointed out that the Bankruptcy Court indicated at the first hearing that NKL would have an opportunity to bid on the foreclosure, but that this was actually inaccurate because the sale had occurred on the day of the bankruptcy filing. He explained that he did not have any further information with regard to NKL's alleged bad faith, as he had only been very recently retained. Finally, Morrison had no objection to the bankruptcy case being dismissed in its entirety. Judge Eisenberg observed during the second hearing that NKL had failed to comply with many Chapter 11 requirements, such as filing schedules, and that this was a further indication that the case was brought in bad faith. She ultimately concluded that there was no evidence presented that would provide a basis to support any action other than to enter an order granting relief from the stay, nunc pro tunc. Therefore, the Bankruptcy Court overruled NKL's objection and signed the order providing that the automatic stay was vacated, nunc pro tunc, to the date and time the petition in the bankruptcy case was filed, so as to allow OBM to pursue its rights, under applicable non-bankruptcy law, with respect to the Cold Spring

Property.

On September 11, 2012, the United States Trustee filed a motion to dismiss the Chapter 11 case, or convert the case to Chapter 7, on the grounds that NKL had failed to file schedules or a statement of financial affairs, or to obtain court approval of its retention of an attorney, or submit operating reports, or submit to an examination pursuant to Bankruptcy Code ยง341(a). On October 16, 2012, the Bankruptcy Court held a hearing on the Trustee's motion, which NKL did not oppose. Thereafter, on October 18, 2012, the United States Trustee submitted a proposed order dismissing the bankruptcy case with prejudice. NKL did not file an opposition or otherwise appear to oppose this ...


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