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LLC v. SBN V FNBC LLC

United States District Court, E.D. Louisiana

November 7, 2018

18 AUDUBON PLACE, LLC, RICHARD GOLDENBERG, KAREN B. GOLDENBERG
v.
SBN V FNBC LLC, et al.

         SECTION M (1)

          ORDER & REASONS

          BARRY W. ASHE UNITED STATES DISTRICT JUDGE.

         On October 31, 2018, the debtor, 18 Audubon Place, LLC (the “Debtor”), and tenants, Richard Goldenberg and Karen Goldenberg (the “Tenants”) (collectively “Appellants”), filed an emergency motion (R. Doc. 4) to stay portions of the bankruptcy court's order of October 16, 2018 (the “Order”)[1] pending appeal pursuant to Rules 7062 and 8007(b) of the Federal Rules of Bankruptcy Procedure and without posting bond pursuant to Rule 62(d) of the Federal Rules of Civil Procedure. In relevant part, the bankruptcy court ordered the eviction of Tenants from 18 Audubon Place, New Orleans (the “Property”) by no later than November 10, 2018. Appellants appealed the Order to this Court on October 19, 2018, [2] and the appeal remains pending. As required, the Debtor first sought this stay from the bankruptcy court, but it was denied.[3] Appellants now seek relief in this Court.

         Appellants requested expedited consideration of their motion for stay, which the Court granted, ordering that any oppositions to the motion be filed by November 5 and that the motion for stay would be submitted on November 7.[4] Thereafter, appellee SBN V FNBC LLC (“SBN”) filed an opposition to the motion for stay (R. Doc. 6), as did the appointed trustee, David V. Adler (the “Trustee”), who also joined SBN's opposition (R. Doc. 8). Appellees Audubon Place Commission, Inc. and Trinity Episcopal School joined SNB's opposition as well (R. Docs. 7, 9).

         On November 5, 2018, Appellants filed yet another ex parte emergency motion to stay the Order pending appeal (R. Doc. 10), to which SBN filed an opposition (R. Doc. 11). This motion asks the Court to stay execution of the Order through November 20, 2018, to allow this Court additional time to rule on Appellants' first motion to stay and to provide Appellants more time to comply with the Order of eviction.

         Having considered the parties' memoranda and the applicable law, the Court issues this Order & Reasons.

         A. The Stay

         “The decision of a bankruptcy court to deny a stay pending appeal will be reviewed for abuse of discretion.” In re Permian Producers Drilling, Inc., 263 B.R. 510 (W.D. Tex. 2000) (citing In re Barrier, 776 F.2d 1298, 1299-1300 (5th Cir. 1985)). “A bankruptcy court abuses its discretion if it seriously errs in its determination of whether the moving party has established a case meriting injunctive relief.” Id. A district court reviews a bankruptcy court's conclusions of law de novo and findings of fact for clear error. In re First S. Savings Ass'n, 820 F.2d 700, 711 (5th Cir. 1987). “A finding is ‘clearly erroneous' when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.” Id. (quoting United States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948)).

         A stay is a discretionary remedy to be granted or denied within the sound judgment of the district court. See Nken v. Holder, 556 U.S. 418, 434 (2009); Arnold v. Garlock, 278 F.3d 426, 438 (5th Cir. 2001). To obtain a stay in a district court pending appeal from a bankruptcy court's decision, the appellants bear the burden of establishing each of the following four elements:

1. A likelihood of success on the merits, or, if a serious legal question is involved, a substantial case on the merits and equities weighing heavily in favor of granting the stay;
2. irreparable injury;
3. that the stay will not harm other parties; and
4. that the stay would serve the public interest.

In re Javier Estrada, Inc., 2010 WL 1416778, at *1 (S.D. Tex. Apr. 5, 2010) (citing Arnold, 278 F.3d at 438-42)). “Only ‘if the balance of the equities (i.e. consideration of the other three factors) is … heavily tilted in the movant's favor' will we issue a stay in [the] absence [of a likelihood of success on the merits], and, even then, the issue must be one with patent substantial merit.” Ruiz v. Estelle (Ruiz II), 666 F.2d 854, 856-57 (5th Cir. 1982) (quoting Ruiz v. Estelle (Ruiz I), 650 F.2d 555, 565-66 (5th Cir. 1981)).

         Before examining these elements in the context of this case, it is instructive to review in brief the long and tortured history of how the parties have come to this pass. This review is taken in part from the factual findings of the bankruptcy court, which Appellants have not attempted to question and as to which this Court finds no clear error, and the public record of the bankruptcy court.

         The Debtor, whose members are Richard Goldenberg and his son, exists for no other purpose than to own the Property.[5] Goldenberg previously owned the Property and transferred it to the Debtor on May 31, 2012.[6] SBN holds a mortgage on the Property to secure a note that had been payable in $26, 175.00 monthly installments at the time the Debtor filed bankruptcy on August 1, 2018, in the Western District of Louisiana.[7] SBN's proof of claim reflects a principal balance, accrued and unpaid interest, attorney fees, late charges, insurance premiums, expenses and costs owed by the Debtor of nearly $5.5 million.[8] No. payments have been made on the SBN debt since August 2016.[9] The amount necessary to bring the SBN note out of default, as of the date bankruptcy was filed, is at least $658, 947.55.[10] In addition, the Debtor owes property taxes.[11]

         Before filing bankruptcy, the Debtor and Tenants had entered a written lease on July 23, 2018, which was recorded on July 31, 2018. The lease requires payment of $25, 000 in monthly rent, plus payment of property taxes and insurance, and purports to reflect a term from July 2016 through December 2019. As of the date of the bankruptcy filing, the Debtor scheduled past due rent owed by the Tenants in an amount ranging between $600, 000 and $1.2 million.[12]

         But the troubled history of this Property did not begin with the Debtor. Before transferring the Property to the Debtor in 2012, Richard Goldenberg, individually, filed bankruptcy in July 2010 to forestall an earlier foreclosure sale of the Property.[13] The then noteholder represented in the bankruptcy that no payment had been made on the indebtedness on the Property since August 2009 and that property taxes and insurance had not been paid.[14] Goldenberg sought to reorganize his debts, including those associated with the Property; meanwhile, his family continued to occupy the Property.[15] However, Goldenberg ultimately failed to comply with the plan of organization he had proposed and the bankruptcy court had approved, which had included relinquishing the Property.[16] Goldenberg did so by transferring the Property to the Debtor back in 2012.[17]

         On October 11, 2016, SBN's predecessor in interest sought to foreclose on the Property for the Debtor's nonpayment of the mortgage indebtedness.[18] Thereafter, in December 2016, after Goldenberg failed to appear at a hearing to show cause why he had not complied with the court's order to cure certain deficiencies under the plan of reorganization, the bankruptcy court dismissed Goldenberg's individual bankruptcy case with prejudice, ordered that he was not entitled to a discharge, and barred Tenants from filing a bankruptcy case for a period of five years.[19]

         On August 23, 2018, venue in the Debtor's bankruptcy case was transferred to the Eastern District of Louisiana, and on October 3, 2018, the bankruptcy court appointed the Trustee under 11 U.S.C. § 1104.[20] On October 10, 2018, the bankruptcy court conducted a hearing and took evidence on SBN's motion to evict the Debtor from the Property.[21] The court held that the recorded lease was unenforceable as to third parties pursuant to Section 13:3888(A) of the Louisiana Revised Statutes and ordered Tenants to vacate the Property by November 10, 2018, because “the obligations owed under the alleged agreement between Debtor and the [Tenants] were in default, the [Tenants] had not paid rent timely postpetition, and the Trustee was requesting possession of the Property.”[22]

         Against this backdrop, the Court now examines the elements required for a stay.

         1. The likelihood of success on the merits

         Appellants argue that “the appeal presents serious legal issues for which appellants have a substantial case on the merits.”[23] Even assuming arguendo that a “serious legal question is involved, ” the balance of the equities does not weigh heavily in favor of Appellants, as discussed below. In contending that the eviction date was arbitrarily chosen, Appellants ignore that this date was thirty days from the date of the eviction hearing and the bankruptcy court's order of eviction, and was a date chosen in deference to Appellants' own request to afford them sufficient time to vacate the Property. Moreover, as reflected in the foregoing review, Appellants have been living in the home for years without consistent payment of either their mortgage indebtedness or rent. The actions, initially of the Tenants, and later of the Debtor (which is controlled by the Goldenbergs), reflect a cavalier treatment of their creditors. Therefore, Appellants must demonstrate a likelihood of success on the merits of their appeal from the order of eviction. This they cannot do.

         Appellants set out three grounds for their appeal: (1) that, upon finding the written lease invalid, the bankruptcy court did not consider the efficacy of an oral lease or a recorded extract of a lease; (2) that the bankruptcy court's order of eviction failed to follow state eviction procedure; and (3) that the Trustee's appointment rendered SBN's alternative motion for eviction moot.[24] In denying the motion to stay, the bankruptcy court addressed each of these arguments in its Reasons for Decision.[25]

         Turning to the first, the bankruptcy court found that Appellants waived their right to argue that an oral lease existed when Appellants failed to present such an argument at the hearing.[26] This finding by the bankruptcy court is not clearly erroneous nor contrary to law. Appellants' memorandum in support does not actually allege the existence of an oral lease.[27] Neither does the memorandum or bankruptcy record reflect the existence of an extract of a recorded lease.[28]Accordingly, Appellants have waived their right to raise these arguments on appeal and cannot show a likelihood of success on this ground. See Feld v. Zale Corp. (In re Zale Corp.), 62 F.3d 746, 763 (5th Cir. 1995) (finding that “parties have waived their right to protest the lack of an adversary proceeding when the court afforded them all the protections of an adversary proceeding yet they knowingly failed to litigate a Rule 7001 issue which they had an opportunity to litigate”). Appellants do not contest or even address the bankruptcy court's finding that the written lease was invalid as to third parties pursuant to Section 13:3888(A) of the Louisiana Revised Statutes. Thus, because SBN foreclosed on the Property prior to the recordation of the lease, the bankruptcy court appears to be on sound footing in holding that the lease is invalid as to ...


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