17‐463‐bk Stillwater Liquidating LLC v. SFN DeKalb et al.
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 COURTʹS 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 ʺSUMMARY ORDERʺ). A PARTY CITING 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 18th day of April, two thousand eighteen.
PRESENT: RICHARD C. WESLEY, DENNY CHIN, SUSAN L. CARNEY, Circuit Judges.
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IN RE: STILLWATER ASSET BACKED OFFSHORE FUND LTD., Debtor, 17‐463‐bk STILLWATER LIQUIDATING LLC, Plaintiff‐Appellant,
v.
SFN DEKALB HOLDINGS and CL‐RP STONECREST LLC, Defendants‐Appellees.*
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* The Clerk of Court is respectfully directed to amend the official caption to conform to the above.
FOR PLAINTIFF‐APPELLANT: DAVID B. GOROFF (Douglas E. Spelfogel, Katherine R. Catanese, on the brief), Foley & Lardner LLP, New York, NY.
FOR DEFENDANT‐APPELLEE DAVID KENT FIVESON, Butler, Fitzgerald, SFN DEKALB HOLDINGS: Fiveson & McCarthy, P.C., New York, NY.
FOR DEFENDANT‐APPELLEE RICHARD F. HARRISON (Thomas A. Draghi, CL‐RP STONECREST LLC: on the brief), Westerman Ball Ederer Miller Zucker & Sharfstein, LLP, Uniondale, NY.
Appeal from the United States District Court for the Southern District of
New York (Daniels, J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,
ADJUDGED, AND DECREED that the judgment of the district court is AFFIRMED.
Plaintiff‐appellant Stillwater Liquidating LLC (ʺStillwaterʺ) is a court‐
approved entity charged with pursuing recoveries on behalf of creditors of Stillwater
Asset Backed Offshore Fund Ltd. (the ʺDebtorʺ) and its related investment funds
(collectively, the ʺFundsʺ). Stillwater appeals from a January 18, 2017 judgment of the
district court (Daniels, J.) affirming an order of the Bankruptcy Court (Wiles, B.J.)
holding that a Georgia state foreclosure action (the ʺForeclosure Orderʺ) and subsequent
transfers of real property (the ʺHillandale Propertyʺ) did not violate an automatic stay
imposed pursuant to 11 U.S.C. § 362(a) in the Debtorʹs Chapter 11 bankruptcy
proceeding. The district court explained its reasoning in a memorandum decision and
order entered January 17, 2017.
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Stillwater argues that the Bankruptcy Court erred because the Foreclosure
Order and subsequent transfers of property: (1) constituted an ʺact to obtain the
property of the estateʺ; (2) involved the enforcement of a ʺclaim against the Debtorʺ; and
(3) were ʺlegally certainʺ to impact the Debtorʹs property. We assume the partiesʹ
familiarity with the underlying facts, procedural history, and issues on appeal.
Review of an order of a district court issued in its capacity as an appellate
court is plenary. In re Manville Forest Prods. Corp., 896 F.2d 1384, 1388 (2d Cir. 1990).
The factual determinations and legal conclusions of the bankruptcy court are thus
reviewed independently by this Court. Id. The bankruptcy courtʹs findings of fact are
reviewed for clear error, and its conclusions of law are reviewed de novo. Id.
We conclude that the Foreclosure Order and subsequent transfers of the
Hillandale Property did not violate the automatic stay under 11 U.S.C. § 362(a).
1. Property of the Estate
First, the Foreclosure Order was not an ʺact to obtain . . . property of the
estate,ʺ within the meaning of 11 U.S.C. § 362(a)(3). We agree with the bankruptcy
court and district court that the Debtorʹs property interests ‐‐ including any of the
Debtorʹs legal and equitable interests in the Hillandale Property ‐‐ had been conveyed
prior to the 2012 bankruptcy stay as part of the Debtorʹs 2010 asset purchase agreement
with Asia Special Situations Acquisitions Company (ʺASSACʺ), which became Gerova
Financial Group, Ltd. (ʺGerovaʺ) in conjunction with the transfer of assets.
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Stillwaterʹs efforts to distinguish this case from In re Colonial Realty Co., 980
F.2d 125 (2d Cir. 1992), are unavailing. In Colonial Realty, we explained that
fraudulently conveyed property is not ʺproperty of the estateʺ within the meaning of 11
U.S.C. § 362(a)(3) unless and until the property is recovered by the estate. Id. at 131; see
also, e.g., In re Saunders, 101 B.R. 303, 305 (Bankr. N.D. Fla. 1989) (ʺ[A]llowing the debtor
to retain an interest, legal or equitable, in fraudulently transferred property conceivably
places a cloud on the title of any property transferred by the debtor until there is a
judicial determination. . . . This result was clearly not contemplated by Congress.ʺ).
Stillwater attempts to cast its theory as one of ʺconversionʺ of the Debtorʹs
express trust interest in a lien on the Hillandale Property. We agree with defendant‐
appellee CL‐RP Stonecrest LLC (ʺCL‐RPʺ), however, that per the Debtorʹs participation
agreement with the Stillwater Asset Backed Fund LP (the ʺOnshore Fundʺ), the Debtor
did not hold a ʺlien interestʺ on the Hillandale Property. Instead, the Debtor held an
interest in the cash flow of the Onshore Fundʹs loan to Top Flight Investment LLC (ʺTop
Flightʺ), and that cash flow was held in trust by the Onshore Fund as an asset of the
trust. Although Stillwater also argues that the Debtor held a ʺbeneficial interestʺ in the
loan collateral (the Hillandale Property), we agree with CL‐RP and the district court
that this interest ʺconferred no general right to real property or title upon the holder.ʺ
Appellee CL‐RPʹs Br. at 21; see also Sp. App. 10; J. App. 2445.
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In any event, Stillwater conceded that all of the Debtorʹs legal and
equitable interests in real property ‐‐ including the Hillandale Property ‐‐ were
conveyed pre‐petition before the 2012 bankruptcy stay.1
2. Claims Against the Debtor
Second, the Foreclosure Order and subsequent transfers of the Hillandale
Property did not involve an action to enforce ʺa claim against the debtorʺ within the
meaning of 11 U.S.C. § 362(a)(1). The Hillandale Property foreclosure was premised on
outstanding real property taxes owed by the non‐Debtor, Top Flight, to a non‐creditor,
the Tax Commissioner of DeKalb County, and the Foreclosure Order involved
defendant‐appellee SFN DeKalb Holdings, a Top Flight creditor with a first priority lien
interest in the property. At the time of foreclosure, not only had the Debtor sold its
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17‐463‐bk Stillwater Liquidating LLC v. SFN DeKalb et al.
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 COURTʹS 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 ʺSUMMARY ORDERʺ). A PARTY CITING 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 18th day of April, two thousand eighteen.
PRESENT: RICHARD C. WESLEY, DENNY CHIN, SUSAN L. CARNEY, Circuit Judges.
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐x
IN RE: STILLWATER ASSET BACKED OFFSHORE FUND LTD., Debtor, 17‐463‐bk STILLWATER LIQUIDATING LLC, Plaintiff‐Appellant,
v.
SFN DEKALB HOLDINGS and CL‐RP STONECREST LLC, Defendants‐Appellees.*
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* The Clerk of Court is respectfully directed to amend the official caption to conform to the above.
FOR PLAINTIFF‐APPELLANT: DAVID B. GOROFF (Douglas E. Spelfogel, Katherine R. Catanese, on the brief), Foley & Lardner LLP, New York, NY.
FOR DEFENDANT‐APPELLEE DAVID KENT FIVESON, Butler, Fitzgerald, SFN DEKALB HOLDINGS: Fiveson & McCarthy, P.C., New York, NY.
FOR DEFENDANT‐APPELLEE RICHARD F. HARRISON (Thomas A. Draghi, CL‐RP STONECREST LLC: on the brief), Westerman Ball Ederer Miller Zucker & Sharfstein, LLP, Uniondale, NY.
Appeal from the United States District Court for the Southern District of
New York (Daniels, J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,
ADJUDGED, AND DECREED that the judgment of the district court is AFFIRMED.
Plaintiff‐appellant Stillwater Liquidating LLC (ʺStillwaterʺ) is a court‐
approved entity charged with pursuing recoveries on behalf of creditors of Stillwater
Asset Backed Offshore Fund Ltd. (the ʺDebtorʺ) and its related investment funds
(collectively, the ʺFundsʺ). Stillwater appeals from a January 18, 2017 judgment of the
district court (Daniels, J.) affirming an order of the Bankruptcy Court (Wiles, B.J.)
holding that a Georgia state foreclosure action (the ʺForeclosure Orderʺ) and subsequent
transfers of real property (the ʺHillandale Propertyʺ) did not violate an automatic stay
imposed pursuant to 11 U.S.C. § 362(a) in the Debtorʹs Chapter 11 bankruptcy
proceeding. The district court explained its reasoning in a memorandum decision and
order entered January 17, 2017.
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Stillwater argues that the Bankruptcy Court erred because the Foreclosure
Order and subsequent transfers of property: (1) constituted an ʺact to obtain the
property of the estateʺ; (2) involved the enforcement of a ʺclaim against the Debtorʺ; and
(3) were ʺlegally certainʺ to impact the Debtorʹs property. We assume the partiesʹ
familiarity with the underlying facts, procedural history, and issues on appeal.
Review of an order of a district court issued in its capacity as an appellate
court is plenary. In re Manville Forest Prods. Corp., 896 F.2d 1384, 1388 (2d Cir. 1990).
The factual determinations and legal conclusions of the bankruptcy court are thus
reviewed independently by this Court. Id. The bankruptcy courtʹs findings of fact are
reviewed for clear error, and its conclusions of law are reviewed de novo. Id.
We conclude that the Foreclosure Order and subsequent transfers of the
Hillandale Property did not violate the automatic stay under 11 U.S.C. § 362(a).
1. Property of the Estate
First, the Foreclosure Order was not an ʺact to obtain . . . property of the
estate,ʺ within the meaning of 11 U.S.C. § 362(a)(3). We agree with the bankruptcy
court and district court that the Debtorʹs property interests ‐‐ including any of the
Debtorʹs legal and equitable interests in the Hillandale Property ‐‐ had been conveyed
prior to the 2012 bankruptcy stay as part of the Debtorʹs 2010 asset purchase agreement
with Asia Special Situations Acquisitions Company (ʺASSACʺ), which became Gerova
Financial Group, Ltd. (ʺGerovaʺ) in conjunction with the transfer of assets.
‐ 3 ‐
Stillwaterʹs efforts to distinguish this case from In re Colonial Realty Co., 980
F.2d 125 (2d Cir. 1992), are unavailing. In Colonial Realty, we explained that
fraudulently conveyed property is not ʺproperty of the estateʺ within the meaning of 11
U.S.C. § 362(a)(3) unless and until the property is recovered by the estate. Id. at 131; see
also, e.g., In re Saunders, 101 B.R. 303, 305 (Bankr. N.D. Fla. 1989) (ʺ[A]llowing the debtor
to retain an interest, legal or equitable, in fraudulently transferred property conceivably
places a cloud on the title of any property transferred by the debtor until there is a
judicial determination. . . . This result was clearly not contemplated by Congress.ʺ).
Stillwater attempts to cast its theory as one of ʺconversionʺ of the Debtorʹs
express trust interest in a lien on the Hillandale Property. We agree with defendant‐
appellee CL‐RP Stonecrest LLC (ʺCL‐RPʺ), however, that per the Debtorʹs participation
agreement with the Stillwater Asset Backed Fund LP (the ʺOnshore Fundʺ), the Debtor
did not hold a ʺlien interestʺ on the Hillandale Property. Instead, the Debtor held an
interest in the cash flow of the Onshore Fundʹs loan to Top Flight Investment LLC (ʺTop
Flightʺ), and that cash flow was held in trust by the Onshore Fund as an asset of the
trust. Although Stillwater also argues that the Debtor held a ʺbeneficial interestʺ in the
loan collateral (the Hillandale Property), we agree with CL‐RP and the district court
that this interest ʺconferred no general right to real property or title upon the holder.ʺ
Appellee CL‐RPʹs Br. at 21; see also Sp. App. 10; J. App. 2445.
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In any event, Stillwater conceded that all of the Debtorʹs legal and
equitable interests in real property ‐‐ including the Hillandale Property ‐‐ were
conveyed pre‐petition before the 2012 bankruptcy stay.1
2. Claims Against the Debtor
Second, the Foreclosure Order and subsequent transfers of the Hillandale
Property did not involve an action to enforce ʺa claim against the debtorʺ within the
meaning of 11 U.S.C. § 362(a)(1). The Hillandale Property foreclosure was premised on
outstanding real property taxes owed by the non‐Debtor, Top Flight, to a non‐creditor,
the Tax Commissioner of DeKalb County, and the Foreclosure Order involved
defendant‐appellee SFN DeKalb Holdings, a Top Flight creditor with a first priority lien
interest in the property. At the time of foreclosure, not only had the Debtor sold its
ʺparticipation interestsʺ in the Onshore Fundʹs loan ‐‐ for which the Hillandale Property
served as collateral ‐‐ but the Debtor also did not have a recorded interest in the real
property nor was it a party to the foreclosure proceedings. Accordingly, the
Foreclosure Order and the subsequent sales of the property occurred independently of
any interest the Debtor now claims to have, and thus did not involve the enforcement of
a ʺclaim against the Debtor.ʺ 11 U.S.C. § 362(a)(1).
1 Stillwater alleges that its property interests were converted, but as noted above, it failed to establish a claim for conversion.
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3. Legally Certain to Impact Estate Property
Finally, the Foreclosure Order and subsequent transfers were not ʺlegally
certain[ ] to impact estate property.ʺ Picard v. Fairfield Greenwich Ltd., 762 F.3d 199, 208
(2d Cir. 2014). We disagree with Stillwaterʹs contention that this Courtʹs decision in In
re 48th Street Steakhouse, Inc., 835 F.2d 427 (2d Cir. 1987), is legally indistinguishable.
There, we held that a debtorʹs interest in property could cause a bankruptcy stay to
affect a relationship with a non‐debtor where an action was legally certain to impact
estate property. See id. at 430‐31. Unlike here, the debtor in that case had a legal interest
in a property that was subject to termination, i.e., the termination of a prime lease that
would automatically terminate the Debtorʹs sublease. See id. We agree with the district
court, however, that Stillwaterʹs theory ʺfor [Debtorʹs] purported property interest is far
more attenuatedʺ than that in 48th Street Steakhouse. Sp. App. at 13. Here, Debtor did
not hold a recorded interest in the actual Hillandale Property.
In Picard v. Fairfield Greenwich Limited, we narrowed the reach of 48th Street
Steakhouse and ʺdecline[d] to extend our holding . . . to automatically stay actions taken
against third parties that are only factually likely, as opposed to legally certain, to
impact estate property.ʺ 762 F.3d at 208. We are not persuaded that Debtorʹs alleged
interest in the Hillandale property (its original participation interest in a share of
payments from the Top Flight Loan, which loan was secured by the Hillandale
Property), is, if anything, more than ʺfactually likelyʺ to impact estate property. Id.
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We have considered Stillwaterʹs remaining arguments and find them to be
without merit. Accordingly, we AFFIRM the judgment of the district court.
FOR THE COURT: Catherine OʹHagan Wolfe, Clerk
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