Opinion
3961/04.
Decided April 3, 2009.
Michael Siegel, Esq., Siegel Siegel, New York, New York, For movant (Ravina WilWilds).
Stacey Ramis Nigro, Esq., Certilman, Balin, Adler Hyman, East Meadow, New York, For respondent (Ocwen Federal Bank).
James Thomas, Esq., Thomas Spikes, Brooklyn, New York, For Respondent (Mary Jane Heckstall).
Background
The decedent, Beulah Jones, died on October 12, 1993, survived by her husband, Carroll Jones, as her sole distributee. She had executed a will many years earlier, on December 6, 1961, in which she left her residence, located at 1108 Gates Avenue, Brooklyn, New York, to her sister, Rovina Wilds ("Wilds"), subject to the right of Carroll Jones to live in the property rent free. The 1961 will was not offered for probate after the death of Beulah Jones. As a result, Carroll Jones resided in the property as the apparent holder of title as the decedent's sole distributee. See Matter of Cunniff, 272 NY 89 (1936).
Wilds alleges that this was the result of advice she and Carroll Jones received at the will reading ceremony that there was no need to probate the 1961 will until Carroll Jones died, as long as they both abided by the terms of the will.
Carroll Jones transferred the property to his niece, Mary Jane Heckstall ("Heckstall") and nephew, Roger Bell ("Bell") by deed dated August 18, 1999. Carroll Jones died on May 14, 2002 and voluntary letters in his estate were issued to Heckstall. On March 23, 2003, Heckstall and Bell borrowed $217,000 from Delta Funding Corporation ("Delta Funding"), secured by a note and mortgage. In 2003, the Delta Funding mortgage was assigned to JP Morgan Chase Bank ("Chase"), which bundled the mortgage with others for sale to investors, retaining the obligation to act as trustee of the CDO.
The Probate Proceeding
In August, 2004, Wilds brought a proceeding to probate a copy of the 1961 will, claiming that the attorney who held the original had since died and the original will could not be located. Objections were filed by Bell and Heckstall, and Ocwen Federal Bank ("Ocwen"), acting as servicing agent for Chase.
Under the particular facts of the case, the Court made an exception to the usual rule that creditors do not have standing to contest the probate of a will. Matter of Jones (Tomei, AS).
Prior to the scheduled trial, Delta Funding filed for bankruptcy in Federal Bankruptcy Court. Ocwen argued that, as a result, the probate proceeding was stayed. The parties were given the opportunity to submit memoranda of law whether the automatic stay provided Delta Funding under the Bankruptcy Code ( 11 U.S.C. § 362) applied. Wilds submitted a memorandum, attaching a copy of the assignment from Delta Funding to Chase, executed and acknowledged by Paul Neff, Servicing Agent of Ocwen on October 19, 2005. The assignment states that it is made "without warranty, express or implied, and without recourse to the assignor in any event whatsoever." The other parties did not submit any papers in opposition. The Court determined that since Delta Funding was never a party to the probate proceeding, the probate proceeding was not subject to the automatic stay. After a trial, the probate petition was granted. A copy of the 1961 will was admitted to probate on July 22, 2008 (Lopez Torres, S.).
The Declaratory Judgment Action
In June, 2004, prior to filing the probate petition, Wilds brought an action in Supreme Court against Heckstall, Bell and Delta Funding for a declaration that she was the owner of the Gates Avenue property upon Carroll Jones' death. The defendants appeared and denied the claim. In addition to denying the validity of the copy of the 1961 will, the defendants raised, as affirmative defenses, claims that even if Wilds was the owner of the property under the 1961 will, the challenge to the 1999 transfer to Heckstall and Bell was barred by the statute of frauds and that the Delta Funding mortgage was a valid lien on the property.
Delta Funding moved for summary judgment dismissing the action. By order dated February 9, 2006, the Supreme Court transferred the action, sua sponte, to Surrogate's Court and denied Delta Funding's motion for summary judgment, without prejudice to renewing the motion in Surrogate's Court.
Wilds' Motion for Summary Judgment
With Wilds' status as devisee of the property confirmed by the probate of the copy of the 1961 will, Wilds moved for summary judgment declaring her to be the owner of the Gates Avenue property. Delta Funding wrote to the Court to advise it that the action against Delta Funding was stayed by the automatic stay. It argued that the declaratory action, unlike the probate proceeding, named Delta Funding as a defendant and therefore was stayed by the bankruptcy filing of Delta Funding. Wilds again argued that Delta Funding had no interest in the case, but, in light of its being named as a defendant, the Court stayed the declaratory action.
Wilds now moves to amend the caption to delete the references to Delta Funding and to substitute Chase in its stead. Delta Funding opposes the motion. It argues that there is no basis to add Chase to the caption since Chase is not a party to the proceeding. It argues further that even if Delta Funding is removed as a party, the fact that there has been an assignment does not mean that it has no interest in the property, so that the automatic stay applies.
Discussion
There is no basis to amend a caption to substitute in a party who is not a party to the action. However, Chase, as the assignee of the Delta Funding mortgage, is a necessary party to this proceeding to declare Wilds the owner of the property. Cedtronics, LP v St. Nicolas Beverage Discount Cir., Inc, 8 AD3d 420 (2d Dept 2004). As for Delta Funding, since the assignment is absolute on its face, Delta Funding is not a necessary party to this action. Cedtronics, LP v St. Nicolas Beverage Discount Cir., Inc, supra.
The Automatic Stay
This does not dispose of the issue of the automatic stay. Section 362 of the Bankruptcy Code provides for an automatic stay upon the filing of petition under any chapter of the Bankruptcy Code. 11 U.S.C. § 362(a). The stay is a broad stay of litigation that stays a wide variety of actions that would affect interfere with the property of the debtor. No formal notice is require to effectuate the stay. See Croyden Assocs. v Alleco, Inc., 969 F2d 675 (8th Cir 1992); Colliers on Bankruptcy, supra, § 362.01 at 362-12.10.
Except for a limited number of situations enumerated in subsection (b) of the statute, the stay applies to almost any type of formal or informal action taken against the debtor or its property. 3 Colliers on Bankruptcy, supra, § 362.03 at 362-12.10 (15 ed). The stay applies to all actions that may affect the debtor's property. Id. If the court continues the action, despite the automatic stay, any action or judgment against the debtor resulting from breach of the stay may be void. Collier on Bankruptcy, supra, § 362.03(3), at 362-15.
If, on the other hand, the litigation only affects property that is no longer the property of the debtor, it is not stayed. 11 U.S.C. § 362(c). Nor is litigation in which the debtor is not a party and that only collaterally affects the debtor. Collier on Bankruptcy, supra, § 362.03(3), at 362-15. Nor does the stay protect a non-debtor who may be subject to litigation for transactions or events involving the debtor. Wedgeworth v Fireboard Corp., 706 F2d 514 (5th Cir 1983). Thus, when there are multiple parties to the litigation, the action may continue against the other parties, even though the action is stayed against the debtor. This is so even if the action against the non-debtors is they have a similar legal or factual connection to the debtor's property. Croyden Assocs. v Alleco, Inc., supra; Maritime Elec. Co. v United Jersey Bank, 959 F2d 1194 (3d Cir 1992).
The law is clear that the non bankruptcy court has the jurisdiction to determine the applicability of the automatic stay to litigation before it. "The court in which the litigation claimed to be stayed is pending has jurisdiction to determine . . . whether the proceeding before it is subject to the automatic stay." NLRB v Sawalski, 15 BR 971 (Bankr Court, EDMich 1993); see also Chao v Hosp. Staffing Svcs, Inc., 270 F3d 374 (6th Cir 2001); Vasile v Dean Witter Reynold, Inc., 20 F Supp 2d 465 (EDNY 1998); S.E.C. v Bilzerian, 131 F Supp 2d 10 (DC Cir 2003; Covanta Onondaga Ltd. v Onondaga County Resource Recovery Agency, 283 BR 651 (ND NY 2002), vacated on other grounds 318 F3d 392 (2d Cir 2003); In re Ivani, 308 BR 132 (Bankr Court, EDNY 2004); In re Siskend, 258 BR 554 (Bankr Court, EDNY 2001). Of course, if the bankruptcy court ultimately determines that the trial court's decision was in error, the parties run the risk that the entire action will be declared void ab initio. Chao v Hosp. Staffing Svcs, Inc., supra.
Wilds claims that the automatic stay does not apply because Delta Funding has assigned its interest in the mortgage to Chase. Delta Funding argues that the fact that Wilds has no way of knowing this because she has not seen the actual assignment. She therefore, has no way of knowing whether Delta Funding maintains a right of reverter or is obligated under a mandatory buy back of similar provision.
If the debtor may ultimately be liable as a guarantor, the automatic stay applies. McCartney v Integra Natl. Bank, 106 F3d 506 (3d Cir 1997).
Wilds has submitted a copy of the assignment as recorded in the office of the Registrar of the City of New York, which is a copy of the assignment previously submitted to the Court in evaluating Ocwen's application for a stay in the probate proceeding. The language of the assignment states that it is made "without warranty, express or implied, and without recourse to the assignor in any event whatsoever." If Delta Funding believes that this does not comport with the actual assignment agreement, it should produce a certified copy of the actual assignment. It is manifestly unfair to allow Delta Funding to argue that Wilds cannot proceed, based upon the possible contract terms in an assignment it will not produce.
Based upon the record in this case, the motion to amend the caption to include Chase as defendant is granted upon the condition that the complaint is amended to substitute Chase, as trustee, for Delta Funding and that she serve Chase with process within thirty days of receiving a copy of this decision and order.
As for that part of the motion to delete Delta Funding as a party, the motion is granted unless Delta Funding files a copy of the assignment, certified by an appropriate corporate officer, within thirty days of receiving a copy of this decision and order. If it [*5]files the certified copy, the matter will be submitted for decision based on the record at that time. If it does not, the motion is granted and Delta Funding will be dropped as a defendant.
The Clerk of the Court is directed to serve a copy of this Decision and Order on all interested parties by regular mail.
This constitutes the decision and order of the Court.