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In re Hoti enterprises, L.P.

United States District Court, S.D. New York

March 31, 2017

IN RE HOTI ENTERPRISES, L.P. Debtor.
v.
ROBERT L. RATTET, JAMES B. GLUCKMAN, RATTET PASTERNAK, LLP FKA RATTET PASTERNAK & GORDON-OLIVER, LLP Appellees. HOTI ENTERPRISES, L.P., Appellant,

          OPINION AND ORDER

          VINCENT L. BRICCETTI UNITED STATES DISTRICT JUDGE.

         Appellant Hoti Enterprises, L.P. (“Hoti”), appeals from the order of the United States Bankruptcy Court for the Southern District of New York (Drain, J.) granting the motion of defendants-appellees Robert L. Rattet, James B. Glucksman (sued as James B. Gluckman), and Rattet Pasternak, LLP f/k/a Rattet, Pasternak, & Gordon-Oliver, LLP (“RPGO” and, together with Rattet and Glucksman, the “Rattet defendants”) for an order dismissing the amended complaint.

         For the reasons set forth below, the Bankruptcy Court's order is AFFIRMED.

         The Court has subject matter jurisdiction pursuant to 28 U.S.C. § 158(a).

         BACKGROUND

         Hoti was the owner of a 144-unit apartment complex in Brooklyn that was pledged as collateral to secure a promissory note pursuant a first-lien mortgage loan agreement.

         Hoti defaulted on the mortgage in 2008, and on February 27, 2009, the purported assignee under the mortgage documents, GECMC 2007-C1 Burnett Street, LLC (“GECMC”), brought an action in state court to foreclose on the apartment complex, and sought appointment of a receiver. The state court subsequently appointed a receiver to take possession and control of the apartment complex on March 16, 2009.

         In March 2010, Hoti retained RPGO to assist it in an out of court restructuring with its creditors and to potentially commence a chapter 11 proceeding in bankruptcy court. RPGO did not represent Hoti in connection with the state court foreclosure action.

         On October 12, 2010, Hoti filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code. On October 22, 2010, GECMC moved for an order to excuse the state court appointed receiver from compliance with the turnover requirements of Section 543 of the Bankruptcy Code based on, inter alia, Hoti's default under the mortgage documents and alleged mismanagement of the apartment complex. On November 5, 2010, GECMC also moved for an order lifting the automatic stay imposed by the chapter 11 proceeding, so it could continue to pursue the state court foreclosure action. The Bankruptcy Court held a hearing on November 22, 2010, to consider GECMC's motions. During that hearing, the Bankruptcy Court encouraged the parties to enter into a consensual cash collateral arrangement. After the parties-including Hoti's principals-conferred off the record, they advised the Bankruptcy Court that they agreed in principal to the entry of a cash collateral stipulation.

         On December 20, 2010, the Bankruptcy Court held a hearing, during which Hoti's principals were again present, to consider the draft cash collateral order the parties had submitted. During that hearing, the Bankruptcy Court considered and rejected Hoti's argument that the cash collateral order should include a stipulation to allow Hoti, as opposed to the state court receiver, to manage the apartment complex. On December 22, 2010, the Bankruptcy Court entered an order approving the revised cash collateral stipulation the parties had submitted following the hearing.

         The cash collateral order, effective nunc pro tunc to the petition date, allowed the state court appointed receiver to remain in possession and control of the apartment complex, and to use proceeds from the tenants' rent payments (i.e., GECMC's “cash collateral”). The cash collateral order also included a ninety-day challenge period during which Hoti could bring an adversary proceeding contesting the validity, enforceability, and priority of the creditor's claim. If Hoti did not challenge the claim during the ninety-day period (which commenced on the petition date, October 12, 2010, and expired ninety days thereafter, on January 10, 2011), it would be deemed to have acknowledged that its creditor held a “perfected valid first priority secured claim . . . which is not subject to defense, counterclaim or off-set.” (A.R. at 434).[1]

         On January 5, 2011, Hoti, by its counsel RPGO, filed an application for an order of the Bankruptcy Court authorizing Hoti to examine GECMC and a servicer of the mortgage loan pursuant to Bankruptcy Rule 2004. On January 12, 2011, GECMC filed an objection to Hoti's application.

         On January 18, 2011, RPGO filed a motion for an order permitting RPGO to be relieved as Hoti's counsel due to strained communications with Hoti, disagreement over a course of action, and difficulty obtaining information from Hoti.

         That same day, the Bankruptcy Court lifted the automatic stay to permit GECMC to move forward with its foreclosure proceeding in state court. Thereafter, GECMC simultaneously pursued the state court foreclosure action and confirmation of a chapter 11 plan that would transfer ownership of the apartment complex to GECMC.

         On or around January 29, 2011, Hoti retained, subject to the approval of the Bankruptcy Court, Tanya Dwyer and Dwyer & Associates, LLC, as counsel in its chapter 11 proceeding and the state court foreclosure action. On February 9, 2011, the Bankruptcy Court held a hearing on RPGO's motion to withdraw. The Bankruptcy Court adjourned the hearing to allow Hoti to file an application to retain the Dwyer firm, which Hoti filed on February 12, 2011. On February 14, 2011, the Bankruptcy Court granted RPGO's motion to withdraw, effective upon the retention of the Dwyer firm, “but in no event later than February 28, 2011.” (A.R. at 100).

         On December 11, 2011, GECMC filed an initial chapter 11 plan of reorganization, disclosure statement, and motion for an order approving the disclosure statement.

         On March 7, 2012, more than fourteen months after its entry, Hoti sought reconsideration of the cash collateral order under Bankruptcy Rule 9024 and Federal Rule of Civil Procedure 60. Hoti principally sought relief from the cash collateral order based on an alleged flaw in the chain of title of the underlying mortgage loan documents connecting GECMC to the original lender.

         The Bankruptcy Court held a hearing on Hoti's motion, during which it rejected Hoti's argument that the cash collateral order was “abnormal” or improper, and ordered additional briefing on several issues. (A.R. at 172, 174, 175, 219). The Bankruptcy Court subsequently denied Hoti's requested relief on the grounds that (i) Hoti delayed more than the one-year period allowed under Rule 60(c)(1) in bringing its motion; (ii) the cash collateral order allowed for objections within a specified time period but ...


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