| U.S. Bank N.A. v McKenna |
| 2017 NY Slip Op 03215 [149 AD3d 1136] |
| April 26, 2017 |
| Appellate Division, Second Department |
[*1]
| U.S. Bank National Association, as Trustee for Morgan StanleyMortgage Loan Trust 2007-3XS, Respondent, v Kevin T. McKenna et al., Appellants, etal., Defendants. |
Berger, Fischoff & Shumer, LLP, Woodbury, NY (Brad A. Schlossberg and Heath S.Berger of counsel, and Laurie Sayevich Horz, former of counsel on the brief), for appellants.
Fidelity National Law Group, New York, NY (Michael C. Sferlazza of counsel), forrespondent.
In an action, inter alia, for a judgment declaring that the plaintiff's mortgage on the subjectproperty is a first priority lien, the defendants Kevin T. McKenna and Arlene M. McKennaappeal, as limited by their brief, from so much of an order of the Supreme Court, Nassau County(McCormack, J.), dated March 18, 2015, as granted that branch of the plaintiff's motion whichwas for summary judgment on the complaint insofar as asserted against them, and denied theircross motion for summary judgment dismissing the complaint insofar as asserted againstthem.
Ordered that the order is affirmed insofar as appealed from, with costs.
The plaintiff commenced this action in June 2013, inter alia, to direct the recording of amortgage allegedly executed in September 2006 to encumber real property owned by thedefendants Kevin T. McKenna and Arlene M. McKenna (hereinafter together the McKennas),and for a judgment declaring that that mortgage is superior in priority over other recordedmortgages on the property. On or about September 24, 2013, the McKennas filed a petition forChapter 13 bankruptcy in the United States Bankruptcy Court for the Eastern District of NewYork (hereinafter the Bankruptcy Court), which automatically stayed this action pursuant to 11USC § 362 (a). By order dated August 25, 2014, the Bankruptcy Court reclassifiedthe plaintiff's claim, for the purposes of that court, from "secured" to "unsecured," and terminatedthe automatic stay for cause as to the plaintiff so that the plaintiff could continue the instantaction through the entry of judgment.
The plaintiff then moved in the Supreme Court, inter alia, for summary judgment on thecomplaint insofar as asserted against the McKennas. On December 2, 2014, while the plaintiff'smotion was pending, the McKennas filed an amended Chapter 13 plan in the Bankruptcy Court,which stated, among other things, that "[p]ursuant to the order dated August 25, 2014 the claimof [the plaintiff] shall be treated as a general unsecured creditor [sic] . . . and uponcompletion of the plan the claim shall be in all respects fully discharged." In an order datedDecember 19, 2014, the Bankruptcy Court confirmed the McKennas' amended Chapter 13 plan.Shortly thereafter, by notice of cross motion dated December 30, 2014, the McKennascross-moved in the Supreme Court for [*2]summary judgmentdismissing the complaint insofar as asserted against them on the ground that the confirmedbankruptcy plan "serves as res judicata" on the issue of the subject mortgage. The court rejectedthat argument, granted that branch of the plaintiff's motion which was for summary judgment onthe complaint insofar as asserted against the McKennas, and denied the McKennas' cross motion.The McKennas appeal, arguing that the court erred in concluding that the instant action is notbarred by the principles of res judicata. We affirm insofar as appealed from.
While an order confirming a Chapter 13 bankruptcy plan may constitute a final judgment onthe merits (see In re Layo, 460 F3d 289, 294 [2d Cir 2006]; cf. 11 USC§ 1327 [a]), the res judicata effect of a confirmed plan does not apply when a statecourt action concerning the validity of a lien remains unresolved at the time the bankruptcyproceedings were commenced (see In re Enewally, 368 F3d 1165, 1173 [2004]; In reResidential Capital, LLC, 522 BR 458, 462 [SD NY 2014]; Palmatier v Wells Fargo Fin.Natl. Bank, 2010 WL 2516577, *3-4, 2010 US Dist LEXIS 58393, *6-9 [ND NY, June 14,2010, No. 1:09-CV-220 (DNH)]; Edwards v Broadwater Casitas Care Ctr., 221 Cal App4th 1300, 1310, 165 Cal Rptr 3d 273, 279 [2013]; cf. Cen-Pen Corp. v Hanson, 58 F3d89 [4th Cir 1995]). Here, the instant action was pending when the McKennas filed theirbankruptcy petition, and, therefore, the Supreme Court properly concluded that the subsequentconfirmation of the amended Chapter 13 bankruptcy plan had no res judicata effect on the instantaction.
Accordingly, the Supreme Court properly granted that branch of the plaintiff's motion whichwas for summary judgment on the complaint insofar as asserted against the McKennas, andproperly denied the McKennas' cross motion for summary judgment dismissing the complaintinsofar as asserted against them. Mastro, J.P., Leventhal, Barros and Brathwaite Nelson, JJ.,concur.