City of N.Y. v. Matamoros (In re Matamoros), Case No. 18-11713 (CGM)

• Citation: 605 B.R. 600
• Decision Date: 02 August 2019
• Docket Number: Adv. No. 18-01639 (CGM),Case No. 18-11713 (CGM)
• Parties: IN RE: Fernando MATAMOROS and Marisol Vargas, Debtors. City of New York, The City of New York by and through NYC Department of Administrative Services and New York Police Department, Plaintiff, v. Fernando Matamoros and Marisol Vargas and Krista M. Preuss, solely and in her capacity as Chapter 13 Trustee of the Debtors' estates, Defendants.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York

605 B.R. 600

IN RE: Fernando MATAMOROS and Marisol Vargas, Debtors.

City of New York, The City of New York by and through NYC Department of Administrative Services and New York Police Department, Plaintiff,

v.Fernando Matamoros and Marisol Vargas and Krista M. Preuss, solely and in her capacity as Chapter 13 Trustee of the Debtors' estates, Defendants.

Case No. 18-11713 (CGM)

Adv. No. 18-01639 (CGM)

United States Bankruptcy Court, S.D. New York.

Signed August 2, 2019

Law Office of David Brodman, 633 Lydig Avenue, Bronx, NY 10462, Counsel for Debtors/Defendants, Fernando Matamoros and Marisol Vargas, By: David Brodman

N.Y.C. Law Department, 100 Church Street, 5th Floor, New York, NY 10007, Counsel for Plaintiff City of New York, By: Gabriela P. Cacuci

MEMORANDUM DECISION DENYING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND DENYING IN PART AND GRANTING IN PART DEBTORS' MOTION FOR SUMMARY JUDGMENT

CECELIA G. MORRIS, CHIEF UNITED STATES BANKRUPTCY JUDGE

At the time Fernando Matamoros ("Debtor") and his wife, Marisol Vargas, (together "Debtors") filed their bankruptcy petition, the City of New York, by and through NYC Department of Administrative Services and New York Police Department ("Plaintiff" or "City") was deducting $220.03 from each of the Debtor's bi-weekly paychecks pursuant to an agreement in which Debtor received advances¹ on his salary. Several deductions also occurred post-petition. Plaintiff asserts these advances are not part of the Debtors' bankruptcy estate and are not dischargeable because they are entitled to recoupment. The Debtors assert these advances are not eligible for recoupment, do not fall under any exceptions to discharge, and that the post-petition deductions were a willful violation of the automatic stay. This Court finds the Plaintiff has no right to recoupment, the debt is dischargeable, the Plaintiff willfully violated the automatic stay, the Debtors are entitled to actual damages and attorney's fees, and the Debtors are not entitled to punitive damages.

JURISDICTION

This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1334(a), 28 U.S.C. § 157(a) and the Standing Order of Reference signed by Chief Judge Loretta A. Preska dated January 31, 2012. Venue is proper pursuant to 28 U.S.C. § 1409. This is a "core proceeding" under 28 U.S.C. § 157(b)(2)(A), (C), (E), (I), and (J).

BACKGROUND FACTS

The following facts are undisputed. New York State Military Law § 242 and the 2001 Mayoral Order established the Extended Military Benefits Program-Full Pay/Repayment Plan ("EMBP-FP/RP") to compensate City employees called into military duty in certain "covered operations" following the terrorist attacks on September 11, 2001. The Military Law gives the City of New York authority to determine how the program is implemented. N.Y. Mil. § 242(b), (e). The New York City Department of Citywide Administrative Services ("DCAS") provides the terms of the program for the City. Pl.'s Statement of Undisputed Facts Ex. B, ECF No. 25-1. Qualified employees can receive both their City salary and their military salary while on ordered military duty in a covered operation. The Debtor participated in the EMBP-FP/RP as an employee of the New York City Police Department ("NYPD") engaged in a covered operation with the U.S. Army.

The EMBP-FP/RP requires an employee, upon return from ordered military duty, to repay the lesser of the wage advance or the difference between his or her salary paid by the City and his or her salary paid by the U.S. military while participating in covered operations, less "[a] 7.65% adjustment for Social Security and Medicare and a 15% administrative adjustment" and credit for Leave Balances.² Pl.'s Statement of Undisputed Facts Ex. B, at 9, ECF No. 25-1.

Before the Debtor entered active service for a covered operation, the Debtor signed a "Military Pay Reimbursement Agreement for Ordered Military Duty for Operation Enduring Freedom or Other Ordered Military Duty in Connection With the Events of September 11, 2001 Pursuant to Personnel Order No. 2001/4, dated October 15, 2001" ("Reimbursement Agreement"). The Reimbursement Agreement provided that the City would pay him his City salary on the condition that he repay the City, after returning from ordered military duty, an undetermined portion of the monies based upon the aforementioned formula and also authorized the City to "deduct the amount from [his] salary over a period of time." Pl.'s Statement of Undisputed Facts Ex. C, at 2, ECF No. 25-2. The Debtor was paid $308,395.98 by the City and $153,581.10 by the military over three covered time periods: March 31, 2005 to March 15, 2006; November 24, 2006 to November 4, 2008; and November 15, 2008 to February 21, 2010.

On April 29, 2010, after returning from his last set of ordered military duty, the Debtor agreed to repay the City $118,802.72 via payroll deductions over ten years and a lump-sum payment for the remaining balance due at the end of the ten years. Pl.'s Statement of Undisputed Facts 7, ECF No. 25. On October 15, 2010, this amount was reduced to $93,642.76 after a credit for accrued vacation days was applied. Id. The City deducted $220.03 from each bi-weekly paycheck between February 2010 and September 2018.

On June 3, 2018, the Debtor and his wife filed for bankruptcy relief under chapter 13 and scheduled the City as a creditor for $50,947.00. The City continued payroll deductions, post-petition, from June 3, 2018 to September 7, 2018. The City filed a timely proof of claim in the amount of $49,856.79.³

Procedural History

On September 25, 2018, the Plaintiff filed this adversary proceeding against the Debtors alleging that the advanced wages are not property of the Debtors' estate and cannot be paid to other creditors, the repayment agreement is an executory contract, the debt is nondischargeable under 11 U.S.C. §§ 523(a)(2), (a)(4), (a)(7), and (a)(19), and the debt is a priority claim. The Plaintiff also seeks relief from the stay to continue payroll deductions. Compl. 7, ECF No. 1. The Debtors answered and counterclaimed on October 27, 2018 seeking actual and punitive damages and attorney's fees for the Plaintiff's violation of the automatic stay and for defending the adversary proceeding pursuant to 11 U.S.C. § 523(d). Def.'s Countercl. 4–5, ECF No. 4.

The Plaintiff answered the counterclaim on November 7, 2018. On May 1, 2019, the parties submitted competing motions for summary judgment. This Court heard oral argument on the motions on July 11, 2019.

DISCUSSION

Summary judgment is proper "if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c) ; Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). "[A] party seeking summary judgment always bears the initial responsibility of ... identifying those portions of ‘the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,’ which it believes demonstrate the absence of a genuine issue of material fact." Celotex v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (quoting Fed. R. Civ. P. 56(c) ). "Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no ‘genuine issue for trial.’ " Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp. , 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

Whether the Debtors' Motion for Summary Judgment should be denied due to Debtors' defective Statement of Undisputed Facts?

On May 1, 2019, the Debtors filed a Motion for Summary Judgment and a document entitled, per the docket, "Statement of Undisputed Facts," which stated that the parties could not agree to a Joint Statement of Material Facts and attached a list of exhibits. The Plaintiff argues this is not a Statement of Undisputed Facts and the motion should be denied pursuant to Local Bankruptcy Rule 7056-1(b) which states that

[u]pon any motion for summary judgment pursuant to Bankruptcy Rule 7056, there shall be annexed to the motion a separate, short, and concise statement, in numbered paragraphs, of the material facts as to which the moving party contends there is no genuine issue to be tried. Failure to submit the statement shall constitute grounds for denial of the motion.

A "district court has broad discretion to determine whether to overlook a party's failure to comply with local court rules." Holtz v. Rockefeller & Co., Inc. , 258 F.3d 62, 73 (2d Cir. 2001). "Particularly, a court has the authority to overlook a party's failure to file a statement of material facts." MCI Worldcom Commc'n, Inc. v. Commc'n. Network Int'l, Ltd. (In re Worldcom, Inc.) , No. 02-13533 (AJG), 2007 WL 1989262, at *7, 2007 Bankr. LEXIS 4082, at *24 (Bankr. S.D.N.Y. July 9, 2007) (citing Holtz , 258 F.3d at 73.). While the document filed by the Debtors is not a Statement of Facts under the Rule, the "Preliminary Statement" in Debtors' "Memorandum of Law" filed on May 2, 2019 is much closer. ECF No. 30. The Court will overlook that the Debtors' document does not adhere strictly to the requirements of Local Bankruptcy Rule 7056-1(b).

Whether an express trust was established?

New York law requires the presence of the following elements to create an express trust: "[1] a designated beneficiary; [2] a designated trustee who is not the same person as the beneficiary; [3] a clearly identifiable res ; and [4] delivery of the res by the settlor to the trustee with the intent of vesting legal title in the trustee." Caballero v. Anselmo , 720 F. Supp. 1088, 1095 (S.D.N.Y. 1989).

Res is "[t]he subject matter of a trust" or "the property for which a trustee is responsible." Res , Black's Law Dictionary (11th ed. 2019); Corpus , Black's Law Dictionary (11th ed. 2019). "A...