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Corporate Restructuring & Bankruptcy | MONDAY, MARCH 3, 2014 | S9

case was then dismissed by the Bankruptcy kind of schemes.7 Once the debtor was no but that the “property is essential for an B.R. 84, 106 n.13 (Bankr. S.D. Tex. 2009) (not-
Court after the automatic stay was lifted to longer able to stall through the short sale effective reorganization that is in prospect”). ing that a debtor is bound by the acts of his
allow the tax sale to go forward. (The Order process, it would ile a complaint against Thus any delay was short lived and without lawyer-agent). Since “bad legal advice does
even further provided in rem relief protect- the bank for foreclosure irregularities as any meaningful result.
not relieve the client of the consequences of
ing the parcels from further ilings). The nothing more than another stall tactic. The However one mistake that the princi- her own acts. . The remedy for bad legal
Bankruptcy Court recognized that keeping end result was long delays of the foreclo- pal made in approaching the process in advice lies in malpractice litigation against
this two party dispute in bankruptcy served sure actions.
tranches as opposed to a singular filing the offending lawyer.” Cannon-Stokes v. Pot-
no viable purpose and the case was a bad About two years before the iling, a dis- was that, had all of the entities filed at ter, 453 F.3d 446, 449 (7th Cir. 2006); see also

faith iling. See Y.J. Sons & Co. v. Anemone gruntled tenant obtained a judgment for the same time, there might have been a In re Gow Ming Chao, No. 11-38131, 2011
(In re Y.J. Sons & Co.), 212 B.R. 793, 802 $60,000 for the advance rent that he had paid real likelihood that the fees and expenses Bankr. LEXIS 4543, at *24-25 (Bankr. S.D.N.Y.
(D.N.J. 1997), citing In re Phoenix Piccadilly, for a house that was foreclosed upon dur- wasted on the delay tactics could have Nov. 21, 2011) (when the court found that
849 F.2d 1393, 1394-95 (11th Cir. 1988). The ing his tenancy. The tenant obtained a lien been invested into the process to perhaps while the attorney failed to properly advise
money spent on the iling was a complete against one of the debtor’s bank accounts. effectuate a real consolidated plan. So too, the debtors of their obligations to comply
waste as it accomplished nothing (in fact In an effort to “outsmart” the tenant, the the debtor would have been able to show with the requirements set forth in the Bank-
anything that could have been achieved debtor iled this one entity into Chapter 11 the existence of a multitude of assets and ruptcy Code, the Federal Bankruptcy Rules,
could have been accomplished outside of to try to avoid the lien and then intended debts that needed time to reorganize not the Bankruptcy Local Rules, and the U.S.
bankruptcy). The debtor and/or its counsel to dismiss the case. The creative lender just a two-party dispute. In the end, as a Trustee Guidelines regarding their Chap-
completely and utterly failed to recognize instead pushed for the case to be converted inal desperate measure to avoid eviction ter 11 case, their failure still supported the
any of the key deadlines, burdens or other to Chapter 7 and a trustee appointed. Then in landlord-tenant court, the debtor “sold” court’s decision to convert their case to
obligations and lost any ability to save the the lender removed all the related litigations the operating business to a third party and Chapter 7).
parcels in the end.
to the bankruptcy court. The debtor is now then, for reasons unbeknownst to anyone, Bankruptcy can be a powerful tool that
Similarly, there was a recent iling in the stuck in the federal forum, and a multitude of iled for Chapter 7 for the transferring entity. effectively brings relief to certain debtors

Eastern District of New York, in the case of their related entities are being dragged into Given the delays that would have existed when it is properly used. Unfortunately, the
Hun Mi Kim and Chung Sam Kim, Case No. the process. Had the debtor’s counsel truly in landlord tenant court, this decision only system remains vulnerable to misuse and
13-75368. This iling was intended to save appreciated the implications of their “simple expedited relief for the creditor; by bring- can produce numerous and costly delays
real estate purportedly occupied by the iling,” they never would have iled the case ing this entity and its “assets” back before to the entire process even if inal relief isn’t
individual debtors who had been ighting and the downside of the gamesmanship.
the same bankruptcy judge who was quite viable. Those who don’t properly use the
an ongoing state court foreclosure process. Lastly there were a series of bankrupt- familiar with the history of the case, the tools afforded by the Bankruptcy Code or
On the eve of the foreclosure sale, the debt- cy ilings in the Bankruptcy Court of the debtor allowed the lender to identify the remain ignorant of the law should tread care-
ors iled for bankruptcy to stop the sale. Southern District of New York all intended sale for the sham it was, get hard and fast fully. Judges and creditors have very little
Remarkably, a review of the petition and to “save” an operating business. In an effort relief from the bankruptcy judge against all patience for these ilings and the overall
schedules revealed an acknowledgment by to stall the pending foreclosure processes parties including the alleged purchaser and trend is to dispose of cases that represent
the debtors that they had actually trans- (there were two separate cases as there actually carry out an eviction using the fed- a waste of time.
ferred their ownership interest in the prop- were two adjacent parcels of land), the eral marshals on an expedited basis within
erty to a third party (a company designed owner managed to ile over the course of the bankruptcy forum. While time was lost •••
to help “save” property from foreclosure) four years, no less than ive ilings in an as a result of some of the delays, the ability ••••••••••••••••••••••••••
1. See C-TC 9th Ave. P’ship v. Norton Co. (In re C-TC 9th
months before the iling. Although stay relief effort to stop the process and continue to to inally achieve closure was rewarding to Ave. P’ship), 113 F.3d 1304 (2d Cir. 1997).
was sought as the owners were named in the skim money from the business. The suc- say the least.
2. See, e.g., Bankruptcy Code §362(d)(3) enacted in 1994 was intended to fast track single asset real estate
underlying foreclosure action, the debtors cessive filings were by different entities While iling a case as a litigation tactic is cases (deined in Bankruptcy Code §101(51B)); this sec-
were unable to stop the foreclosure process (the owner of the adjacent parking lot, the not necessarily prohibited if reorganization tion “compels debtors to act swiftly be obligating then
as they had divested themselves of any own- landlord, the operating tenant, the principal is possible, see Fraternal Composite Servs. v. to fulill one of two mandates by ‘not later than the date that is 90 days after the’ petition date.” See RYYZ, at 29.
ership interest in the property; thus, even and then, again, the operating tenant) and Karczewski, 315 B.R. 253, 256 (N.D.N.Y. 2004); 3. Venue in New Jersey was predicated on the fact that
assuming that they had the ability to try to caused signiicant delay in the ability of the In re Schur Mgmt., 323 B.R. 123, 130 (Bankr. the debtor was a New Jersey entity. See 28 U.S.C. §1408.
save the property inancially, they no longer various lenders to recover their respective S.D.N.Y. 2005), courts have no tolerance for 4. It should be noted that as far as we are aware there
had an equitable or legal ownership right properties. Moreover, some of the delay debtors who ile for the stay but do little is no ability to extend the deadline under Bankruptcy Code §108. Prior attempts to extend this time frame
in the property.5 Moreover the third-party was created by the intentional failure of else. In re 652 W. 160th, 330 B.R. 455 (Bankr. using the Bankruptcy Court’s equitable powers under
“savior” having taken the property during the principal to identify the prior afiliates S.D.N.Y. 2005) (inding the case should be Bankruptcy Code §105 have been soundly rejected. Spe-
the course of the foreclosure action after a iling causing, in some cases, the new debtor dismissed where after the petition was iled, ciically, this issue has been addressed by the District of
lis pendens had been iled could not act as a to be assigned to different judges.8 Quick the debtor then proceeded to administer its New Jersey wherein the court held that absent excep- tional circumstances, the equitable power given to the
bona ide purchaser and would be wiped out and proactive thinking by counsel resulted case in a manner in which statutory dead- Bankruptcy Court under Bankruptcy Code §105 would
be insuficient to enlarge a debtor’s property rights be-
in the foreclosure action.6 Had the debtors in the transferring of all cases as they iled lines were missed, false creditors were cre- yond those speciically set forth by state law and by Con-
kept the property and actually sought to to the same judge but additional delay was ated and paid and false operating reports gress under §108(b). In re Lawrence & Paget Berger (In re Berger), No.: 12-24891 (MBK), 2012 Bankr. Lexis 5570, at
use the loss mitigation process they might encountered. After relief from the stay was were iled).
*4-8 (Bankr. N.J. Nov. 29, 2012), citing In re 210 Roebling,
have had a chance to save the property. The granted in each case to allow the foreclo- Finally, it should be noted that debtors 336 B.R. 172, 176 (Bankr. E.D.N.Y. 2005); In re Glenn, 760
misguided bankruptcy iling cost the lender sure processes to continue, the case was cannot avoid the consequences of the bad F.2d 1428, 1441 (6th Cir. 1985); Johnson v. First Nat’l Bank of Montevideo Minn., 719 F.2d 270, 274 (8th Cir. 1983); In
a few weeks of time, certainly the debtor’s dismissed as a bad faith iling. See, e.g., In re advice of their lawyers. The Supreme Court re Farmer, 81 B.R. 857, 862 (Bankr. E.D. Pa. 1988).
money, but secured inality to the process.
Loco Realty, No. 09-11785 (AJG), 2009 Bankr. has held that “each party is deemed bound 5. Bankruptcy Code §541 deines “property of the
Sometimes iling for bankruptcy becomes LEXIS 1724 at * 10 (Bankr. S.D.N.Y. June 25, by the acts of his lawyer-agent and is con- estate” to include “all legal or equitable interests of
a debtor’s worst nightmare, not because the 2009) (“The ‘critical test of a debtor’s bad sidered to have ‘notice of all facts, notice of the debtor in property as of the commencement of the case.” 11 U.S.C. § 541. It is well-settled that bankruptcy
bankruptcy iling doesn’t give them relief, faith remains whether on the filing date which can be charged upon the attorney.’” courts must look to state law to determine whether an
but because the iling gives the creditors there was no reasonable likelihood that the Link v. Wabash R., 370 U.S. 626, 634, 82 S. asset is “property of the estate.” See Butner v. United
a forum to deal with an ongoing problem. debtor intended to reorganize and whether Ct. 1386, 1390, 8 L. Ed. 2d 734, 740 (1962); States, 440 U.S. 48, 55 (1979).
In the case of Owner Management Service, there is no reasonable possibility that the Pioneer Inv. Servs. v. Brunswick Assocs. Ltd. 6. New York courts have held that “a person whose conveyance is recorded after the iling of the notice [of
1:12-bk-10231-MT, pending in the Central Dis- debtor will emerge from bankruptcy,’” quot- P’ship, 507 U.S. 380, 396, 113 S. Ct. 1489, pendency] is bound by all proceedings have taken in the
action after such iling to the same extent as a party.”
trict of California, the debtor was engaged ing In re 68 West 127 Street, 285 B.R. 838, 1499, 123 L. Ed. 2d 74, 90 (1993); Lewis v. Green Point Sav. Bank v. St. Hilaire, 267 A.D.2d 203, 203
in a rent skimming operation. The debtor 846 (Bankr. S.D.N.Y. 2002)); see Gen. Motor Weyerhaeuser, 141 Fed. Appx. 420, 427-28 (N.Y. App. Div. 2d 1999).
7. This debtor’s foreclosure prevention and/or delay
would ind distressed borrowers, convince Inns v. L&M Props., (In re L&M Props.), 102 (6th Cir. 2005) (holding that the appellant tactics stretched back until at least 2007, see, e.g., In re
them to transfer title of the real property B.R. 481, 484 (Bankr. E.D. Va. 1989); CMF “presents no compelling reason to justify Mi La Sul, 380 B.R. 546 (Bankr. C.D. Cal. 2007), and a re-
into a trust to save the property. Many times Loudoun P’ship v. Nattchase Assocs. P’ship departing from the general rule set forth in view of public records indicated that since at least 2007, the debtor had iled approximately 121 lawsuits against
the borrowers would move out, so the debt- (In re Nattchase Assocs. Ltd. P’ship), 178 B.R. Link that litigants are bound by the actions various mortgage lenders, trustees, and loan investors
or would rent the properties to third parties 409, 418 (Bankr. E.D. Va. 1994); see also Unit- of their attorneys”). Therefore, when a party that were conducting non-judicial foreclosures on resi-
setting up trusts for real estate properties ed Sav. Ass’n of Tex. v. Timbers of Inwood voluntarily chooses an attorney as his rep- dential properties.
but it would keep the rental stream and not Forest, 484 U.S. 365, 375-76 (1988) (noting resentative in the action, he or she “cannot 8. See Page two of voluntary petition requiring dis- closure of any afiliates. The word afiliate is deined
service the mortgages. The principals that that the Bankruptcy Code does not merely now avoid the consequences of the acts or by Bankruptcy Code §101(2) which includes, inter alia,
controlled this debtor also controlled sev- require that certain property be necessary omissions of this freely selected agent.” Link, corporations for which twenty percent or more of their
eral other entities all engaged in the same
or needed for an effective reorganization,
370 U.S. at 633-34; see also In re DePugh, 409
stock is owned or controlled by the same person directly
or indirectly.