Celi v. First Nat'l Bank (In re Layo), 460 F.3d 289 (2d Cir. 2006)
Kevin M. Newman and Josephine Yang-Patyi of Menter, Rudin & Trivelpiece, P.C. represented NBT Bank, N.A., successor in interest to First National Bank of Northern New York.
The debtor delivered to First National Bank ("FNB") four mortgages. Included in the debtor's confirmed Chapter 13 plan was a claim based on the debtor's first mortgage interest, which secured the debtor's mortgage note. After the debtor stopped making payments, FNB sought relief from the automatic stay seeking to foreclose on the property. The debtor and the Chapter 13 trustee, after realizing that FNB's claim included in the confirmed Chapter 13 plan was based on a mortgage lien that was inadvertently discharged, filed a complaint seeking to avoid FNB's lien. The Bankruptcy Court ruled in the debtor's and the trustee's favor. The District Court reversed the Bankruptcy Court's decision and rendered a decision in FNB's favor based on the doctrine of res judicata. The United States Court of Appeals for the Second Circuit affirmed the District Court's decision, ruling that the plan's confirmation order met the requirements for res judicata. The Court applied a four-part test and held that the confirmation order was a binding final judgment on the merits based on 11 U.S.C. Section 1327, which bound a debtor and each creditor.
