Samuel Temple Church of God in Christ v. Parade Place, LLC et al

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
In re:
PARADE PLACE, LLC, et al.,
Debtors.
FOR PUBLICATION
Case No. 13-13160 (MG)
Jointly Administered
Samuel’s Temple Church of God in Christ,
Plaintiff,
v.
Parade Place, LLC, Saadia Shapiro, Marla
Shapiro, Valley National Bank,
Defendants.
Adv. Pro. Case No. 13-01556 (MG)
MEMORANDUM OPINION AND ORDER DENYING MOTION TO REARGUE
A P P E A R A N C E S:
ROBERT G. LEINO, ESQ.
Attorney for Samuel’s Temple Church of God in Christ
224 Riverside Drive, 6B
New York, New York 10025
By: 	Robert G. Leino, Esq.
KRISS & FEURSTEIN LLP
Attorneys for 75 125th Holdings LLC
360 Lexington Avenue, Suite 1200
New York, NY 10017
By: 	Jerold Feurstein, Esq.
MARTIN GLENN
UNITED STATES BANKRUPTCY JUDGE
On January 27, 2014, this Court entered an Opinion and Order 1 granting the motion of 75
125th Holdings LLC (“Holdings”),2 substituting Holdings in place of Valley National Bank
1 	Memorandum Opinion and Order Granting Motion of 75 125th Holdings LLC for Substitution as a
Defendant and Dismissing Complaint (the “Prior Opinion,” ECF Doc. # 16).
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(“Valley”) as defendant in this adversary proceeding and dismissing the Adversary Complaint3
as to Valley/Holdings. The plaintiff, Samuel’s Temple Church of God in Christ (the “Church”),
did not oppose the relief sought by Holdings. The Church subsequently retained new counsel
and filed a Motion to Reargue,4 asking the Court to reconsider and vacate its Prior Opinion. The
Church argues that (1) its former counsel inadvertently neglected to oppose the relief sought by
Holdings; (2) substitution of Holdings as defendant was inappropriate because Holdings could
have merely intervened; and (3) Holdings failed to establish that the Church’s claims are barred
by any of the doctrines of res judicata, collateral estoppel, Rooker-Feldman, and D’Oench
(defined below).
For the reasons that follow, the Motion is DENIED. The Church has not identified an
intervening change of controlling law, and the Motion does not rely on new evidence. Further,
the Church has failed to show the need to correct clear error of law or prevent manifest injustice,
or that the Court overlooked matters that would have altered its decision. But because the
Church has identified claims against Valley not previously articulated to the Court, the Court
clarifies that nothing in the Prior Opinion bars the Church from attempting to assert those claims
in state court. This Court, however, will not exercise jurisdiction over claims solely between two
non-debtors, with no conceivable effect on the bankruptcy estates in these proceedings.
2 	Motion to be Substituted as a Defendant Or, Alternatively, To Intervene as of Right Pursuant to Federal
Rules of Civil Procedure Rules 24(a)(2) and 25(c) and to Dismiss the Adversary Complaint Pursuant to 11 U.S.C. §
105(a) and 11 U.S.C. § 510(c), Federal Rules of Bankruptcy Procedure Rule 7012(b) and Federal Rules of Civil
Procedure Rules 12(B)(6) and 12(d) (the “Holdings Motion,” ECF Doc. # 5-1).
3 	(ECF Doc. # 1.)
4 	Motion to Reargue (the “Motion,” ECF Doc. # 21).
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I. 	BACKGROUND
Pending before the Court is the Church’s Motion to Reargue, supported by the
Affirmation of Robert G. Leino (ECF Doc. # 21-1) and a Memorandum of Law (the “Mem.,”
ECF Doc. # 21-5). The Church requests that the Court reconsider and vacate its Prior Opinion
granting the Holdings Motion. Holdings filed an opposition (the “Opposition,” ECF Doc. # 28),
supported by a Memorandum of Law (the “Opp. Mem.,” ECF Doc. # 28-21).
The Church owned property located at 75 East 125th Street, New York, New York (the
“Property”), before selling the Property to Parade Place, LLC (“Parade Place”) on August 17,
2006. Parade Place—a defendant in this adversary proceeding—planned to develop the
Property, and purportedly granted the Church a 198-year lease. Parade Place subsequently
transferred title of the Property to its affiliate 75 East 125th, LLC (“75 East”). Parade Place and
75 East (together, the “Debtors”) are Debtors in chapter 11 proceedings under joint
administration.
On December 11, 2006, 75 East executed a commercial mortgage (the “Mortgage”) and
note (the “Note”) encumbering the Property in favor of LibertyPointe Bank (“LibertyPointe”), in
the principal amount of $1,950,000. Beginning on August 1, 2008, 75 East stopped making the
required payments under the Note and Mortgage. On December 9, 2008, LibertyPointe
commenced a foreclosure action in the Supreme Court of the State of New York, County of New
York (the “State Court”), styled LibertyPointe Bank v. 75 East 125th LLC, et al., Supreme Court,
New York County Index No. 116405/08 (the “Foreclosure Action”). The Church filed a Notice
of Appearance in the Foreclosure Action, despite later claiming that it was never served with the
complaint. (See Memorandum Decision of State Court Denying Motion to Vacate (the “State
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Court Decision”), attached as Ex. 2 to Mot., at 2, 9.) The Church did not file an answer in that
action. (See id. at 2.)
On March 11, 2010, the New York State Banking Department closed LibertyPointe, and
the Federal Deposit Insurance Corporation (“FDIC”) was appointed receiver for the failed bank.
Contemporaneously, the FDIC entered into a Purchase and Assumption Agreement with Valley,
transferring and assigning to Valley certain assets of LibertyPointe, including the Mortgage and
Note. Valley then assigned the Mortgage and Note to VNB Corp. (“VNB”), which continued to
prosecute the Foreclosure Action initiated by LibertyPointe.5
Although 75 East and its managing member Saadia Shapiro answered the complaint in
the Foreclosure Action and stated counterclaims, they later failed to respond to a summary
judgment motion filed by the LibertyPointe. On March 29, 2010, the State Court entered an
order on default (the “Summary Judgment Order,” attached as Ex. 1 to the Motion) granting
LibertyPointe’s motion for summary judgment in the Foreclosure Action, striking 75 East’s and
Shapiro’s answer, dismissing their counterclaims, and appointing a referee to compute the
amount owed to LibertyPointe under the Note and Mortgage. Pursuant to the Summary
Judgment Order, the caption of the Foreclosure Action was amended to include the Church as a
defendant. (Summary Judgment Order at 3–4.)
The Church then moved in the State Court for an order vacating the Summary Judgment
Order, for leave to conduct discovery, and to record its purported 198-year lease. The Church
also sought leave to submit a late answer.
5 	For purposes of this Opinion, it is immaterial whether claims were lodged by or against LibertyPointe,
Valley, or VNB. Since each of these entities had an interest in the Property at a different time, the Opinion refers to
them interchangeably.
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By written decision dated February 14, 2011, the State Court denied the Church’s
motions in their entirety and held that the Church had “failed to present a meritorious defense to
[LibertyPointe’s] complaint.”6 (State Court Decision at 20.) Specifically, the State Court found
that (1) LibertyPointe had standing to prosecute the Foreclosure Action; (2) by filing a Notice of
Appearance, the Church belied its claim that it was not served with a summons and complaint;
and (3) the Church’s assertions that it was fraudulently induced to enter into a contract with 75
East and Shapiro had no bearing on LibertyPointe’s right to foreclose. (Id. at 14, 20.) The
Church never appealed the State Court Decision, and the time to do so has since expired.7
On August 8, 2013, the State Court entered a Judgment of Foreclosure and Sale (the
“JFS,” Opp. Ex. B-14, ECF Doc. # 28-17). Pursuant to the JFS, a Sheriff’s foreclosure sale of
the Property was scheduled for September 25, 2013. The Church did not file a notice of appeal
from the JFS, but instead filed a proposed Order to Show Cause in the Foreclosure Action
seeking an order (1) staying the foreclosure sale; (2) vacating the JFS; (3) granting the Church
leave to file a late answer; and (4) declaring that the Church has the right to occupy the Property.
(See Holdings Motion ¶¶ 30–33.) 75 East filed a chapter 11 bankruptcy petition on September
6 	Under New York law, a default judgment may be vacated if “the defendant can demonstrate both a
reasonable excuse for the default and a potentially meritorious defense.” Caba v. Rai, 63 A.D.3d 578, 580 (N.Y.
App. Div. 2009).
7 	75 East and Shapiro did appeal the State Court Decision, which denied their motion to vacate the Summary
Judgment Order as well. On appeal, the First Department reversed that portion of the State Court’s decision, finding
that 75 East and Shapiro had a potentially meritorious fraudulent inducement defense to the complaint in the
Foreclosure Action. LibertyPointe then moved again in the State Court for summary judgment against 75 East and
Shapiro, which the State Court granted in a memorandum decision entered on February 14, 2013. (See Feb. 14,
2013 State Court Decision, Opp. Ex. B-16, ECF Doc. # 28-19.) The State Court based its decision on the D’Oench
doctrine, which “prohibits claims based upon agreements which are not properly reflected in the official books or
records of a failed bank or thrift.” (Id. at 15 (internal quotation marks omitted).) The State Court found that the
D’Oench doctrine barred 75 East and Shapiro from raising as a defense to foreclosure fraudulent inducement based
on representations by LibertyPointe’s former chairman. (Id. at 16.) The State Court also rejected an argument by 75
East and Shapiro that VNB lacked standing to prosecute the Foreclosure Action due to alleged irregularities in the
assignments from the FDIC to Valley and from Valley to VNB, noting that the court had already held that
LibertyPointe had standing to maintain the action in the State Court Decision. (Id. at 8.)
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23, 2013, followed shortly thereafter by Parade Place’s petition on September 27, 2013. The
foreclosure sale was stayed by virtue of these bankruptcy proceedings, and the Church’s Order to
Show Cause was never heard.
On October 23, 2013, the Church filed the Adversary Complaint in this Court. The
Adversary Complaint names as defendants Parade Place, Saadia Shapiro, Marla Shapiro, Valley,
and all successors-in-interest to those named defendants. In the Adversary Complaint, the
Church asserts that Valley (1) knew that the Church maintained an interest in the Property and
that a voidable deed existed between Parade Place and the Church; and (2) lacked standing to
prosecute the Foreclosure Action. The Church sought an order declaring that Valley was not a
valid holder in due course of the Mortgage and Note.
In November 2013, VNB assigned the Mortgage, Note, and JFS to Holdings. On January
22, 2014, Holdings filed the Holdings Motion in this Court, seeking (1) to substitute itself in
place of Valley, or, in the alternative, for permission to intervene; and (2) an order dismissing the
Adversary Complaint. The Church did not file a response to the Holdings Motion. 8 The Court
held a hearing on January 27, 2014, at which the Church’s then-counsel stated on the record that
the Church was not opposing the Holdings Motion. (Jan. 27, 2014 Tr. 12:14–15 (“As I said, my
concern is with the debtor and the Shapiro’s [sic]. I am not opposing the present motion.”).)
Following the hearing, the Court entered the Prior Opinion, granting the Holdings Motion;
Holdings was substituted as defendant in place of Valley and the Adversary Complaint against
Holdings was dismissed with prejudice.
8 	At the hearing on the Holdings Motion, the Church’s then-counsel claimed he had filed a response,
referring the Court to a document titled Opposition of Samuel[‘]s Temple Church of God in Christ to Pending
Motion to Settle (ECF Doc. # 10). That document, however, does not reference the Holdings Motion; rather, it
addresses a motion to approve a settlement, filed in case number 13-13160.
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The Church filed this Motion on February 10, 2014, requesting that the Court reconsider
and vacate the Prior Opinion. The Church first argues that substitution of Holdings as defendant
was inappropriate where Holdings could have merely intervened. Second, the Church argues
that Holdings failed to establish that the Church’s claims are barred by res judicata. Third, the
Church argues that its prior counsel inadvertently neglected to oppose the Holdings Motion.
Fourth, the Church argues that collateral estoppel does not bar its claims. Fifth, the Church
argues that the Rooker-Feldman doctrine does not apply to its claims. Finally, the Church argues
that the D’Oench doctrine does not control here.
II. 	DISCUSSION
Local Bankruptcy Rule 9023-1(a) provides:
A motion for reargument of a court order determining a motion shall be served
within fourteen (14) days after the entry of the Court’s order determining the
original motion, or in the case of a court order resulting in a judgment, within
fourteen (14) days after the entry of the judgment, and, unless the Court orders
otherwise, shall be made returnable within the same amount of time as required
for the original motion. 	The motion shall set forth concisely the matters or
controlling decisions which counsel believes the Court has not considered. 	No
oral argument shall be heard unless the Court grants the motion and specifically
orders that the matter be reargued orally.
L.B.R. 9023-1(a).
Local Bankruptcy Rule 9023-1(a) derives from Former Local Bankruptcy Rule 13(j) and
is an adaptation of Civil Rule 6.3 of the Local District Rules. See Comment to Local Bankruptcy
Rule 9023-1. The standard applicable to motions for reargument is identical to that applicable to
motions to alter or amend a judgment under Federal Rule of Civil Procedure 59(e). In re
Bressler, No. 06-11897 (AJG), 2007 WL 98493, at *1 (Bankr. S.D.N.Y. Jan. 12, 2007) (citing In
re Houbigant, Inc., 190 B.R. 185, 187 (Bankr. S.D.N.Y. 1996); Travelers Ins. Co. v. Buffalo
Reinsurance Co., 739 F. Supp. 209, 210 (S.D.N.Y. 1990)). “The movant must show that the
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court overlooked controlling decisions or factual matters that might materially have influenced
its earlier decision.” In re Asia Global Crossing, Ltd., 332 B.R. 520, 524 (Bankr. S.D.N.Y.
2005); see also Adams v. United States, 686 F. Supp. 417, 418 (S.D.N.Y. 1988) (“The only
proper ground on which a party may move to reargue an unambiguous order is that the court
overlooked matters or controlling decisions which, had they been considered, might reasonably
have altered the result reached by the court.” (internal quotation marks omitted)). A motion for
reargument “is not a vehicle for relitigating old issues, presenting the case under new theories,
securing a rehearing on the merits, or otherwise taking ‘a second bite of the apple.’” Sequa
Corp. v. GBJ Corp., 156 F.3d 136, 144 (2d Cir. 1998) (discussing Rule 59). Parties cannot use a
motion for reargument to advance new facts or arguments and may not submit affidavits or new
material. Asia Global Crossing, 332 B.R. at 524; accord Pereira v. Aetna Cas. & Sur. Co. (In re
Payroll Express Corp.), 216 B.R. 713, 716 (S.D.N.Y. 1997) (discussing reargument under Civil
Rule 6.3). “The standard for granting motions to reargue is strict in order to dissuade repetitive
arguments on issues that have already been considered fully by the court.” Adams, 686 F. Supp.
at 418 (internal quotation marks omitted); see also Family Golf Ctrs., Inc. v. Acushnet Co. (In re
Randall’s Island Family Golf Ctrs., Inc.), 290 B.R. 55, 61 (Bankr. S.D.N.Y. 2003).
Additionally, Bankruptcy Rule 9024 incorporates Rule 60 of the Federal Rules of Civil
Procedure, which establishes the grounds for relief from a final order. Rule 9024 provides that a
court may grant relief from an order for a clerical mistake or for “mistake, inadvertence, surprise,
excusable neglect,” newly-discovered evidence, fraud, misrepresentation, misconduct, where the
order is void or has been satisfied, released, or discharged or “is no longer equitable, or for any
other reason that justifies relief” from the order. FED. R. CIV. P. 60(a), (b). A motion for
reconsideration “is generally not favored and is properly granted only upon a showing of
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exceptional circumstances.” Marrero Pichardo v. Ashcroft, 374 F.3d 46, 55 (2d Cir. 2004)
(citation omitted). “A motion for reconsideration should be granted only when the [moving
party] identifies ‘an intervening change of controlling law, the availability of new evidence, or
the need to correct a clear error or prevent manifest injustice.’” Kolel Beth Yechiel Mechil of
Tartikov, Inc. v. YLL Irrevocable Trust, 729 F.3d 99, 104 (2d Cir. 2013) (emphasis added)
(quoting Virgin Atl. Airways, Ltd. v. Nat’l Mediation Bd., 956 F.2d 1245, 1255 (2d Cir. 1992)).
The Church has not identified any intervening change of controlling law. Additionally,
its Motion does not rely on new evidence. Thus, to prevail on the Motion, the Church must show
the need to correct clear error of law or prevent manifest injustice, or that the Court overlooked
matters that would have altered its earlier decision. The Church fails to satisfy its heavy burden.
But in the Motion, the Church articulates—for the first time—potential monetary claims against
Valley. While nothing in the Prior Opinion bars the Church from attempting to assert those
claims in the State Court, this Court declines to exercise jurisdiction over the claims.
A. 	Substitution and Intervention
The Church argues that substituting Holdings as defendant was inappropriate because the
assignment of the Mortgage and Note to Holdings was silent whether Holdings assumed liability
for alleged wrongful lending in origination of the loan. (See Mem. at 6.) According to the
Church, the “more cautious decision” would have been to let Holdings intervene. (Id.) The
Church had the opportunity to advance this argument in response to the Holdings Motion, but
chose instead not to oppose that motion, as expressly stated by the Church’s prior counsel.
The Court permitted Holdings to be substituted as defendant after considering the
relevant law and the uncontroverted fact that Holdings is the current holder of the Mortgage and
Note. (See Prior Opinion at 6–7.) The Court determined that granting Holdings’ request for
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substitution would expedite and simplify the action. In its Motion, the Church does not provide
any intervening change in material facts or controlling law that warrant reconsideration of this
issue. The Church cannot now advance a new argument under the guise of preventing manifest
injustice. This portion of the Motion is DENIED.
B. 	Res judicata
The Church argues that the Holdings Motion failed to establish that the Church’s claims
are barred by res judicata for several reasons. (See Mem. at 6–13.) First, it asserts that the State
Court Decision was not an adjudication on the merits. (See id. at 6–7.) Second, the Church
argues that its wrongful lending and fraud claims were not decided in the Foreclosure Action.
(See id. at 7–9.) Third, the Church claims that, because the State Court Decision denied the
Church’s motion to vacate on procedural grounds, res judicata does not bar it from asserting
those claims in the adversary proceeding. (See id. at 9–11.) Fourth, the Church argues that,
under New York law, res judicata does not bar claims from a prior litigation that ended in a
default judgment. (See id. at 11–13.) Fifth, the Church argues that equity and consistency
require that the Holdings Motion be denied. (See id. at 13.)
Under New York law, res judicata “precludes a party from litigating a claim where a
judgment on the merits exists from a prior action between the same parties involving the same
subject matter.” Josey v. Goord, 880 N.E.2d 18, 20 (N.Y. 2007) (internal quotation marks
omitted). Res judicata bars all matters that were, or could have been, litigated in the prior action.
Maharaj v. BankAmerica Corp., 128 F.3d 94, 97 (2d Cir. 1997). Thus, “once a claim is brought
to a final conclusion, all other claims arising out of the same transaction or series of transactions
are barred, even if based upon different theories or if seeking a different remedy.” O’Brien v.
City of Syracuse, 429 N.E.2d 1158, 1159 (N.Y. 1981).
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The Church points to Aguilar v. Jacoby, 827 N.Y.S.2d 77 (N.Y. App. Div. 2006), to
demonstrate that this Court improperly relied upon the State Court Decision in concluding that
the Church’s claims were barred by res judicata. Under Aguilar, a “determination that [a
movant] failed to demonstrate a meritorious cause of action for purposes of vacating [a] default
[does] not constitute a determination on the merits” for res judicata purposes. Id. at 78 (citations
omitted). The Church correctly asserts that, according to Aguilar, the State Court Decision—
which denied the Church’s motion to vacate for lack of a meritorious defense—was not an
adjudication on the merits and cannot be relied on to bar the Church’s claims under res judicata.
Thus, the Court should not have relied on the State Court Decision in the Prior Opinion as a basis
for res judicata.
Nonetheless, the JFS entered in the Foreclosure Action was a final judgment on the
merits, and, therefore, Aguilar does not alter the result reached in the Prior Opinion. See Gray v.
Bankers Trust Co. of Albany, N. A., 442 N.Y.S.2d 610, 612 (N.Y. App. Div. 1981) (“A judgment
of foreclosure and sale entered against a defendant is final as to all questions at issue between the
parties, and all matters of defense which were or might have been litigated in the foreclosure
action are concluded.”); see also Swiatkowski v. Citibank, 745 F. Supp. 2d 150, 171–72
(E.D.N.Y. 2010) (holding that an “earlier state court action, which included a Final Judgment of
Foreclosure and Sale, was a previous adjudication on the merits” (internal quotation marks
omitted)), aff'd, 446 F. App’x 360 (2d Cir. 2011). Indeed, under the express terms of the JFS, all
of the defendants in the Foreclosure Action are “forever barred and foreclosed of all right, claim,
lien, title, interest and equity of redemption in [the Property][.]” (JFS at 6.) The JFS was entered
on August 8, 2013, and the Church—by then a named defendant in the Foreclosure Action—did
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not appeal that judgment. The JFS is therefore final as to all questions between the parties,
including any defenses that were, or could have been, litigated.
Without the aid of responsive pleading by the Church, the Court, in the Prior Opinion,
construed the Church’s Adversary Complaint against Valley as (1) asserting that Valley lacked
standing to prosecute the Foreclosure Action and (2) seeking a Court order declaring that Valley
is not a valid holder in due course of the Note and Mortgage. (See Prior Opinion at 5.) The
Court held that those claims were barred by res judicata. That determination remains true: any
questions relating to Valley’s standing to foreclose were adjudicated on the merits by the State
Court when it entered the JFS; the Church is barred from bringing those claims here.
In the Motion, the Church articulates for the first time that its claims against Valley
include “an action for money damages based on wrongful lending, negligence, breach of
fiduciary duty, or fraud.” (Mem. at 9–10; id. at 8 (“The gist of plaintiff church’s claims is that
the defendant developer did not have the authority to apply for mortgages, and secondly that the
mortgage bank knew of that restriction which makes it liable for wrongful lending and/or
fraud.”).) According to the Church, “in deciding the mortgagee’s summary judgment motion in
the state foreclosure action, the [State] Court never addressed any potential counter-claim or
cause of action for wrongful lending. The scope of the court’s review was narrow, focusing
merely on whether the elements of the foreclosure action were met by the bank.” (Id. at 8.) The
Church asserts, therefore, that its claims against Valley cannot be barred by res judicata.
The Court did not squarely address this issue in the Prior Opinion because the Adversary
Complaint makes no mention of a separate claim for money damages against Valley based on
wrongful lending. Indeed, the Church’s former counsel expressly told the Court that the Church
was not interested in pursuing claims against Valley. In any event, this Court lacks subject
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matter jurisdiction under 28 U.S.C. § 1334 to hear a monetary claim by the Church (a non-
debtor) against Valley (also a non-debtor), since that claim could not have any conceivable effect
on the bankruptcy estates of Parade Place and 75 East. See In re Quigley Co., Inc., 676 F.3d 45,
53 (2d Cir. 2012) (“Bankruptcy jurisdiction is appropriate over third-party non-debtor claims that
directly affect the res of the bankruptcy estate.” (internal quotation marks omitted)); see also
Publicker Indus. Inc. v. United States (In re Cuyahoga Equip. Corp.), 980 F.2d 110, 114 (2d Cir.
1992) (“The test for determining whether litigation has a significant connection with a pending
bankruptcy [sufficient to confer bankruptcy jurisdiction] is whether its outcome might have any
conceivable effect on the bankrupt estate.” (internal quotation marks omitted)).
This Court does, however, have subject matter jurisdiction over the Church’s claims
against Debtor Parade Place, and the Prior Opinion did not affect those claims. (See Prior
Opinion at 2 n.2, 8 n.4.) The Court will assume for purposes of discussion that it could, in its
discretion, exercise supplemental jurisdiction over the Church’s claims against Valley under 28
U.S.C. § 1367, which grants jurisdiction “over all other claims that are so related to claims in the
action . . . that they form part of the same case or controversy[.]” See Shafferman v. The Queens
Borough Public Library (In re JMK Constr. Grp., Ltd.), 502 B.R. 396, 403 n.4 (Bankr. S.D.N.Y.
2013) (“While not free from doubt, there is authority, including in the Second Circuit, that
bankruptcy courts may exercise supplemental jurisdiction.” (citing In re Pegasus Gold Corp.,
394 F.3d 1189, 1195 (9th Cir. 2005); Lionel Corp. v. Civale & Trovato, Inc. (In re Lionel Corp.),
29 F.3d 88, 92 (2d Cir. 1994))); see also Cavalry Constr., Inc. v. WDF, Inc. (In re Cavalry
Constr., Inc.), 496 B.R. 106, (S.D.N.Y. 2013) (holding that “bankruptcy courts may exercise
supplemental jurisdiction under § 1367”).
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There are several reasons a court may decline to exercise supplemental jurisdiction,
including if “the claim raises a novel or complex issue of State Law,” or if, “in exceptional
circumstances, there are compelling reasons for declining jurisdiction.” 28 U.S.C. § 1367(c).
Assuming the Court has the power to exercise supplemental jurisdiction over monetary claims
the Church might have against Valley, the Court declines to do so. Resolution of whether those
claims are barred by res judicata is muddied by the lengthy, complex history of the Foreclosure
Action in the State Court. Additionally, the viability of the state law claims—including the
claim for “wrongful lending”—should be decided by the State Court, particularly since the
claims are asserted against a successor to a failed bank that acquired its interest in the loan
through an FDIC transfer.
A sale of the Property pursuant to the JFS has yet to occur, and the Church’s pending
Order to Show Cause in the State Court will give the Church an opportunity to have its claims
heard. The State Court will presumably have to address the Order to Show Cause if and when
this Court lifts the automatic stay to allow the foreclosure sale to proceed. As of the date of this
Opinion, no party has moved the Court to do so, and the automatic stay remains in place.
As a last-ditch effort, the Church argues that consistency requires that the Holdings
Motion be denied. To support its claim, the Church states: “The doctrine of res judicata . . . was
established as a means to promote legal economy and certainty.” (Mem. at 13 (alteration added)
(quoting Monahan v. New York City Dep’t. of Corrs., 214 F.3d 275, 286 (2d Cir. 2000)).) The
Church’s argument in this regard is peculiar and convoluted. But in any event, the case relied
upon by the Church stands for the proposition that consistency favors the application of res
judicata. See Monahan, 214 F.3d at 280, 286. The Court agrees.
For these reasons, this portion of the Motion is DENIED.
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C. 	Inadvertence
The Church next argues that its prior counsel inadvertently neglected to: (1) “file an
opposition affirmation or opposition brief to [Holdings’] motion to intervene and dismiss”; and
(2) oppose the Holdings Motion at oral argument. (Mem. at 14.) Further, the Church asserts that
“[t]o the extent that the Court based its decision on non-opposition, inadvertence of counsel can
be excused under the rules.” (Id.) The Church cites no case law to support its argument and
does not indicate which rule would permit the Court to provide the relief it seeks.
In any event, the Church is incorrect. In Canfield v. Van Atta Buick/GMC Truck, Inc, 127
F.3d 248, 250 (2d Cir. 1997), the Second Circuit explained that “inadvertence” as used in
Federal Rule of Civil Procedure 60(b) must be analyzed under the Supreme Court’s Pioneer test
for establishing excusable neglect.9 Under that test, “at least for the purposes of Rule 60(b),
excusable neglect is understood to encompass situations in which the failure . . . is attributable to
negligence.” Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P’ship, 507 U.S. 380, 386
(1993). But there was no negligence or mistake involved in the Church’s counsel’s deliberate
and clear choice not to oppose the Holdings Motion. The Church asserts that it “had repeatedly
stated to him that the motion should be opposed, and the [C]hurch was under the impression that
the motion was being opposed.” (Mem. at 14.) But “litigants are generally bound by the
professional conduct of the attorneys they choose to represent them, although the conduct of
counsel may give rise to a claim for malpractice by the client.” Davidowitz v. Patridge, No. 08
9 	In Pioneer, the Court explained that, in determining whether a movant has established excusable neglect in
failing to comply with a bar date, a court should consider: “the danger of prejudice to the debtor, the length of the
delay and its potential impact on judicial proceedings, the reason for the delay, including whether it was within the
reasonable control of the movant, and whether the movant acted in good faith.” Pioneer Inv. Servs. Co. v.
Brunswick Assocs. Ltd. P’ship, 507 U.S. 380, 395 (1993).
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Civ. 6962 (NRB), 2010 WL 1779279, at *4 (S.D.N.Y. Apr. 23, 2010) (internal quotation marks
omitted).
Moreover, the Court did not base its previous ruling on the Church’s non-opposition.
The Court considered all of the relevant law and entered a written decision. The Court would
have certainly appreciated the Church’s participation in the proceedings to clarify its position
and the history of the State Court Action, but the failure of the Church’s former counsel to do so
is not grounds for granting the relief sought. This portion of the Motion is DENIED.
D. 	Collateral Estoppel
The Church also argues that, for the same reasons as res judicata, its claims against
Valley are not barred by collateral estoppel. (See Mem. at 14.) In the Prior Opinion, the Court
recognized that “[c]ollateral estoppel, or issue preclusion, is distinct from res judicata.” (Prior
Opinion at 9.) The Court held that, while the Church’s challenge of the assignment of the Note
and Mortgage to Valley was barred by res judicata, that challenge was not barred by collateral
estoppel. (Id.) Given the Court’s ruling in this Opinion with respect to res judicata, there is no
need to reconsider this portion of the Prior Opinion. This portion of the Motion is DENIED.
E. 	Rooker-Feldman
The Church next argues that the Rooker-Feldman doctrine does not apply. (See Mem. at
14.) In so doing, it seems to miscomprehend the Prior Opinion. In the Prior Opinion, the Court
declined to consider whether the Rooker-Feldman doctrine applies to the present case. (See Prior
Opinion at 11 (“In light of the Court’s determination above that the Adversary Complaint against
Holdings is barred by res judicata, it is unnecessary to consider whether the limited Rooker-
Feldman doctrine would deprive this Court of jurisdiction to entertain the claims against
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Holdings.”).) For the same reasons, the Court declines to engage in this analysis here. This
portion of the Motion is DENIED.
F. 	The D’Oench Doctrine
Finally, the Church argues that the D’Oench doctrine is not controlling because the
Church intends to plead numerous causes of action. (See Mem. at 14.) Some of those causes of
action—fraud, wrongful lending, negligence, and breach of fiduciary duty—the Church argues,
are not dependent on the existence of oral agreements; therefore, the D’Oench doctrine is
inapplicable here. (Id.) In the Prior Opinion, the Court held that the D’Oench doctrine, codified
in 12 U.S.C. § 1823(e), “prevents the Church from challenging the validity of the original Note
and Mortgage based on fraudulent inducement [through oral agreements] between LibertyPointe
and 75 East/Shapiro.” (Prior Opinion at 11.) That holding remains true. As explained above,
the Court did not consider monetary claims the Church may have against Valley. Given the
Court’s decision not to exercise supplemental jurisdiction over those claims, this portion of the
Motion is DENIED.
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III. 	CONCLUSION
Based on the foregoing, the Motion is DENIED. The Church has not carried its heavy
burden to show that the Court should reconsider its Prior Opinion or that the Court should hear
reargument on the Holdings Motion. Although the Church asserts that it has direct monetary
claims against Valley, those claims were not addressed in the Prior Opinion, and the Court
declines to exercise jurisdiction over such claims.
IT IS SO ORDERED.
Dated: 	May 2, 2014
New York, New York
_____Martin Glenn_____
MARTIN GLENN
United States Bankruptcy Judge
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