In Re: Jsang Kei Lau

Background

Jsang Kei Lau appealed an order from the U.S. Bankruptcy Court for the Southern District of New York. That order denied his motion to extend the automatic stay, terminated the stay, and denied requests to vacate a state-court foreclosure judgment and award damages for alleged stay violations.

Lau had executed a $410,000 promissory note in 2006, secured by a mortgage on property at 62 Rivington Street, Unit 8B, New York, New York. The mortgage was assigned several times, and the opinion states that LSF10 Master Participation Trust was the current owner and holder of the note and mortgage. A state court entered a foreclosure judgment on September 14, 2018.

Lau filed a Chapter 7 bankruptcy case in April 2019; that case was dismissed effective June 17, 2019. He filed a second Chapter 7 case on December 10, 2019, and sought to extend the automatic stay. The bankruptcy court denied that request and terminated the stay on February 20, 2020. The bankruptcy court later dismissed the second case for failure to file required information. Lau appealed to the district court, and LSF10 moved to dismiss the appeal.

District Court Analysis

The district court first addressed Lau’s request to strike LSF10’s reply brief. The court denied that request, finding that Lau was not prejudiced by receiving the brief late and that the court was not aware of a rule requiring the brief to be stricken because it was signed by an attorney who had not yet filed a notice of appearance. The attorney filed a notice of appearance within a week and later received permission to withdraw.

Challenge to the Automatic Stay

The court dismissed as moot the portion of the appeal challenging the bankruptcy court’s refusal to extend the automatic stay and its termination of the stay. The court explained that an appeal from an interlocutory bankruptcy order becomes moot when the underlying bankruptcy case is dismissed and that dismissal is not itself being appealed. The opinion states that Lau had not appealed the dismissal of the second bankruptcy case and that the deadline to do so had passed.

Challenge to the State Foreclosure Judgment

The court held that it lacked subject-matter jurisdiction over the portion of the appeal seeking to vacate the state-court foreclosure judgment. It applied the Rooker-Feldman doctrine, which generally prevents a federal district court from reviewing and rejecting a state-court judgment. The court found that all four required conditions were met: Lau lost in state court, complained of injuries caused by the foreclosure judgment, asked the federal courts to review and reject that judgment, and faced a state judgment entered before the second bankruptcy case began.

The court rejected Lau’s arguments that alleged fraud created an exception and that claims involving Caliber Home Loans, Inc. were independent. It stated that there is no fraud exception to the doctrine when the requested relief would require the federal court to decide that the state foreclosure judgment was wrongly issued. It also explained that an independent claim is one that does not allege an injury caused by the state judgment, and concluded that Lau’s claims were tied to that judgment.

Alleged Automatic-Stay Violations

The court also addressed Lau’s request for damages based on alleged violations of the second automatic stay. The court concluded that no violation occurred. Lau relied on the filing of an affidavit of service for a foreclosure-sale notice on December 20, 2019, but the notice had been served on him on November 5, 2019, before the second stay began. The court characterized the later filing of the affidavit as a ministerial act that did not violate the stay. The court also noted that the scheduled foreclosure sale was canceled after Lau filed for bankruptcy.

The opinion additionally states that filing an affidavit of service concerning a sale scheduled during the earlier bankruptcy case did not violate the first stay for the same reason. It further states that the assignment from Specialized Loan Servicing, LLC to LSF10 occurred before the first stay began and that a later corrective assignment only corrected the instrument number. The court therefore dismissed the portions of the appeal seeking damages for alleged violations of either stay.

Disposition

The court granted LSF10’s motion to dismiss Lau’s appeal. The appeal concerning the automatic stay was dismissed as moot; the challenge to the state foreclosure judgment was barred by the Rooker-Feldman doctrine; and the claims for damages based on alleged stay violations were dismissed because the court found no stay violations.