In re: Massa v. Addona, Docket No. 98-5050

Decision Date01 August 1998
Docket NumberDocket No. 98-5050
Citation187 F.3d 292
Parties(2nd Cir. 1999) In re: LOUIS PAUL MASSA, doing business as Keseca Development Corp., Debtor, LOUIS PAUL MASSA, doing business as Keseca Development Corp., Debtor-Appellant, v. C. DONALD ADDONA; REBECCA ADDONA; PETER J. CRAIG; KNAUF & CRAIG, LLP; and C. CLARK CANNON, Appellees
CourtU.S. Court of Appeals — Second Circuit

Appeal from a judgment entered in the United States District Court for the Western District of New York (Siragusa, J.), affirming an order of the United States Bankruptcy Court for the Western District of New York (Ninfo, Bankr. J.) denying the motion of debtor-appellant to hold appellees in contempt for violating a bankruptcy discharge order and the provisions of 11 U.S.C. § 524(a).

Affirmed.

DAVID D. MACKNIGHT, Lacy, Katzen, Ryen & Mittleman, LLP, Rochester, NY, for Debtor-Appellant.

PETER J. CRAIG, Knauf Craig Koegel & Shaw, LLP, Rochester, NY, for Appellees.

Before: WINTER, Chief Judge, and MINER and POOLER, Circuit Judges,

MINER, Circuit Judge:

Debtor-Appellant Louis Paul Massa appeals from a denial of his motion to hold appellees C. Donald Addona and Rebecca Addona (the "Addonas") and their attorneys in contempt for violating an injunction pursuant to an order granting discharge of Massa's bankruptcy petition and 11 U.S.C. § 524(a). Massa contends that the appellees had knowledge of his bankruptcy petition through three letters mailed to the Addonas' attorneys and that the Addonas continued their action against Massa in the state court despite Massa's bankruptcy proceeding. The Addonas contend that the state court appropriately exercised concurrent jurisdiction over their action against Massa and that Massa is now precluded from challenging that decision.

For the reasons that follow, we affirm the denial of Massa's motion to hold the appellees in contempt.

BACKGROUND

In April of 1991, the Addonas commenced a civil action against Massa d/b/a Keseca Development Company in the New York State Supreme Court in Ontario County (James R. Harvey, Justice) (the "State Court Action") alleging fraud and false representation in connection with a contract for the development of a commercial real estate complex. On June 19, 1992, the Addonas filed a Note of Issue indicating that the State Court Action was ready for trial.

On July 1, 1992 Massa filed a petition in the United States Bankruptcy Court for the Western District of New York initiating a Chapter 13 bankruptcy proceeding. Six days later, on July 7th, Massa's attorney in the State Court Action sent a letter to Justice Harvey with a copy to the Addonas' attorney, appellee C. Clark Cannon, stating that "[w]e have been informed that the Defendant, Louis Massa d/b/a Keseca Development Company, has filed a Chapter 13 Bankruptcy in the Western District of New York. Accordingly, this action is now stayed and we request that the Court hold the motion [to proceed with trial] in abeyance pending the disposition of the bankruptcy filing." On July 14, 1992 Massa's attorney in the State Court Action sent another letter to Cannon which stated, in pertinent part,

I presume that you received a copy of my letter to Judge Harvey dated [July 7, 1992], indicating that Mr. Massa has apparently filed a Chapter 13 bankruptcy. Accordingly, all proceedings before Judge Harvey are stayed.

As indicated in my July 7th letter, we have filed motion papers with the Court, requesting that the Note of Issue be stricken . . . . The motion is being held in abeyance pending Mr. Massa's bankruptcy proceeding. In the event that the Chapter 13 is stricken, and a Chapter 7 is not filed, we will proceed with the motion.

The day before the July 14 letter was sent by his counsel, Massa had filed the schedules and statement required under the Bankruptcy Code (the "Schedules"). See 11 U.S.C. § 521(1). The Schedules did not list the Addonas as creditors or disclose the pending State Court Action. Massa's Chapter 13 proceeding was later converted to a Chapter 11 proceeding, then to a Chapter 7 proceeding in November of 1992 and thereafter administered as an asset case. On March 10, 1993, an Order was entered granting Massa a discharge (the "Discharge Order") and in May of 1997 the case was closed.

Meanwhile, the State Court Action continued. In a letter dated November 18, 1994 and mailed to the Addonas' attorney, Massa's attorney 1 stated, in pertinent part, that "Mr. Massa is in bankruptcy and there is a stay of all proceedings against him; furthermore, he is in a New York State Correctional Facility and, therefore, is unable to attend a trial on November 22, 1994, unless a Court orders the State to produce him." Nevertheless, the State Court Action proceeded. On October 20, 1995, Justice Harvey entered Findings of Fact and Conclusions of Law, finding Massa liable for fraud upon the Addonas' motion for a default judgment and awarding the Addonas damages in the amount of $342,587.97 (the "State Court Judgment").

The Addonas then retained another attorney, appellee Peter J. Craig, to assist them in collecting the State Court Judgment. Craig sought a subpoena compelling Massa's attendance at a post-judgment asset deposition; Massa, however, failed to appear. Craig also sought a levy upon Massa's 1993 Cadillac. In March of 1997, prior to the Sheriff's execution sale of the Cadillac, Massa's attorney filed a Chapter 7 Amended Voluntary Petition and Amended Schedules with the bankruptcy court (the "Amended Schedules"). The Amended Schedules listed the State Court Action and claimed the Cadillac as an asset of Massa's bankruptcy estate.

In May of 1997, by Order to Show Cause and supporting papers, the Addonas moved in the State Court Action for an order adjudging Massa in contempt for his failure to appear at the asset deposition and directing the Sheriff to proceed with the execution sale of the Cadillac. Massa cross-moved to dismiss, arguing that the debt had been discharged in bankruptcy and that the Addonas' claim should be pursued in bankruptcy court. In support of his motion to dismiss, Massa submitted the November 18, 1994 letter, arguing that the Addonas were notified of the bankruptcy proceedings. The Addonas argued that because they were never listed in Massa's Schedules, they did not have an opportunity to file a claim, and therefore, pursuant to Bankruptcy Code § 523(a)(3), their claim had not been discharged by the Discharge Order.

On June 26, 1997 Justice Harvey issued a Decision and Order (the "State Court Decision") determining that, by virtue of § 523(a)(2) and § 523(a)(3) (exceptions to discharge), the Addonas' claim had not been discharged. Massa's subsequent appeal to the Appellate Division of the New York State Supreme Court was dismissed for failure to perfect.

On November 24, 1997 Massa's bankruptcy case was reopened when he filed a motion requesting that the court enter an order enforcing the provisions of the Discharge Order and finding the Addonas, Cannon and Craig in contempt for violation of the Discharge Order and 11 U.S.C. § 524(a) 2 as a consequence of their respective roles in continuing the State Court Action after the Discharge Order was entered. Bankruptcy Judge Ninfo denied Massa's motion and upheld the State Court Decision as having been validly rendered in the exercise of the New York State Supreme Court's concurrent jurisdiction over § 523(a)(3) dischargeability issues. See In re Massa, 217 B.R. 412, 420-21 (Bankr. W.D.N.Y. 1998). Bankruptcy Judge Ninfo also determined that under the Rooker-Feldman doctrine the bankruptcy court lacked jurisdiction to overturn the State Court Decision even if that decision was erroneous as a matter of bankruptcy law. See id. at 421. By Decision and Order dated July 7, 1998, Judge Siragusa of the United States District Court for the Western District of New York affirmed Bankruptcy Judge Ninfo's decision and entered judgment in accordance therewith. This appeal followed. We affirm on grounds somewhat different than those relied upon by the district court.

DISCUSSION

Upon an appeal from a judgment of a district court entered after review of a bankruptcy court decision, "we review the bankruptcy court independently, accepting its factual findings unless clearly erroneous but reviewing its conclusions of law de novo." DG Creditor Corp. v. Dabah (In re DG Acquisition Corp.), 151 F.3d 75, 79 (2d Cir. 1998).

Section 523 of the Bankruptcy Code, 11 U.S.C. § 523 (1994 & 1997 Supp.), governs the nondischargeability of debts in a Chapter 7 proceeding. A debt that is scheduled pursuant to § 521(1) and Federal Rules of Bankruptcy Procedure 1007(a) and (b)(1) is discharged unless the debt is excepted from discharge under one of the exceptions set forth in § 523(a). One such exception is a determination, pursuant to 11 U.S.C. § 523(a)(2), 3 that the debt was fraudulently incurred. Another exception to discharge is if the debt was not scheduled and the creditor lacked notice or actual knowledge of the case. See id. § 523(a)(3). If, however, an unscheduled creditor had actual knowledge of the bankruptcy proceeding and failed to act, the debt would be discharged. See GAC Enterprises, Inc. v. Medaglia (In re Medaglia), 52 F.3d 451, 455 (2d Cir. 1995) (discussing § 523(a)(3)); see also Byrd v. Alton (In re Alton), 837 F.2d 457, 460 (11th Cir. 1988) (per curiam); In re Thompson, 177 B.R. 443, 450 (Bankr. E.D.N.Y. 1995).

The notice requirement is codified at 11 U.S.C. § 342(a), which provides that "[t]here shall be given such notice as is appropriate . . . of an order for relief in a case under this title." Conversion from one chapter to another triggers the requirement that a creditor receive notice. See 11 U.S.C. § 348(c) ("Section[] 342 . . . appl[ies] in a case that has been converted . . . as if the conversion order were the order for relief."); Fed. R. Bankr. P. 1017(d), 2002(f)(2), 9014. The burden of...

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