Inn World Report, Inc. v. MB Fin. Bank NA ( 2022 )

21-2911-cv
Inn World Report, Inc. v. MB Fin. Bank NA
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY
ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF
APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER
IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN
ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING TO A SUMMARY
ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second Circuit, held at
the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York,
on the 20th day of December, two thousand twenty-two.
PRESENT:
ROBERT D. SACK,
RICHARD C. WESLEY,
JOSEPH F. BIANCO,
Circuit Judges.
_____________________________________
Inn World Report, Inc.,
Leonard C. LaBanco,
Plaintiffs-Appellants,
Thomas Kiely,
Faith Kiely,
John E. Morris,
Plaintiffs,
v. 21-2911-cv
MB Financial Bank NA,
Fifth Third Bank, as successor in interest,
Defendants-Appellees.
_____________________________________
FOR PLAINTIFFS-APPELLANTS: WAYNE M. G REENWALD , Wayne Greenwald,
P.C., New York, NY.
FOR DEFENDANTS-APPELLEES: LILIT A SADOURIAN (Aaron D. Lindstrom and
Sarah E. Brown, on the brief), Barnes &
Thornburg LLP, Los Angeles, CA.
Appeal from the order of the United States District Court for the Southern District of New
York (Broderick, J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND
DECREED that the order of the district court is AFFIRMED.
Plaintiffs-appellants Inn World Report, Inc. (“Inn World”) and Leonard C. LaBanco
(collectively, “plaintiffs”) appeal from the district court’s order, entered on October 25, 2021,
granting the motion to dismiss for lack of subject matter jurisdiction brought by defendants-
appellees MB Financial Bank NA (“MB Financial Bank”) and Fifth Third Bank, as successor in
interest (collectively, “defendants”).
In 2007, defendants’ predecessor in interest provided mortgage financing to 56 Walker,
LLC (“56 Walker”) for a townhouse located at 56 Walker Street in New York City (“the
Property”). Inn World became a tenant of the Property in 2007 pursuant to a lease it entered with
56 Walker. LaBanco entered into a Property Management Agreement with 56 Walker, which
provided him with rooming and lodging facilities at the Property as part of his compensation. In
2009, defendants’ predecessor in interest commenced state foreclosure proceedings on 56
Walker’s mortgage in New York state court. Two years into the foreclosure action, 56 Walker
filed for bankruptcy in the Southern District of New York. Consequently, the foreclosure action
was automatically stayed. The following year, the bankruptcy court granted MB Financial Bank’s
motion for relief from the automatic stay, thereby allowing them to continue the foreclosure action.
Subsequently, in the foreclosure action, MB Financial Bank moved for summary judgment against
all defendants. While this motion was pending, the owner of 56 Walker, Guy Morris, filed a
chapter 11 bankruptcy case in the District of Colorado. Morris’s bankruptcy petition automatically
2
stayed all proceedings against him and his estate. The Guy Morris bankruptcy estate did not
include the Property at issue in the state-court foreclosure action, as the estate held no ownership
interest in the Property. In April 2013, the New York state court entered a decision in the
foreclosure action granting MB Financial Bank’s motion for summary judgment and denying 56
Walker’s cross-motion. MB Fin. Bank, N.A. v. 56 Walker, LLC, No. 105617/2009, 2013 WL
1774094, at *5 (N.Y. Sup. Ct. Apr. 22, 2013). The state foreclosure judgment was entered on June
20, 2018.
In March 2019, plaintiffs commenced the instant action in the district court, asserting,
under 11 U.S.C. § 362, that defendants’ actions in the state foreclosure proceeding violated the
automatic stay in Guy Morris’s Colorado bankruptcy case and resulted in the loss of their interests
in the Property. The district court, relying on Eastern Equipment and Services Corporation v.
Factory Point National Bank, Bennington, 236 F.3d 117 (2d Cir. 2001) (per curiam), concluded
that plaintiffs’ claims arose from alleged violations of the automatic bankruptcy stay and, thus,
should have been brought in bankruptcy court. Accordingly, the district court dismissed the case
for lack of subject matter jurisdiction.
Plaintiffs argue the district court erred in concluding that Eastern Equipment required
dismissal and, in the alternative, that Eastern Equipment has been abrogated by the Supreme
Court’s intervening decision in Stern v. Marshall, 564 U.S. 462 (2011). We assume the parties’
familiarity with the underlying facts, the procedural history of the case, and the issues on appeal,
to which we refer only as necessary to explain our decision.
DISCUSSION
3
We review de novo a district court’s legal conclusion as to whether subject matter
jurisdiction exists. Cohen v. Postal Holdings, LLC, 873 F.3d 394, 398 (2d Cir. 2017).
In Eastern Equipment, debtors who had filed for personal bankruptcy under Chapter 7 filed
a complaint in federal district court to recover damages for creditors’ alleged violations of the
automatic stay in connection with a state foreclosure action on real property. 236 F.3d at 118–19.
The complaint asserted state-law tort claims, as well as a federal claim under 11 U.S.C. § 362(h)—
subsequently redesignated as § 362(k)—seeking damages for willful violation of the automatic
stay. See id. at 119, 121. We held that the federal Bankruptcy Code preempts any state-law claims
for a violation of the automatic stay and that, “therefore, state tort claims alleging violations of an
automatic stay must be brought in the bankruptcy court itself, and not as a separate action in the
district court.” Id. at 121 (internal quotation marks and citation omitted). Furthermore, we rejected
the argument that a federal claim for willful violations of the automatic stay should be treated
differently than the state claims from a jurisdictional standpoint, and therefore held that the federal
claim also “must be brought in the bankruptcy court, rather than in the district court, which only
has appellate jurisdiction over bankruptcy cases.” Id. (emphasis in original).
In concluding that the district court lacked jurisdiction to address claims related to alleged
violations of the automatic stay, our Eastern Equipment decision failed to address the contradiction
between our holding and the plain language of 28 U.S.C. § 1334(a), which provides that “[e]xcept
as provided in subsection (b) of this section, the district courts shall have original and exclusive
jurisdiction of all cases under title 11.” 1 Thus, our holding in Eastern Equipment has been
criticized by many of our sister circuits. See Potter v. Newkirk, 802 F. App’x 696, 699–700 (3d
Cir. 2020) (per curiam); Houck v. Substitute Tr. Servs., Inc., 791 F.3d 473, 481–82 (4th Cir. 2015);
1
Subsection (b) of Section 1334 provides, in relevant part, that “the district courts shall have original but
not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under
title 11.”
4
Price v. Rochford, 947 F.2d 829, 832 & n.1 (7th Cir. 1991); Just. Cometh, Ltd. v. Lambert, 426
F.3d 1342, 1343 & n.2 (11th Cir. 2005) (per curiam). Moreover, while addressing a separate issue
of bankruptcy-court authority in Stern, the Supreme Court noted that the allocation of statutory
authority between district and bankruptcy courts “does not implicate questions of subject matter
jurisdiction.” 564 U.S. at 480.
Plaintiffs contend that Stern necessarily abrogates Eastern Equipment’s conclusion that
district courts lack subject matter jurisdiction to hear claims relating to alleged violations of the
automatic stay. Cf. Loyal Tire & Auto Ctr., Inc. v. Town of Woodbury, 445 F.3d 136, 145 (2d Cir.
2006) (explaining that “we may reconsider a prior panel’s holding if, inter alia, an intervening
Supreme Court decision overrules our holding or casts doubt on our controlling precedent”).
However, we need not determine whether Eastern Equipment applies to the instant case, nor
whether Stern abrogated Eastern Equipment, because we conclude (as defendants argued below)
that the district court lacked subject matter jurisdiction under the Rooker-Feldman doctrine. Cf.
United States v. Gandia, 424 F.3d 255, 265 (2d Cir. 2005) (“We can affirm the district court’s
order upon any ground that the record demonstrates without limitation to the grounds on which
the district court relied.” (internal quotation marks and citation omitted)).
As a threshold matter, plaintiffs argue that Rooker-Feldman is inapplicable in the context
of an automatic bankruptcy stay because state courts cannot interpret the scope of the stay as
applied to its proceedings, citing In re Gruntz, 202 F.3d 1074 (9th Cir. 2000), for support. We
find this argument unpersuasive. See In re Baldwin-United Corp. Litig., 765 F.2d 343, 347 (2d
Cir. 1985) (“The court in which the litigation claimed to be stayed is pending has jurisdiction to
determine not only its own jurisdiction but also the more precise question whether the proceeding
pending before it is subject to the automatic stay.”); see also 3 Collier on Bankruptcy ¶ 362.08
(16th ed. 2022) (“A nonbankruptcy court may determine the applicability of the automatic stay
5
with respect to litigation pending before it . . . .”). 2 Indeed, we have affirmed the dismissals under
Rooker-Feldman in cases where the plaintiff alleged that state-court foreclosure judgments
violated an automatic stay issued by the bankruptcy court. See, e.g., Wenegieme v. Wells Fargo
Home Mortg., 642 F. App’x 67, 68 (2d Cir. 2016) (summary order) (affirming dismissal of claim
that foreclosure judgment of sale violated automatic stay, pursuant to Rooker-Feldman); Castelle
v. New York, 39 F. App’x 665, 667 (2d Cir. 2002) (summary order) (holding that Rooker-Feldman
required dismissal of claim that state court judgment vacating liens violated the automatic stay).
Accordingly, we turn to whether the Rooker-Feldman requirements are satisfied in this case. See
generally Rooker v. Fid. Tr. Co., 263 U.S. 413 (1923); D.C. Ct. of Appeals v. Feldman, 460 U.S.
462 (1983).
The Rooker-Feldman doctrine provides that federal courts lack subject matter jurisdiction
over “cases brought by state-court losers complaining of injuries caused by state-court judgments
rendered before the district court proceedings commenced and inviting district court review and
rejection of those judgments.” Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284
(2005). The doctrine applies where: (1) the federal-court plaintiff lost in state court; (2) the
plaintiff complains of injuries caused by a state-court judgment; (3) the plaintiff seeks district court
review and rejection of that judgment; and (4) the state-court judgment was rendered before the
2
We note that a state court’s ability to determine whether a proceeding before it is subject to the automatic
stay does not deprive a bankruptcy court of its authority under the Bankruptcy Code to interpret the scope
of the automatic stay or to address violations of it. See, e.g., In re Chateaugay Corp., 920 F.2d 183, 186–
87 (2d Cir. 1990) (discussing bankruptcy court’s authority to use sanctions or contempt powers to address
willful violations of the automatic stay). In fact, the Colorado bankruptcy court, in approving a settlement
entered between the trustee for Guy Morris’s bankruptcy estate and MB Financial Bank resolving
outstanding disputes between them, noted that MB Financial Bank had not violated the automatic stay when
it continued to seek relief against non-debtor 56 Walker in the state foreclosure action. In re Morris, Case
No. 13-11238-TBM, Dkt. No. 326 (Tr. of Hr’g Approving Settlement), at 45:20-24 (Bankr. D. Colo. Apr.
25, 2016).
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district court proceedings commenced. Hoblock v. Albany Cnty. Bd. of Elections, 422 F.3d 77, 85
(2d Cir. 2005).
We conclude that all four Rooker-Feldman requirements are satisfied here. First, plaintiffs
concede that they were parties to the state foreclosure action and lost.3 Second, the injury of which
plaintiffs complain was caused by the state foreclosure judgment that they allege violated the
automatic stay. Third, granting plaintiffs’ requested relief would require a federal court’s review
and rejection of the state-court judgment. Finally, the state foreclosure judgment was entered on
June 20, 2018, prior to the commencement of this federal action in March 2019. Because all four
of the Rooker-Feldman requirements are met, the district court lacked subject matter jurisdiction
to decide this case.
* * *
We have considered plaintiffs’ remaining arguments and find them to be without merit.
Accordingly, we AFFIRM the order of the district court.
FOR THE COURT:
Catherine O’Hagan Wolfe, Clerk of Court
3
Although plaintiffs suggest on appeal that this was a misstatement in their complaint, that factual
concession in their pleading is a judicial admission to which they are bound. See In re Motors Liquidation
Co., 957 F.3d 357, 360–61 (2d Cir. 2020) (per curiam); see also Off. Comm. of Unsecured Creditors of
Color Tile, Inc. v. Coopers & Lybrand, LLP, 322 F.3d 147, 167 (2d Cir. 2003). In any event, regardless of
whether or not they were formally named as parties in the state-court foreclosure proceeding, it is
uncontroverted that plaintiffs participated in, and lost, their interest in the property through that proceeding.
Thus, their involvement in that litigation would be sufficient to consider them a loser in state court for
purposes of Rooker-Feldman. Cf. Dorce v. City of New York, 2 F.4th 82, 102–03 (2d Cir. 2021) (holding
that the “mere fact that [p]laintiffs were not named parties to the state action against the property does not
abrogate the operation of Rooker-Feldman” and that “a property owner who loses his or her interest in the
property through an in rem foreclosure proceeding in state court against the property has lost in state court
for the purposes of Rooker-Feldman”).
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