United States District Court, S.D. New York
In re ANN FROMAN, Debtor.
JUDY FEIN, Appellee. ANN FROMAN, Appellant,
B. Malin Genova & Malin Wappingers Falls, New York
Counsel for Appellant
Mazer-Marino Meyer, Suozzi, English & Klein, P.C. Garden
City, New York Counsel for Appellee
OPINION AND ORDER
the Court are the appeals of Appellant Ann Froman (Doc. 1
(16-CV-5898); Doc. 1 (16-CV-5322); Doc. 1 (16-CV-5324)), from
United States Bankruptcy Court Judge Cecelia G. Morris's
July 1, 2016 and July 14, 2016 orders i) converting Ms.
Froman's case under Chapter 13 of the Bankruptcy Code to
one under Chapter 7 pursuant to 11 U.S.C. § 1307,
(Bankr. Doc. 70),  ii) granting the motion of Appellee Judy
Fein for relief from the automatic stay pursuant to 11 U.S.C.
§ 362(d), (Bankr. Doc. 56), and iii) denying Ms.
Froman's motion pursuant to 11 U.S.C. § 362(a), (k)
for an order finding that Ms. Fein violated the automatic
stay and awarding attorneys' fees, costs, damages, and
sanctions, (Bankr. Doc. 57).
the facts relevant to this appeal will be discussed. In March
2011, Ms. Fein, individually and on behalf of the estate of
Benjamin Fein, sued Ms. Froman in New York state court to
recover “Survival, ” a sculpture that Ms. Froman
allegedly removed without permission from Mr. Fein's
premises in 2010. (Fein Mem. 5322 Part II, at ¶
000068-75.) On May 17, 2012, to resolve the state
court action, the parties entered into a settlement agreement
that required Ms. Froman to pay Ms. Fein $115, 000 and
granted Ms. Fein a security interest in Survival.
(Id. Part II, at ¶ 000084-89.) Ms. Froman did
not make the agreed-upon payment and on July 7, 2014, a money
judgment was entered in favor of Ms. Fein and the estate of
Benjamin Fein in the amount of $137, 181.25. (Id.
Part V, at ¶ 000293-94.) After a period of delay, during
which Ms. Froman twice failed to appear for a deposition,
(id. Part V, at ¶ 000317-22), and
unsuccessfully sought a set-off of her debt to Ms. Fein,
(id. Part VIII, at ¶ 000683-85), the Office of
the Dutchess County Sheriff (the “Sheriff's
Office”) seized Survival, and a sale of the sculpture
was scheduled for December 12, 2015, (id. Part VIII,
at ¶ 000721). At the sale Rodney Silvernail, to whom Ms.
Froman sometimes refers as her husband, placed the winning
bid of $180, 000, but he ultimately defaulted on the
purchase. (Id. Part VIII, at ¶ 000690,
ER000692-93, ER000723-24.) On February 25, 2016, the state court
issued to Ms. Froman, Mr. Silvernail, and the Sheriff's
Office an order to show cause on May 6, 2016 why, among other
things, an order should not issue directing the Sheriff's
Office to schedule a new sale of the sculpture. (Id.
Part IX, at ¶ 000804-07.)
April 5, 2016, Ms. Froman filed a voluntary Chapter 13
petition in the United States Bankruptcy Court for the
Southern District of New York. (Bankr. Doc. 1.) Ms.
Froman's bankruptcy schedules indicate that she had over
$18, 000, 000 in assets and approximately $800, 000 in
liabilities. (See Fein Mem. 5322 Part IX, at ¶
000811.) Her proposed Chapter 13 plan obligated her to pay
the trustee $300 per month from May 1, 2016 through April 1,
2021, and to sell Survival, in order to satisfy her
creditors. (Id. Part IX, at ¶ 000859,
ER000864.) On April 8, 2016, Ms. Froman demanded that the
Sheriff's Office turn Survival over to her. (Id.
Part XI, at ¶ 001032-34.) From approximately April 11,
2016 to May 4, 2016, as discussed in more detail below, the
parties agreed that Survival would remain in the possession
of the Sheriff's Office while arrangements were made to
safely transport, store and ultimately sell the sculpture.
(Id. Parts XI, XII, at ¶ 0001030-89.)
5, 2016, after these negotiations broke down, Ms. Fein sent a
letter to the Sheriff's Office stating that she did not
consent to the removal of Survival from the Sheriff's
Office and that she would be filing appropriate motion papers
with the Bankruptcy Court. (Id. Part XII, at ¶
001094-95.) On May 6, 2016, Ms. Froman demanded that the
Sheriff's Office release Survival to her. (Id.
Part XII, at 1099-1100.) That same day, Ms. Fein filed in the
Bankruptcy Court a motion for i) relief from the automatic
stay, pursuant to 11 U.S.C. § 362(d), ii) adequate
protection, pursuant to 11 U.S.C. § 363(e), or iii)
dismissal of Ms. Froman's Chapter 13 case for cause,
pursuant to 11 U.S.C. § 1307. (Bankr. Doc. 15.) Ms. Fein
requested a hearing on her motion on shortened notice and a
temporary restraining order prohibiting Ms. Froman from
moving Survival pending the Bankruptcy Court's ruling on
her motion. (Id. ¶ 5.) On May 9, 2016, the
Bankruptcy Court granted Ms. Fein's request for a hearing
on shortened notice and enjoined Ms. Froman and her
representatives and agents from removing Survival from the
Sherriff's Office pending the decision on the motion.
(Bankr. Doc. 21.) That same day - presumably before the
Bankruptcy Court injunction came to Ms. Froman's
attention - Mr. Silvernail retrieved Survival from the
Sheriff's Office. (Fein Mem. 5322 Part XII, at ¶
17, 2016, the Bankruptcy Court held a preliminary hearing on
Ms. Fein's motion, at which time Ms. Froman agreed to
retain a broker and sell Survival by September 30, 2016.
(See Bankr. Doc. 81 at 33:11-17.) The Bankruptcy
Court adjourned the hearing on Ms. Fein's motion to allow
Ms. Froman to begin to carry out the agreed-upon sale of
Survival. (Id. at 32:13-33:12.) On May 24, 2016, Ms.
Froman moved for an order finding that Ms. Fein had violated
the automatic stay and awarding attorneys' fees, costs,
damages, and sanctions pursuant to 11 U.S.C. § 362(a),
(k). (Bankr. Doc. 36.)
28, 2016, the parties reconvened before the Bankruptcy Court
to continue the hearing on Ms. Fein's motion and to
address Ms. Froman's motion. (Bankr. Doc. 68.) The
Bankruptcy Court analyzed the factors commonly regarded as
indicative of bad faith warranting conversion or dismissal
under 11 U.S.C. § 1307, (see Id. at
9:17-11:10), and found that Ms. Froman had filed her case in
bad faith, (see Id. at 10:6-7; 14:3-5). Judge Morris
therefore announced that she would convert the case to one
under Chapter 7, (see Id. at 12:10), lift the stay,
(see Id. at 14:7), and deny Ms. Froman's
application for sanctions for the alleged stay violation,
(see Id. at 14:8, 16:11-13).
1, 2016, the Bankruptcy Court entered its order granting Ms.
Fein's motion for relief from the automatic stay because
Ms. Froman had filed her petition in bad faith and allowing
Ms. Fein to enforce her rights and remedies in and to
Survival. (Bankr. Doc. 56.) That same day, the Bankruptcy
Court entered its order denying Ms. Froman's motion
brought under 11 U.S.C. § 362 for an order finding that
Ms. Fein had violated the automatic stay and awarding
attorneys' fees, costs, damages, and sanctions. (Bankr.
Doc. 57.) On July 5, 2016, Ms. Froman appealed both of these
decisions. (Doc. 1 (16-CV-5322); Doc. 1 (16-CV-5324).) On
July 14, 2016, the Bankruptcy Court entered its order
converting Ms. Froman's case from one under Chapter 13 of
the Bankruptcy Code to one under Chapter 7 pursuant to 11
U.S.C. § 1307, (Bankr. Doc. 70), an order that Ms.
Froman appealed on July 22, 2016, (Doc. 1 (16-CV-5898)).
Jurisdiction and Standard of Review
Court has jurisdiction pursuant to 28 U.S.C. § 158(a)(1)
to hear appeals from final judgments, orders, and decrees of
a bankruptcy court. “On appeal, the [district] court
‘may affirm, modify, or reverse a bankruptcy
judge's judgment, order, or decree or remand with
instructions for further proceedings.'” W.
Milford Shopping Plaza, LLC v. The Great Atl. & Pac. Tea
Co. (In re Great Atl. & Pac. Tea Co.), No.
14-CV-4170, 2015 WL 6395967, at *2 (S.D.N.Y. Oct. 21, 2015)
(quoting former Fed.R.Bankr.P. 8013). A district court reviews a
bankruptcy court's findings of fact for clear error and
reviews its legal conclusions de novo. See
Overbaugh v. Household Bank N.A. (In re Overbaugh), 559
F.3d 125, 129 (2d Cir. 2009) (per curiam).
“Mixed questions of fact and law are subject to de
novo review.” Babitt v. Vebeliunas (In re
Vebeliunas), 332 F.3d 85, 90 (2d Cir. 2003); see
Parmalat Capital Fin. Ltd. v. Bank of Am. Corp. (In re
Parmalat), 639 F.3d 572, 580 (2d Cir. 2011).
Conversion of the Case to Chapter 7
U.S.C. § 1307(c) “enumerates 11 specific
occurrences which constitute sufficient cause for the
dismissal or conversion of a chapter 13 case to chapter 7.
The grounds enumerated in subsections 1307(c)(1) through (11)
are not exhaustive.” 8 Alan N. Resnick & Henry J.
Sommer, Collier on Bankruptcy ¶ 1307.04 (16th ed. 2016).
“Although bad faith is not expressly enumerated in the
statute, it is well established that lack of good faith may
also be cause for conversion or dismissal under §
1307(c).” In re Prisco, No. 11-CV-474, 2012 WL
4364311, at *4 (N.D.N.Y. Sept. 24, 2012) (alteration and
internal quotation marks omitted), aff'd, 574 F.
App'x 19 (2d Cir. 2014). Bad faith may be found where at
the time of filing, there is “no reasonable probability
of emerging from bankruptcy” or successfully
reorganizing, In re C-TC 9th Ave. P'ship, 113
F.3d 1304, 1310 (2d Cir. 1997), or “where there is
evidence of an intent to delay or frustrate the efforts of
secured creditors to enforce their legitimate rights, ”
In re Northtown Realty Co., L.P., 215 B.R. 906, 914
(Bankr. E.D.N.Y. 1998); see In re RCM Glob. Long Term
Capital Appreciation Fund, Ltd., 200 B.R. 514, 522
(Bankr. S.D.N.Y. 1996) (bad faith inquiry “is meant to
insure that the Debtor actually intends to use chapter 11 to
reorganize and rehabilitate itself and not simply to cause
hardship or delay to its creditors by invoking the automatic
stay”). In determining whether a petition was filed in
bad faith, a bankruptcy court “must review the totality
of the circumstances, ” In re Eatman, 182 B.R.
386, 392 (Bankr. S.D.N.Y. 1995), including the following
(1) whether the debtor has few or no unsecured creditors; (2)
whether there has been a previous petition filed by the
debtor or a related entity; (3) whether the debtor's
conduct pre-petition was proper; (4) whether the petition
permits the debtor to evade court orders; (5) whether the
petition was filed on the eve of foreclosure; (6) whether the
foreclosed property is the sole or major asset of the debtor;
(7) whether the debtor's income is sufficient such that
there is a likely possibility of reorganization; (8) whether
the reorganization essentially involves the resolution of a
two party dispute, and (9) whether the debtor filed solely to
obtain the protection of the automatic stay.
In re Cornelius, 195 B.R. 831, 836 (Bankr. N.D.N.Y.
1995); see Campora v. HSBC Bank USA, N.A. (In re
Campora), No. 14-CV-5066, 2015 WL 5178823, at *11 n.10
(E.D.N.Y. Sept. 3, 2015) (listing similar factors).
“[A]n order converting a bankruptcy case for cause is
reviewed for an abuse of discretion.” Blaise v.
Wolinsky (In re Blaise), 219 B.R. 946, 950 (B.A. P.2d
Froman appeals the conversion of her case on the basis that
the Bankruptcy Court i) failed to apply the totality of the
circumstances test, ii) did not provide the parties with
notice that it was considering converting the case, and iii)
did not conduct an evidentiary hearing on the motion.
(See, e.g., App. Mem. 5898 at 14.)
Totality of ...