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In re Hartford & York LLC

United States Bankruptcy Court, Eastern District of New York

March 13, 2014

In re: HARTFORD & YORK LLC, Debtor.

Christopher A. Lynch, Esq. Reed Smith LLP, Attorney for Stabilis Fund II, LLC

Avrum J. Rosen, Esq. The Law Offices of Avrum J. Rosen, PLLC, Attorney for Hartford & York LLC

Nazar Khodorovsky, Esq. Office of the United States Trustee Eastern District of New York Office of the United States Trustee

Gabriela Cacuci, Esq. New York City Law Department Attorney for the City of New York

MEMORANDUM DECISION ON CREDITOR STABILIS FUND II, LLC'S MOTION TO DECLARE THE DEBTOR'S PETITION VOID AB INITIO, OR IN THE ALTERNATIVE, TO DISMISS THE PETITION, AND FOR RELIEF FROM STAY

ELIZABETH S. STONG, UNITED STATES BANKRUPTCY JUDGE

Introduction

Before the Court is the motion of Stabilis Fund II, LLC ("Stabilis") to declare the Debtor's petition void ab intino, or, in the alternative, to dismiss the petition and for relief from the automatic stay. The City of New York has joined Stabilis' motion. Hartford & York LLC is the Debtor in this bankruptcy case.

The matters to be decided by the Court are:

I. whether the Debtor's bankruptcy petition is void ab initio because it was filed by a non-attorney;
II. whether the Court should dismiss this bankruptcy case as a bad faith filing;
III. whether the Court should grant Stabilis relief from the automatic stay nunc pro tunc to September 12, 2013, in order to ratify the foreclosure sale held on that date; and
IV. whether the Court should bar the Debtor from filing a bankruptcy petition for 120 days following the dismissal of this case.

Jurisdiction

The Court has jurisdiction over this proceeding pursuant to 28 U.S.C. §§ 1334(b) and 157(b)(1). This is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(A) and 157(b)(2)(G).

Background

Hartford & York is a corporation and single asset real estate debtor. The Debtor's principal asset is real property located at 614 Marlborough Road in Brooklyn (the "Property").

Some background is helpful in understanding the context of Stabilis's motion and the relief that Stabilis seeks. On January 29, 2009, the Debtor executed a Consolidated Mortgage Note in favor of Madison National Bank with an original principal balance of $712, 500. To secure the balance due under the Note, the Debtor executed a Consolidated Mortgage in favor of Madison, along with an Assignment of Leases and Rents in favor of Madison. Stabilis is the successor in interest to Madison.

On or about August 27, 2010, Madison filed a foreclosure action against the Debtor in the Supreme Court of the State of New York, Kings County. On September 23, 2010, that court issued an order appointing a receiver to enter into possession of and operate the Property. On February 28, 2013, Stabilis was substituted into that action as plaintiff.

On February 28, 2013, an Amended Judgment of Foreclosure and Sale was entered by the state court, awarding Stabilis the right to foreclose on its interest in the Property in order to collect on the amounts due under the mortgage note.

Stabilis set a foreclosure sale for May 23, 2013 at 2:30 PM. Less than an hour before the scheduled sale, at 1:40 PM, the Debtor, with the assistance of counsel, filed its first bankruptcy petition.

On June 12, 2013, Stabilis filed a Motion to Dismiss the Debtor's first bankruptcy case. One month later, on July 16, 2013, the Court held a hearing at which the Debtor, Stabilis, and the United States Trustee appeared and were heard, and the Debtor, by counsel, agreed to the dismissal of the case. On July 25, 2013, the Court entered an Order dismissing the Debtor's first bankruptcy case on consent.

Following the dismissal of the Debtor's first bankruptcy case, Stabilis rescheduled the Foreclosure Sale for September 12, 2013, at 2:30 PM. And at 1:54 PM on that same day, the Debtor, pro se, filed this Chapter 11 bankruptcy case. The bankruptcy petition was signed by Mayer Goldberger in his capacity as president of the Debtor. On September 12, 2013, Stabilis proceeded with the foreclosure sale and was declared the successful bidder. Stabilis was notified of the bankruptcy filing after the foreclosure sale occurred.

Five creditors have filed proofs of claim in the Debtor's present bankruptcy case. Four secured claims have been filed, by Stabilis in the amount of $1, 470, 966; by the New York City Water Board in the amount of $7, 870; by the New York City Office of Administrative Trials and Hearings in the amount of $2, 759; and by NYCTL 2013-A Trust in the amount of $21, 793. One unsecured claim has been filed, by the Internal Revenue Service in the amount of $8, 823. Viewed another way, the Stabilis claim is approximately 98 percent of the secured filed claims, and some 97 percent of the total filed claims. That is, as the claims indicate, and as a practical matter, this bankruptcy case arises out of a two-party dispute between the Debtor and Stabilis.

The Debtor lists one asset - the Property - on Schedule A, with a value of $600, 000. The Debtor lists two entities as having unsecured nonpriority claims on Schedule F: the Internal Revenue Service in the amount of $8, 823 and HealthCare Financial Services, which the Debtor describes as a debt collection agency, with a claim in an unknown amount. The Debtor lists four unexpired leases in Schedule G, and states that "as to all leases[, ] the [D]ebtor does not know if they are still in effect." The Debtor has not filed Schedule I, showing its income, or Schedule J, showing its expenses.

The Relief Requested

Stabilis seeks several forms of relief. First, Stabilis seeks an order declaring the Debtor's bankruptcy petition to be void ab initio, because it was not filed by an attorney, in order to validate the foreclosure sale. In the alternative, Stabilis seeks an order dismissing this proceeding as a bad faith filing and granting it relief from the automatic stay nunc pro tunc to September 12, 2013, the date of the bankruptcy petition and the foreclosure sale, similarly in order to validate the foreclosure sale. And finally, Stabilis seeks an order barring the Debtor from filing a bankruptcy petition for 120 days following dismissal of this case.

I. Whether the Petition Is Void Ab Initio Because It Was Not Filed by an Attorney

It is long and well established that a corporation may not appear in court unless it is represented by counsel. As the Supreme Court has observed, "[i]t has been the law for the better part of two centuries . . . that a corporation may appear in the federal courts only through licensed counsel." Rowland v. California Men's Colony, 506 U.S. 194, 201-02 (1993). To the same effect, the Second Circuit has noted that "a corporation, which is an artificial entity that can only act through agents, cannot proceed pro se." Jones v. Niagara Frontier Transp. Auth., 722 F.2d 20, 22 (2d Cir. 1983). Similarly, in Shapiro, Bernstein & Co. v. Continental Record Co., 386 F.2d 426, 427 (2d Cir. 1967), the court stated that "it is settled law that a corporation cannot appear other than by its attorney."

On September 12, 2013, Mayer Goldberger filed the pending bankruptcy petition on behalf of the Debtor. Mr. Goldberger is the Debtor's president, and he is not an attorney. On October 10, 2013, the Debtor, by counsel, filed an Application to Employ the Law Offices of Avrum J. Rosen and the Court granted that application by an Order entered on January 7, 2014.

Stabilis argues that because a non-attorney filed the Debtor's bankruptcy petition, this Court should declare the Debtor's petition null and void, and validate the foreclosure sale. The Debtor acknowledges that the petition was filed by a non-attorney but notes that it retained counsel promptly thereafter. Because the Debtor swiftly addressed ...


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