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Lynch v. Vaccaro

United States District Court, E.D. New York

March 28, 2017

Maura E. Lynch, Appellant,
Stephen S. Vaccaro, et al., Appellees. Patricia M. Frank, Appellant,
Maura E. Lynch, et al., Appellees.

          Maura E. Lynch is proceeding pro se and was previously represented in this consolidated action by Jay S. Hellman and Kenneth A. Reynolds of Silverman Acampora LLP.

          Patricia M. Frank is represented by Fredrick Paul Stern of Fredrick P. Stern, P.C.

          Stephen Vaccaro is represented by Patrick Collins of Farrell Fritz, P.C.

          Stephen L. O'Brien is represented by Marc A. Pergament of Weinberg, Gross & Pergament, LLP.


          JOSEPH F. BIANCO United States District Judge

         The instant case is a consolidated set of four appeals from orders by the Honorable Alan S. Trust, United States Bankruptcy Judge, in a voluntary Chapter 11 bankruptcy proceeding (the “Bankruptcy Proceeding”) initiated by Maura E. Lynch (“Lynch”). The appeals' lengthy factual and procedural history stems from a divorce action in New York State court filed by Stephen S. Vaccaro (“Vaccaro”), Lynch's former husband (the “Divorce Action”). During the course of the Divorce Action, the state court ordered equitable distribution of certain marital properties, including a property at 43 Harbor Drive, Sag Harbor, New York (“Harbor Drive”), which was the subject of the bankruptcy orders at issue here.[1] After determining that Lynch had failed to comply with its equitable distribution order and had mismanaged Harbor Drive, the state court appointed Vaccaro as Receiver and directed that the property be sold and the proceeds be equally divided.

         The state court subsequently found Lynch in contempt and eventually replaced Vaccaro as Receiver with Stephen L. O'Brien (“O'Brien”). O'Brien then proceeded with the sale of Harbor Drive, and the state court authorized him to effect a contract of sale entered into by Vaccaro and Patricia M. Frank (“Frank”) while Vaccaro was still the court-appointed Receiver.

         However, before Frank could close on her purchase of Harbor Drive, Lynch filed a voluntary Chapter 11 bankruptcy petition on November 9, 2015. Thereafter, Vaccaro filed a motion, as amended on November 30, 2015, in the Bankruptcy Court seeking an order excusing O'Brien's compliance with Sections 543(a) and (b) of the Bankruptcy Code, 11 U.S.C. §§ 543(a)-(b), in order to allow O'Brien to retain custody of Harbor Drive rather than delivering possession to Lynch as the debtor in the Bankruptcy Proceeding (the “Excusal Motion”). O'Brien subsequently joined the Excusal Motion, and after briefing and a December 10, 2015 evidentiary hearing, the Bankruptcy Court entered an order on December 22, 2015 (the “Excusal Order”) that, among other things, directed that (1) O'Brien would continue in possession of Harbor Drive, and (2) Harbor Drive would be marketed and sold at auction pursuant to procedures established in a separate order. That decision is the subject of the first appeal in this consolidated action, No. 16-CV-74 (JFB), in which Lynch, as appellant, seeks reversal of the Excusal Order (the “Lynch Appeal”).

         In addition, Frank has filed appeals in Nos. 16-CV-415 (JFB), 16-CV-1475 (JFB), and 16-CV-1476 (JFB) challenging three orders by the Bankruptcy Court concerning the sale of Harbor Drive (the “Frank Appeals”). As noted, Lynch contracted with Vaccaro on or about April 8, 2014 to purchase Harbor Drive for $1, 325, 000 (the “Contract”). After Lynch filed her bankruptcy petition, Frank moved on November 17, 2015 for an order by the Bankruptcy Court (1) lifting the automatic stay of sale triggered by the petition; (2) directing O'Brien to sell Harbor Drive to Lynch pursuant to the Contract; and (3) staying a separate eviction proceeding commenced by Lynch against Frank in New York State court (the “Stay Motion”). However, at the December 10, 2015 evidentiary hearing, the Bankruptcy Court directed sale of Harbor Drive through an auction process, and Frank then tendered a new offer of $1, 425, 000 for Harbor Drive (the “New Offer”). In a December 22, 2015 order (the “Auction Order”) accompanying the Excusal Order, the Bankruptcy Court established procedures for the auction of Harbor Drive and determined that the New Offer by Frank would be treated as a “stalking-horse” bid.

         On January 12, 2016, the Bankruptcy Court formally denied Frank's November 17, 2015 motion (the “Stay Order”), which is the basis of the appeal in No. 16-CV-415 (JFB). On February 18, 2016, Frank moved for reconsideration of both the Auction Order and the Stay Order, which the Bankruptcy Court denied on March 10, 2016 (the “Reconsideration Order”). Frank appeals the Reconsideration Order in No. 16-CV-1475 (JFB). In the interim, Frank successfully tendered a winning bid of $1, 865, 000 (the “Purchase Price”) for Harbor Drive at the February 22, 2016 auction, and following two evidentiary hearings, the Bankruptcy Court ordered on March 18, 2016 that Harbor Drive be sold to Frank at the Purchase Price (the “Sale Order”). Frank then moved to stay the Sale Order pending appeal, which the Bankruptcy Court denied on March 24, 2016. The Sale Order is the subject of the final appeal in this action, No. 16-CV-1476 (JFB).

         In the Frank Appeals, Frank seeks (1) reversal of the Stay, Reconsideration, and Sale Orders; and (2) repayment of the differential between the Contract price and the Purchase Price for Harbor Drive, i.e., $540, 000.


         For the reasons set forth below, the Court concludes that the Lynch Appeal and the Frank Appeals are moot pursuant to Section 363(m) of the Bankruptcy Code, 11 U.S.C. § 363(m), and therefore dismisses this consolidated action in its entirety.

         I. Background

         The Court assumes the parties' familiarity with the full facts and procedural history underlying this action and summarizes the facts and history relevant to the instant appeals based on the Consolidated Bankruptcy Record on Appeal. (“R., ” No. 16-CV-1476, ECF No. 5.)

         A. The Divorce Action

         In 2010, Vaccaro commenced the Divorce Action-Vaccaro v. Lynch, Index No. 38437-10-in New York Supreme Court, County of Suffolk (the “State Court”). (R. at 214.) Following a nine-day trial, the State Court entered an order on December 12, 2012, as amended on March 15, 2013, directing, inter alia, equitable distribution of the parties' assets. (Id. at 728-55.) The State Court ordered that Vaccaro and Lynch cooperate to sell Harbor Drive and evenly divide the proceeds between them following the satisfaction of any outstanding mortgages, liens, and judgments. (Id. at 753-54.) In addition, the State Court declined to appoint a Receiver at that time to manage the sale of Harbor Drive, but said that it would do so if Vaccaro and Lynch could not work together, or if one of them thwarted the sale of the property. (Id. at 755.)

         On May 3, 2013, following a motion by Vaccaro, the State Court appointed Vaccaro as Receiver for Harbor Drive based on Lynch's failure to vacate Harbor Drive and cooperate in the sale of that property. (Id. at 757-59.) It directed Lynch to leave Harbor Drive by June 30, 2013 and to make the property presentable for real estate showings. (Id.) The State Court entered a final judgment in the Divorce Action on July 16, 2013, as amended on December 23, 2013, which reiterated that Harbor Drive was to be equitably distributed. (Id. at 761-73.)

         The State Court found Lynch in contempt on November 26, 2013 for, inter alia, obstructing the sale of Harbor Drive (id. at 775-80), and on April 1, 2015, it replaced Vaccaro with O'Brien as Receiver (id. at 782-87.) The State Court directed O'Brien to prevent waste or mismanagement of Harbor Drive and to dispose of it in accordance with its prior order. (Id. at 785.) However, on Lynch's motion, the New York Appellate Division, Second Department issued an order on March 27, 2015 directing Vaccaro to show cause as to why the sale of Harbor Drive should not be stayed pending Lynch's appeal of various State Court orders, and the State Court accordingly stayed its April 1, 2015 order on April 14, 2015. (Id. at 807.) Subsequently, on May 15, 2015, the Second Department denied Lynch's request for a stay of sale, and by order dated August 25, 2015, the State Court vacated its April 14, 2015 order, thereby allowing the sale of Harbor Drive to move forward. (Id. at 809.)

         Further, on September 24, 2015, the State Court authorized O'Brien to retain counsel and a broker to sell Harbor Drive in accordance with the Contract between Frank and Vaccaro, which had been entered into by Vaccaro during the period when he served as Receiver. (Id. at 789-91.) The Contract, dated April 8, 2014, listed a purchase price of $1, 325, 000 by Frank for Harbor Drive (id. at 825-38), and the State Court approved a sale of the property for that price in its September 24, 2015 order (id. at 791).

         B. The Bankruptcy Proceeding

         Before Frank closed on Harbor Drive, Lynch filed her voluntary petition for relief under Chapter 11 of the Bankruptcy Code on November 9, 2015. (Id. at 10.) On November 17, 2015, Frank filed the Stay Motion for an order pursuant to 11 U.S.C. § 362(d) terminating the automatic stay triggered by Lynch's petition in order to allow Frank to proceed with the purchase. (Id. at 10-17.) Frank also asked the Bankruptcy Court to stay an ancillary eviction proceeding initiated by Lynch against Frank in the Justice Court of the Town of Southampton. (Id. at 16.)

         Subsequently, on November 23, 2015, Vaccaro filed the Excusal Motion, as amended on November 30, 2015, seeking an order pursuant to 11 U.S.C. § 543(d) excusing O'Brien's compliance with Sections 543(a) and (b) of the Bankruptcy Code that would allow O'Brien to retain possession of Harbor Drive, rather than delivering the property to Lynch as the debtor in the Bankruptcy Proceeding. (Id. at 165-72, 183-94.) O'Brien joined the Excusal Motion on December 2, 2015. (Id. at 219-23.)

         1. The December 10, 2015 Evidentiary Hearing

         After the Stay and Excusal Motions were fully briefed, the Bankruptcy Court held an evidentiary hearing on December 10, 2015. (Id. at 573-673.) Vaccaro, Lynch, Frank, and O'Brien were all represented by counsel at that hearing, and O'Brien testified. (Id.) After reviewing evidence submitted by the parties and hearing argument from counsel, the Bankruptcy Court orally granted the Excusal Motion in part and denied the Stay Motion in its entirety at the conclusion of the hearing after first affording the parties time to privately “work out a mechanism by which the value of that property [Harbor Drive] can be quickly maximized for the benefit of creditors.” (Id. at 654.) With respect to the Excusal Motion, the Bankruptcy Court found, after applying the factors set forth by Judge Spatt in In re Dill, 163 B.R. 221 (E.D.N.Y. 1994), that excusal was warranted because Lynch

ha[d] no viable plan that [was] in the best interest of [Harbor Drive]. She ha[d] no tenant. She ha[d] no right to rent the property. She ha[d] no buyer and no realistic plan to maximize the value of the property. The debtor [Lynch] would argue that she's only had a month in bankruptcy to attempt to come up with such a plan, but the 43 Harbor property ha[d] been the subject of sale orders by the [S]tate [C]ourt for almost three years.

(Id. at 661.) In addition, the Bankruptcy Court highlighted Lynch's failure to pay pre-petition liens on Harbor Drive (id. at 662), and it therefore “infer[red] and [found] based upon the debtor's pre-petition conduct that she ha[d] mismanaged the 43 Harbor property by refusing to abide by the lawful orders of the [S]tate [C]ourt for a protracted period of time . . .” (id. at 663). Accordingly, the Bankruptcy Court excused O'Brien's compliance with Sections 543(a) and (b) of the Bankruptcy Code in order to allow him to retain possession of Harbor Drive pending sale. (Id. at 664-65.)

         As to the disposition of that property and Frank's Stay Motion, the Bankruptcy Court expressed “concerns about whether or not 43 Harbor is now worth more than the Frank contract price” (id. at 661) and determined that it was in the best interests of creditors to “implement a sale process to ascertain and obtain the highest and best value for an asset of the estate” (id. at 665). The Bankruptcy Court said that it would “enter an order authorizing [O'Brien] to proceed on [an 11 U.S.C. §] 363(b) process before this Court to ascertain the highest and best value for the 43 Harbor property.” (Id. at 666.) The Bankruptcy Court also said that it was “appropriate in this setting to treat the Franks as a stalking horse purchaser for the property and to provide to them certain bid protections in the event of an ultimate auction sale of the property, ” and that there would “only be an auction if someone offer[ed] [O'Brien] more money than the Franks did.” (Id. at ...

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