Astoria Federal Mortgage Corp. v. Genesis Holdings, LLC

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ASTORIA FEDERAL MORTGAGE CORPORATION
v. GENESIS HOLDINGS, LLC, ET AL.
(AC 36590)
Beach, Alvord and Mullins, Js.
Argued February 4—officially released August 4, 2015
(Appeal from Superior Court, judicial district of
Ansonia-Milford, Hon. John W. Moran, judge trial
referee.)
Jane I. Milas, for the appellant (defendant Profes-
sional Services Group, Inc.).
Frank B. Velardi, Jr., for the appellee (substitute
plaintiff).
Opinion
BEACH, J. In October, 2009, this action was com-
menced by the named plaintiff, Astoria Federal Mort-
gage Corporation (bank), to foreclose a mortgage on
property in Derby owned by the named defendant, Gen-
esis Holdings, LLC (debtor). The defendant Professional
Services Group, Inc., was named as an additional defen-
dant because it claimed an interest in the property by
virtue of a mechanic’s lien recorded in the Derby land
records.1 During the pendency of the action, the bank
assigned its interest in the property to Bellmore Part-
ners, Inc., which was thereafter substituted as the plain-
tiff in this matter.2 On July 19, 2010, the debtor filed a
chapter 11 bankruptcy petition, which automatically
stayed the foreclosure action. See 11 U.S.C. § 362. On
April 12, 2012, the United States Bankruptcy Court for
the District of Connecticut entered an order granting
relief from the automatic stay for the ‘‘limited purpose
of determining the extent, validity and priority’’ of the
defendant’s mechanic’s lien. On June 10, 2013, the plain-
tiff filed a motion for summary judgment against the
defendant, which was granted by the court on February
4, 2014.
On appeal, the defendant claims that the court
improperly rendered summary judgment in favor of the
plaintiff because (1) a genuine issue of material fact
exists with respect to the validity of the defendant’s
mechanic’s lien, and (2) the court improperly concluded
that the defendant’s opportunity to foreclose its
mechanic’s lien had expired.3 The plaintiff claims, as
an alternative ground for affirmance of the court’s judg-
ment, that the defendant’s claims are barred by the
doctrine of collateral estoppel. We conclude that the
court erroneously exceeded the terms of the order
granting relief from the stay as ordered by the Bank-
ruptcy Court. We also conclude that the defendant was
not collaterally estopped from raising its claims before
the trial court. Accordingly, we reverse the judgment
of the trial court.
The following procedural history and undisputed
facts, as provided in the pleadings and the evidence
submitted by the parties in conjunction with the plain-
tiff’s motion for summary judgment and the defendant’s
opposition thereto, are relevant to the disposition of the
defendant’s appeal. On November 4, 2005, the debtor
executed an open-end mortgage in favor of the bank
on commercial property in Derby to secure the payment
of a promissory note in the principal amount of
$360,000. The bank instituted the present foreclosure
action in October, 2009, against the debtor, alleging
nonpayment of the debt. The defendant’s mechanic’s
lien, in the principal amount of $315,000, was recorded
in the Derby land records on September 8, 2009. The
complaint alleged that the defendant’s interest was sub-
ordinate in right to the interest of the bank.
On December 28, 2009, the defendant filed a disclo-
sure of defense, stating that its mechanic’s lien was a
claim prior in right to that of the bank. The defendant
filed its answer and a special defense on January 7,
2010. In its special defense, the defendant similarly
alleged that its lien was a claim prior in right to that
of the bank. On July 19, 2010, the debtor filed a chapter
11 bankruptcy petition. On September 29, 2010, the
bank assigned its interest in the subject note, mortgage
and related loan documents to the plaintiff. On May 14,
2012, Bellmore Partners, Inc., was substituted as the
plaintiff in the foreclosure action. See footnote 2 of
this opinion.
The foreclosure action was automatically stayed by
the filing of the bankruptcy petition.4 In its petition, the
debtor listed several creditors, including the plaintiff
and the defendant. The only asset of the bankruptcy
estate was the Derby property and its rental income.
On February 13, 2012, the plaintiff moved for relief
from the automatic stay. The next day, Lawyers Title
Insurance Company (company), claiming to be a party
in interest by virtue of a title policy it had issued insuring
the priority of the plaintiff’s mortgage, filed a request
for a status conference to obtain guidance from the
Bankruptcy Court regarding the disputed priority of the
defendant’s mechanic’s lien over the plaintiff’s mort-
gage. In its request, the company asserted that the
defendant had not filed a proof of claim, and, therefore,
there was ‘‘confusion’’ as to whether an adversary pro-
ceeding could be scheduled to determine ‘‘the validity,
priority, or extent of a lien or other interest in [the]
property.’’5 (Internal quotation marks omitted.) A status
conference was held on February 22, 2012, at which
time the Bankruptcy Court scheduled a hearing for
March 20, 2012, to consider the plaintiff’s motion for
relief from the automatic stay.
On April 12, 2012, the Bankruptcy Court, Shiff, J.,
issued an ‘‘Order Regarding Limited Relief from the
Automatic Stay’’ (order). In that order, Judge Shiff
stated that ‘‘the parties [have] requested limited relief
. . . to allow the parties to move forward with proceed-
ings in Connecticut Superior Court as to the extent,
validity and priority of the [defendant’s] mechanic’s
lien’’ and that ‘‘cause exist[ed] to grant limited relief
from stay as requested by the parties . . . .’’ Judge
Shiff entered the following order: ‘‘[R]elief from the
automatic stay is granted, for cause, pursuant to 11
U.S.C. § 362 (d) (1), to allow the parties to move forward
with proceedings in Connecticut Superior Court for the
limited purpose of determining the extent, validity and
priority of the [defendant’s] Mechanic’s Lien . . . .’’
Judge Shiff further ordered that ‘‘relief from the auto-
matic stay is also granted to allow the parties to proceed
in Connecticut State Court with any appeals from any
decision of the Connecticut Superior Court as to the
extent, validity and priority of the Mechanic’s Lien
. . . .’’
The plaintiff then served interrogatories and requests
for production, dated June 27, 2012, on the defendant.
On June 10, 2013, the plaintiff filed a motion for sum-
mary judgment, claiming that the defendant’s mechan-
ic’s lien had been extinguished as a matter of law
because the defendant did not commence an action to
foreclose that lien within thirty days of the April 12, 2012
Bankruptcy Court order granting limited relief from the
automatic stay. Referring to 11 U.S.C. § 108 (c),6 the
plaintiff argued that the defendant failed to comply with
the time limitation set forth in that provision, thereby
resulting in the expiration of the mechanic’s lien. In its
memorandum of law filed in support of its motion for
summary judgment, the plaintiff made the additional
argument that the defendant’s claims were barred by
the doctrine of collateral estoppel: ‘‘On September 20,
2012, in the companion case [of] Bellmore Partners,
LLC v. Genesis Ltd. Partnership & Professional Ser-
vices Group, Inc., Superior Court, judicial district of
Ansonia-Milford, Docket No, CV-09-6001340S, Judge
Moran7 ruled that the defendant’s lien, also recorded
on September 8, 2009, was extinguished due to the
defendant’s failure to commence a foreclosure action
on its lien within thirty days of the lifting of the bank-
ruptcy stay on April 12, 2012.’’
The defendant filed an objection to the plaintiff’s
motion for summary judgment on June 27, 2013, with
accompanying exhibits that included an affidavit by
Nicole Liguori Micklich, the defendant’s attorney in the
bankruptcy proceeding. In its objection, the defendant
argued that the order of the Bankruptcy Court granted
limited relief from the stay, and that it did not terminate
the stay to allow the defendant to commence an action
to foreclose its mechanic’s lien. The defendant further
argued that the doctrine of collateral estoppel did not
apply because the alleged ‘‘companion case’’ addressed
‘‘a different mechanic’s lien, different mortgages, and
different property.’’8 The defendant also stated that the
decision in the other case did ‘‘not make any ruling with
respect to the arguments advanced by [the plaintiff] in
its present motion for summary judgment.’’
Micklich, in her affidavit, averred that the debtor’s
counsel had contacted her on March 20, 2012, to inform
her that the Bankruptcy Court had inquired if the ‘‘par-
ties would stipulate that any question regarding the
priority of the Mechanic’s Lien should be resolved by
the Connecticut State Court and not by the Bankruptcy
Court.’’ Micklich also averred that after she conferred
with the defendant, she spoke again with the debtor’s
counsel and told him that the defendant ‘‘would stipu-
late that the State Court could determine the limited
issue of priority of the Mechanic’s Lien, as long as the
parties agreed that no party would seek an order of the
State Court distributing the property of the [bank-
ruptcy] estate and that no party would seek to confirm
the [chapter 11] plan until after the State Court ruled
on the priority.’’
The trial court held a hearing on the plaintiff’s motion
for summary judgment on November 4, 2013, and coun-
sel for the parties presented their arguments. On Janu-
ary 13, 2014, the trial court held a ‘‘status conference’’ on
the record, explaining that it had additional questions
regarding the matter. When the plaintiff’s counsel
repeated his argument that the defendant’s claims pre-
viously were determined in the alleged ‘‘companion
case,’’ the court responded: ‘‘It’s not a companion case.
It’s merely stare decisis. It’s [as] if you’re citing another
case to support your contention.’’
The conference proceeded and, during the discussion
as to the meaning of the Bankruptcy Court order, the
defendant’s counsel provided her interpretation and
claimed that the order allowed the parties to participate
in an evidentiary hearing with respect to the mechanic’s
lien: ‘‘Was it filed; was it served; is the amount correct?
All of those issues that go to the validity of a lien. That
is what would have gone on in the adversary proceed-
ings.’’ According to the defendant’s counsel: ‘‘The argu-
ment is that the motion for relief from stay was for
the purpose of having the equivalent of the adversary
hearing, i.e., the evidentiary hearing in state court rather
than in Bankruptcy Court . . . .’’ The defendant’s coun-
sel claimed that after the evidentiary hearing in state
court, the matter would ‘‘[go] back to Bankruptcy Court
for further proceedings under the plan with respect to
this mechanic’s lien [that] now has been established
as being for X amount, X date, and then the planned
confirmation continues.’’
After confirming that the Derby property was the
only asset of the debtor in the bankruptcy estate, the
trial court asked: ‘‘How long would it take to get a
clarification from Judge Shiff regarding his order?’’ Fol-
lowing counsel’s response to that question, the court
stated to the defendant’s counsel: ‘‘If you’d like to file
a motion with Judge Shiff clarifying his order . . . I’ll
give you two weeks to do so. Otherwise, I’ll make a
ruling.’’ In concluding the hearing, the court advised
that if the defendant’s counsel did not file a motion for
clarification in the Bankruptcy Court within two weeks,
it would render judgment granting the plaintiff’s motion
for summary judgment.
On February 3, 2014, no motion for clarification hav-
ing been filed in the Bankruptcy Court, the trial court
issued the following memorandum of decision: ‘‘The
plaintiff’s, Bellmore Partners, Inc., Motion for Summary
Judgment is granted. There is no genuine issue of fact.
It is unequivocal and unopposed that the defendant’s,
Professional Services Group, Inc., opportunity to fore-
close on its mechanic’s lien has long since expired.’’
This appeal followed.9
‘‘Our review of the trial court’s decision to render
summary judgment is plenary, and in accordance with
the standards set forth in Practice Book § 17-49.’’10 Ven-
tres v. Goodspeed Airport, LLC, 301 Conn. 194, 205, 21
A.3d 709 (2011). ‘‘[T]he applicability of . . . collateral
estoppel presents a question of law over which we
employ plenary review.’’ Weiss v. Weiss, 297 Conn. 446,
458, 998 A.2d 766 (2010).
We first address the plaintiff’s alternative ground for
affirmance of the court’s judgment because the doctrine
of collateral estoppel, if applicable, would bar the defen-
dant’s claims. ‘‘Collateral estoppel, or issue preclusion,
is that aspect of res judicata which prohibits the relitiga-
tion of an issue when that issue was actually litigated
and necessarily determined in a prior action between
the same parties upon a different claim. . . . Collateral
estoppel means simply that when an issue of ultimate
fact has once been determined by a valid and final
judgment, that issue cannot again be litigated between
the same parties in any future lawsuit. . . . Issue pre-
clusion arises when an issue is actually litigated and
determined by a valid and final judgment, and that deter-
mination is essential to the judgment.’’ (Emphasis
added; internal quotation marks omitted.) Massey v.
Branford, 119 Conn. App. 453, 465, 988 A.2d 370, cert.
denied, 295 Conn. 921, 991 A.2d 565 (2010).
The trial court properly concluded that the doctrine
of collateral estoppel was not applicable in the present
case. The prior action involved a different debtor, differ-
ent property, and different encumbrances. Moreover,
the court in the prior case never directly addressed the
issues raised in this case concerning the scope of the
relief from stay granted by the Bankruptcy Court.
Accordingly, the plaintiff’s claim fails.
We next address the defendant’s claim that the court
improperly rendered summary judgment. Central to this
appeal are the scope and the trial court’s interpretation
of the April 12, 2012 Bankruptcy Court order, which
expressly granted ‘‘limited relief . . . .’’ The automatic
stay is comprehensive and generally prohibits any
action taken to advance the proceedings in the underly-
ing case subject to the stay. Section 362 (a) of title 11
of the United States Code provides in relevant part that
the filing of a bankruptcy petition with the Bankruptcy
Court ‘‘operates as a stay, applicable to all entities, of—
(1) the commencement . . . of a judicial, administra-
tive, or other action or proceeding against the debtor
that was or could have been commenced before the
commencement of the [bankruptcy case], or to recover
a claim against the debtor that arose before the com-
mencement of the [bankruptcy case] . . . (5) any act
to create, perfect, or enforce against property of the
debtor any lien to the extent that such lien secures
a claim that arose before the commencement of the
[bankruptcy case] . . . .’’ ‘‘The automatic stay provi-
sion in . . . § 362 . . . stays any and all postpetition
filing. Any filing constitutes a judicial act directed
toward the disposition of the case in violation of the
automatic stay. . . . The stay of section 362 is
extremely broad in scope and . . . should apply to
almost any type of formal or informal action against
the debtor or the [debtor’s] property . . . .’’ (Internal
quotation marks omitted.) Krondes v. O’Boy, 69 Conn.
App. 802, 808, 796 A.2d 625 (2002).
‘‘The Bankruptcy Court has the power to grant relief
from the automatic stay. See 11 U.S.C. § 362 (d) through
(g).’’ Equity One, Inc. v. Shivers, 150 Conn. App. 745,
751, 93 A.3d 1167 (2014). ‘‘The Bankruptcy Court . . .
is authorized to grant a creditor relief from the stay for
cause by terminating, annulling, modifying, or condi-
tioning the stay. . . . The terms of an order modifying
an automatic stay must be strictly construed because
a stay under § 362 [of the Bankruptcy Code] freezes in
place all proceedings against the debtor and his prop-
erty. . . . [B]ecause a section 362 stay freezes in place
all proceedings against the debtor, and because only
an order of the bankruptcy court can authorize any
further progress in the stayed proceedings, it follows
that the continuation of any proceeding can derive legit-
imacy only from the bankruptcy court order. The terms
of an order modifying the automatic stay must therefore
be strictly construed.’’ (Citation omitted; internal quota-
tion marks omitted.) New Milford Savings Bank v.
Jajer, 52 Conn. App. 69, 74, 726 A.2d 604 (1999).
The order of the Bankruptcy Court was clear and
unambiguous:11 ‘‘[R]elief from the automatic stay is
granted, for cause . . . to allow the parties to move
forward with proceedings in Connecticut Superior
Court for the limited purpose of determining the
extent, validity and priority’’ of the defendant’s
claimed mechanic’s lien. (Emphasis added.) As noted
previously, orders releasing cases, wholly or partially,
from bankruptcy proceedings are to be construed nar-
rowly, and there was no permission to allow any party
to foreclose its security interest. The order clearly con-
templated the Superior Court’s deciding only the specif-
ically referred issues; further disposition was to occur
in the Bankruptcy Court. Because no party, nor the
court, had the authority to proceed with foreclosure in
these circumstances, the defendant could not lawfully
have proceeded to foreclose its lien in any event.
Because the court could not proceed with foreclosure
at all, the time limitations provided in 11 U.S.C. § 108
(c) were inapplicable. We conclude, on the basis of
our plenary review of the proceedings, that the court
erroneously rendered summary judgment in favor of
the plaintiff.
The judgment is reversed and the case is remanded
with direction to deny the motion for summary judg-
ment and for further proceedings to determine the
extent, validity and priority of the mechanic’s lien.
In this opinion MULLINS, J., concurred.
1
The named defendant, Genesis Holdings, LLC, is not a party to this appeal.
We therefore refer to Professional Services Group, Inc., as the defendant in
this opinion.
2
The court granted the bank’s motion to substitute Bellmore Partners,
Inc., as the plaintiff in the foreclosure action on May 14, 2012. We therefore
refer in this opinion to Bellmore Partners, Inc., as the plaintiff.
3
Because these two claims are interrelated, we address them together in
this opinion.
4
See 11 U.S.C. § 362 (a).
5
Rule 7001 of the Federal Rules of Bankruptcy Procedure provides in
relevant part: ‘‘An adversary proceeding is governed by the rules of this
Part VII. The following are adversary proceedings . . . (2) a proceeding to
determine the validity, priority, or extent of a lien or other interest in
property . . . .’’
6
Section 108 (c) of title 11 of the United States Code provides: ‘‘Except
as provided in section 524 of this title, if applicable nonbankruptcy law, an
order entered in a nonbankruptcy proceeding, or an agreement fixes a
period for commencing or continuing a civil action in a court other than a
bankruptcy court on a claim against the debtor, or against an individual
with respect to which such individual is protected under section 1201 or
1301 of this title, and such period has not expired before the date of the
filing of the petition, then such period does not expire until the later of—
(1) the end of such period, including any suspension of such period occurring
on or after the commencement of the case; or (2) 30 days after notice of
the termination or expiration of the stay under section 362, 922, 1201, or
1301 of this title, as the case may be, with respect to such claim.’’
According to the plaintiff, the applicable nonbankruptcy law in this matter
was General Statutes § 49-39. Section 49-39 provides in relevant part: ‘‘A
mechanic’s lien shall not continue in force for a longer period than one
year after the lien has been perfected, unless the party claiming the lien
commences an action to foreclose it, by complaint, cross-complaint or coun-
terclaim, and records a notice of lis pendens in evidence thereof on the
land records of the town in which the lien is recorded within one year from
the date the lien was recorded . . . . Each such lien, after the expiration
of the one-year period . . . without action commenced and notice thereof
filed as aforesaid, shall be invalid and discharged as a matter of law. . . .’’
It is undisputed that the defendant’s mechanic’s lien was recorded in the
Derby land records on September 8, 2009. The debtor filed its bankruptcy
petition on July 19, 2010, which was before the expiration of the one year
period required for the defendant to commence an action to foreclose the
lien. At that point, the defendant could not commence a foreclosure action
because of the automatic stay provisions of the Bankruptcy Code. The
plaintiff argued that the April 12, 2012 order of the Bankruptcy Court granted
relief from that stay and that the defendant had to commence its foreclosure
action within thirty days of that order, i.e., on or before May 12, 2012. The
defendant argues that 11 U.S.C. § 108 (c) is not applicable because the stay
was not terminated.
It is undisputed that the defendant did not bring an independent action
to foreclose its mechanic’s lien, file a motion to determine the priority of
its lien or ask the Bankruptcy Court for clarification of its order within that
thirty day period or at any relevant time thereafter.
7
Judge Moran was the presiding judge in the present action.
8
During oral argument before the trial court, the plaintiff’s counsel
acknowledged that the debtor in the prior action was Genesis Limited Part-
nership, whereas the debtor in the present action is a different entity, Genesis
Holdings, LLC.
9
The trial court’s ruling did not dispose of the foreclosure action. Never-
theless, the trial court, in determining that the defendant’s mechanic’s lien
was extinguished, fully disposed of all claims involving that defendant. Under
Practice Book § 61-3, a judgment that disposes of all causes of action brought
by or against a particular party is an appealable final judgment.
10
Practice Book § 17-49 provides: ‘‘The judgment sought shall be rendered
forthwith if the pleadings, affidavits and any other proof submitted show
that there is no genuine issue as to any material fact and that the moving
party is entitled to judgment as a matter of law.’’
11
Any language purporting to authorize action in the state court and
foreclosure case would have to be clear and unambiguous in order to be
effective.