United States District Court, S.D. New York
In re: FOOD MANAGEMENT GROUP, LLC, KMA I, INC., KMA 2, INC., KMA III, INC., BRONX DONUT BAKERY, INC., Debtors.
ELIAS KASTRANDES and CATHERINE KASTRANDES, Defendants. CONSORTIUM PROPERTIES, LLC, Plaintiff,
OPINION & ORDER
KENNETH M. KARAS, District Judge.
On April 8, 2014, Bankruptcy Judge Robert S. Drain granted Plaintiff Consortium Properties, LLC's ("Plaintiff") Motion for Summary Judgment, and denied Defendants Elias Kastrandes and Catherine Kastrandes' ("Defendants") Cross-Motion for Summary Judgment. (Pl.'s Decl. in Opp'n to Defs.' Mot. for Leave to Appeal (May 29, 2014) ("Pl.'s Decl.") Ex. A, at 2-3 (Dkt. No. 2) (Order granting summary judgment).) On May 29, 2014, Defendants filed a Motion for Leave to Appeal with this Court pursuant to 28 U.S.C. § 158(a)(3). (Defs.' Mot. for Leave to Appeal (May 29, 2014) ("Mot.") (Dkt. No. 1).) For the following reasons, Defendant's Motion for Leave to Appeal is denied. The Court also finds that the bankruptcy court's decision is not yet appealable as of right, because it is not yet final.
While a recitation of the full background of the case is unnecessary for purposes of the instant Motion, the following is a brief summary of the relevant facts and procedural history. On November 25, 2008, Plaintiff purchased from a bankruptcy-court-appointed Trustee all "right, title, and interest" in, inter alia, certain sums owed to the Trustee by Stacey Gianopoulos and her husband, Gus (the "Debtors"), "under a... Settlement Agreement [they] entered into [on] July 25, 2007." (Pl.'s Decl. Ex. C ("Pl.'s 56.1") ¶¶ 2-4, 9; see also Mot. 2 (describing this purchase).) The Settlement Agreement arose from a series of adversary proceedings commenced by the Trustee as part of jointly-administered bankruptcy cases involving Food Management Group, LLC and other bankrupt parties, and required that the Debtors "take various actions to preserve and protect certain properties to ensure that they would be available" to satisfy the amount owed under the Settlement Agreement. (Pl.'s 56.1 ¶¶ 1, 5, 9.) Moreover, under a prior Order of the bankruptcy court (the "Attachment Order"), the Debtors and "those persons in active concert or participation with them'" agreed not to "encumber any interest in real or personal property.'" (Pl.'s 56.1 ¶ 20; see also Pl.'s Decl. Ex. B ("April 2014 Bench Ruling"), at 31 (describing the Attachment Order).)
On or about May 22, 2007, the Debtors entered into a stipulation with the Trustee (the "Florida Stipulation") and Defendants-Stacey Gianopoulos's parents-modifying the Attachment Order by granting the Debtors leave to convey certain Florida property (the "Property") to Defendants such that Defendants could take out a second mortgage on the Property, with the purpose of clearing outstanding mortgage debt, and then convey the property back to the Debtors, subject to the new mortgage. (Pl.'s 56.1 ¶¶ 18-24, 26; see also Mot. 2-4 (describing this arrangement).) As part of the Florida Stipulation, the Debtors and Defendants "represented and warranted that they [would] not create or suffer an[y] lien, claim[, ] or encumbrance to be put on the... [P]roperty, except for [the] [n]ew [m]ortgage.'" (Pl.'s 56.1 ¶ 23; see also April 2014 Bench Ruling at 32 (describing the Florida Stipulation).) The Debtors and Defendants completed the course of conduct agreed to in the Florida Stipulation in May 2007. (Pl.'s 56.1 ¶¶ 28-31; Mot. 4-5.)
On July 30, 2008, Stacey Gianopoulos, allegedly on behalf of herself and her husband, "executed a quitclaim deed... transfer[ring] the... Property back to the [Defendants]." (Pl.'s 56.1 ¶ 34; see also Mot. 5 (same).) For that reason, on July 3, 2012, Plaintiff moved in bankruptcy court for an order holding the Debtors and Defendants in contempt for "their involvement in the [a]ttempted [t]ransfer of the... Property." (Pl.'s 56.1 ¶ 39 (discussing motion); see also Mot. 5 (noting that Plaintiff sought a "contempt citation" against the Debtors and Defendants); April 2014 Bench Ruling at 34-35 (noting Plaintiff moved "to hold [Debtors] and [Defendants] in contempt of the Florida [S]tipulation").) In a September 20, 2012 bench ruling, later embodied in an October 1, 2012 Order, Judge Drain declined to hold Defendants in contempt, finding that the July 30, 2008 transfer did not "expressly violate'" the Florida Stipulation. (Pl.'s 56.1 ¶¶ 43-46; see also Mot. 5 (describing Judge Drain's ruling).) However, because the transfer was "very clearly a potential violation'" of the Attachment Order, Judge Drain instructed the Debtors and Defendants to revoke the transfer, warning that they may otherwise be held liable. (Pl.'s 56.1 ¶¶ 47-48; see also Mot. 6 (describing Judge Drain's ruling).)
Plaintiff filed the instant adversary Action against Defendants in bankruptcy court on May 9, 2014, "claiming that Defendants' receipt of the... [P]roperty as grantees, " and their subsequent refusal to disclaim title, "was in violation of the Florida Stipulation and in contempt of the [Attachment Order]." (Mot. 6; see also Pl.'s Decl. ¶ 34; Pl.'s 56.1 ¶ 51.) On April 4, -, after the Parties filed competing summary judgment motions on this issue, Judge Drain issued a bench ruling granting summary judgment to Plaintiff and denying Defendants' Cross-Motion for Summary Judgment, which ruling was later embodied in an April 8, 2014 Order. (Mot. 6-7; Pl.'s Decl. Ex. A, at 2-3 (Order granting summary judgment); Bench Ruling at 50.) Judge Drain found that Defendants were "in contempt" of the Attachment Order, and breached an "implied covenant of good faith and fair dealing" in the Florida Stipulation. (Bench Ruling at 48-50.)
The issue on appeal, as explained by Defendants, "involves an inquiry into the legal effect of the July 30, 2008 transfer" of the Property by the Debtors to Defendants. (Mot. 7.)
A. Leave to Bring an Interlocutory Appeal
"[A] district court has appellate jurisdiction over bankruptcy court decisions if the court order or judgment is final or if the district court grants leave to appeal from an interlocutory order or decree." North Fork Bank v. Abelson, 207 B.R. 382, 386 (E.D.N.Y. 1997) (citing 28 U.S.C. § 158(a)). Because the Motion before the Court is a motion for leave to appeal, the Court will first take up the permissive prong of the Court's potential jurisdiction over Defendants' appeal.
Title 28 United States Code Section 158(a)(3) provides that, "with leave of the court, " a district court has jurisdiction to hear appeals from interlocutory orders and decrees of bankruptcy judges who serve in the same judicial district. See also Fed.R.Bankr.P. 8004 (providing procedure for appeal by leave). Such jurisdiction is "discretionary." In re Futter Lumber Corp., 473 B.R. 20, 26 (E.D.N.Y. 2012); see also In re Kassover, 343 F.3d 91, 94 (2d Cir. 2003) ("Under Section 158(a)(3), a district court has discretionary appellate jurisdiction over an interlocutory order of a bankruptcy court."). A district court may grant leave to appeal if the three factors that govern the jurisdiction of the federal courts of appeals under 28 U.S.C. § 1292(b) are met, namely whether the order appealed from (1) "involves a controlling question of law, " (2) is one "to which there is substantial ground for difference of opinion, " and (3) is such that "an immediate appeal... may materially advance the ultimate termination of the litigation." In re Futter Lumber Corp., 473 B.R. at 26 (internal quotation marks omitted); see also id. at 26-27 (noting that all three requirements must be met (citing 28 U.S.C. § 1292(b)); Abelson, 207 B.R. at 387 (noting that because "[s]ection 158... does not provide any criteria for determining whether a district court should grant leave to permit an interlocutory appeal in a particular case[, ].... district courts have adopted the standard set forth in 28 U.S.C. § 1292(b)..., " and collecting cases).
The Court declines to grant leave to appeal because there is no substantial ground for a difference of opinion about the issue on appeal. In particular, the Court finds that "there is [no] conflicting authority on the issue, " and that "the issue is [not] particularly difficult and of first impression." In re Futter Lumber Corp., 473 B.R. at 29; see also Klinghoffer v. S. N.C. Achille Lauro Ed Altri-Gestione Montonave Achille Lauro in Amministrazione Straordinaria, 921 F.2d 21, 25 (2d Cir. 1990) (noting that there may be substantial grounds for a difference of opinion when the issue in question is "difficult and of first impression").
Under Florida law, as Defendants contend, an individual generally cannot unilaterally transfer property held with his or her spouse as a tenancy "by the entireties." (Mot. 9.) See Schmidt v. Matilsky, 490 So.2d 237, 238 (Fla. Dist. Ct. App. 1986) ("It is well established law in Florida that a husband and wife owning property in an estate by the entireties must join in any conveyance thereof."). Defendants argue, therefore, that because Stacey Gianopoulos acted on her own, the "quitclaim deed was legally ineffective, " and cannot constitute an encumbrance in violation of the Florida Stipulation and Attachment Order. (Mot. 7, 9-10.) As Judge Drain recognized, however, a unilateral transfer "may take place if in the transaction one spouse[, ] with full knowledge of the facts[, ] [allows] the other spouse [to act as] his or [her] agent." (April - Bench Ruling at 38 (citing Murray v. Sullivan, 376 So.2d 886, 889 (Fla. Dist. Ct. App. 1979)).) See also Schmidt, 490 So.2d at 238 ("[S]uch alienation may take place if in the transaction one spouse, with full knowledge, constitutes the other spouse as his or her agent and acquiesces to the act of alienation by the agent spouse."). Defendants nonetheless argue that because the application of such exception requires "clear and convincing" evidence of an agent relationship, Schmidt, 490 So.2d at 238 ("Before such an exception is applicable to effectuate a transfer by only one spouse, the evidence must be clear ...