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NLG, LLC v. Hazan

United States District Court, S.D. Florida

September 18, 2019

NLG, LLC, Appellant/Defendant,



         This matter is before the Court on Appellees/Plaintiffs Liza Hazan and Selective Advisors Group, LLC's Motion to Dismiss Appeal [DE 22], Appellant/Defendant NLG, LLC's response [DE 29], and Appellees/Plaintiffs' reply [DE 30]. This is an appeal from an order entered by the Bankruptcy Court in Liza Hazan's (Hazan) Chapter 11 proceedings. Hazan and Selective Advisors Group, LLC (Selective) move to dismiss the appeal pursuant to the equitable mootness doctrine. For the reasons set forth below, the Motion to Dismiss Appeal is granted.

         I. BACKGROUND

         In 2007, Hazan purchased a home on Fisher Island in Miami Beach, Florida (the Property) from NLG. As part of the sale, NLG retained a mortgage and a note from Hazan. Almost from the time of the purchase, Hazan and NLG have been litigating over the mortgage and note. As a result, there are numerous state court judgments relating to the mortgage and note and the parties' liabilities to each other. The state court judgments at issue all predate the filing of Hazan's Chapter 11 filing.

         NLG, LLC (NLG) appeals from the Bankruptcy Court's Final Judgment on Counts I, II, and III of Plaintiffs' Third Amended Complaint Determining Validity, Priority and Extent of Liens and Setting Trial on Counts IV through IX. Count I sought a determination of the extent, validity, and priority of NLG's claim of lien; Count II sought to avoid NLG's security interest pursuant to 11 U.S.C. § 544; and Count III sought to quiet title to the Property pursuant to Florida Statutes §§ 65.081 and 65.011. The Bankruptcy Court's order sought to reconcile all of the state court judgments and determine the parties' rights to the Property. Thus, an understanding of the state court proceedings and Bankruptcy Court proceedings is necessary.

         State Court Proceedings

         In April 2008, NLG sued Hazan for breach of the terms of the promissory note in Miami-Dade Circuit Court. The trial court entered a default final judgment against Hazan (the Scola Judgment). The Scola Judgment awarded NLG $1.6 million in monetary damages but did not order foreclosure on the Property. In December 2011, NLG filed a second action in Miami-Dade Circuit Court seeking to foreclose on the mortgage (Foreclosure Action). In February 2013, the court ruled that NLG had made an election of remedies in its previous action and, therefore, was precluded from foreclosing on the mortgage (the Eig Order). NLG appealed the Eig Order to the Third District Court of Appeal.

         While all of this was going on, in February 2012, 9197-5904 Quebec, Inc. (Quebec, Inc.) obtained a judgment by confession against NLG in New York Supreme Court in the amount of $5 million (the Quebec Judgment). Quebec, Inc. assigned the Quebec Judgment to Selective[1] and Selective filed to domesticate the Quebec Judgment in Florida (the Domestication Case). In July 2014, Selective filed proceedings supplementary in the Domestication Case to seize and attach the Scola Judgment for purposes of partially satisfying the Quebec Judgment. On August 20, 2014, an order was entered in the Domestication Case assigning the Scola Judgment to Selective as well as "all of NLG, LLC's rights, claims and benefits held against Elizabeth Hazan" (the Lopez Order). The Lopez Order also determined that $2.7 million was the correct sum to be credited to NLG for the Scola Judgment because of interest on the $1.6 million original judgment amount. The Lopez Order also noted that the amount that should be credited to NLG could be adjusted at a further hearing. On August 20, 2014, Selective filed a satisfaction of the Scola Judgment and the mortgage.

         In a lawsuit filed by NLG against Hazan in New York Supreme Court to domesticate the Scola Judgment in New York, Selective sought to intervene. On October 30, 2014, the New York Supreme Court entered an order recognizing the assignment of the Scola Judgment to Selective under the Lopez Order and substituted Selective for NLG in the New York action (the Jaffe Order). On November 13, 2014, the New York judge dismissed the case based on the satisfaction of judgment in the underlying action.

         On November 25, 2014, the Third District Court of Appeal, holding that NLG's prior suit for breach of the promissory note was not an election of remedies precluding a foreclosure action, issued its mandate reversing and remanding the Foreclosure Action. On remand of the Eig Order, the trial court entered a final foreclosure judgment in favor of NLG (the Gordo Judgment). The Gordo Judgment found that NLG was a secured creditor with a valid interest in the Property and was entitled to a foreclosure judgment in the amount of $4.8 million. An order of foreclosure was entered and the foreclosure sale was set for January 12,2016. Hazan appealed the Gordo Judgment but later voluntarily dismissed the appeal.

         Bankruptcy Court Proceedings

         On January 11,2016, the day before the scheduled foreclosure sale, Hazan filed for Chapter II protection staying the foreclosure sale. As part of the bankruptcy proceedings, NLG filed a proof of claim against the Property in the amount of the Gordo Judgment. On August 21, 2016, Selective initiated an adversary proceeding against NLG seeking a determination of the nature and extent of the proof of claim. Hazan joined the adversary proceeding. In the adversary proceeding, Selective and Hazan argues that NLG had no remaining claim against Hazan or the Property based on the state court orders and judgments.

         On October 31, 2017, the Bankruptcy Judge issued his Final Judgment on Counts I, II, and III of Plaintiffs' Third Amended Complaint Determining Validity, Priority and Extent of Liens and Setting Trial on Counts IV through IX (the Bankruptcy Judgment). The Bankruptcy Judgment acknowledged all of the state court orders and judgments and noted that full faith and credit must be given to all of the state court judgments. The Bankruptcy Judgment determined that, based on all of the state court orders and judgments, NLG did not have a valid lien on the Property because the note and mortgage had been satisfied. The Bankruptcy Judgment, therefore, disallowed NLG's proof of claim. Finally, the Bankruptcy Judgment ordered that Selective give credit to NLG in the amount of $4.8 million, as awarded by the Gordo Judgment.

         NLG appealed the Bankruptcy Judgment. After entry of the Bankruptcy Judgment, Hazan filed an amended disclosure statement and an amended plan of reorganization. The disclosure statement recognized several valid claims against the Property but, as a result of the Bankruptcy Judgment, did not recognize NLG's claim. The reorganization plan specifically dealt with the other claims. According to the disclosure statement, Chase Bank agreed to withdraw its objections to the proposed reorganization plan. The disclosure statement recognized that Chase Bank had a first-priority security interest that would have adequate protection from other creditors in the form of an equity cushion on the Property. Another creditor with a valid claim against the Property, 6913 Valencia, LLC, agreed to subordinate its claim until the claims with higher priority, including Chase Bank's claim, were satisfied. Another creditor, Valencia Estates Community Association, Inc., settled its claim against the Property and withdrew its objections to the reorganization plan. The Internal Revenue Service also held a secured claim and was to be paid out over ten years. The disclosure statement also noted that the equity in the Property would support a refinancing, which could be used to support funding a plan if necessary.

         On December 13, 2017, the Bankruptcy Court approved the disclosure statement. On May 30, 2018, the Bankruptcy Court held a confirmation hearing on Hazan's proposed reorganization plan. At the hearing, NLG advised the Bankruptcy Court that an appeal of the Bankruptcy Judgment was pending before Judge Gayles. NLG's counsel agreed that there was no stay in place and the Bankruptcy Judge warned NLG that if plan confirmation and consummation occur "it may moot out the appeal. . . If there's a stay, then nothing can happen until that matter is decided ..." NLG did not raise any objections to entry of the confirmation order nor did it seek a stay. On June 12, 2018, the Bankruptcy Court entered an order approving Hazan's plan of reorganization. ...

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