Empowerment v. Van Brackle
| Decision Date | 25 February 2005 |
| Docket Number | No. 120708/2003,120708/2003 |
| Parties | UPPER MANHATTAN EMPOWERMENT ZONE DEVELOPMENT CORPORATION, Plaintiff, v. VAN BRACKLE ENTERPRISES, INC., Doing Business as MIKSU COSMETICS, et al., Defendants. |
| Court | New York Supreme Court |
In this breach of contract action, defendants move to dismiss the complaint (motion sequence No. 001). The court grants this motion for the following reasons.
On June 28, 2001, plaintiff Upper Manhattan Empowerment Zone Development Corporation (UMEZ) loaned codefendant Van Brackle Enterprises, Inc. (VBE), doing business as Miksu Cosmetics, $100,000, pursuant to the terms of a "Loan and Security Agreement." (See notice of motion, exhibit F [A].) Codefendant Susan Van Brackle signed the loan as VBE's vice-president and secretary and also signed a $100,000 "Personal Guaranty" for the loan. (Id., exhibit F [B].) Codefendant Michael Van Brackle was not a party to either of these contracts; nor did he sign them.
On March 22, 2004, VBE filed a chapter 7 bankruptcy petition in the United States Bankruptcy Court for the Eastern District of New York. (Id., exhibit A.) On September 22, 2004, that court issued a final decree, discharging the loan and closing VBE's bankruptcy case. (Id., exhibit B.)
On May 12, 2004, Michael and Susan Van Brackle also filed a joint chapter 7 bankruptcy petition in the United States Bankruptcy Court for the Eastern District of New York. (Id., exhibit D.) On September 9, 2004, that court issued a discharge of debtors order, pursuant to section 727 of the Bankruptcy Code, in their favor. (Id., exhibit E.)
Later that month, UMEZ served a summons and complaint on VBE, and Michael and Susan Van Brackle. (Id., exhibits C, F.) Defendants now allege that UMEZ's summons bears an expired index number and that they were improperly served. (Id., Axiotis affirmation ¶¶ 3-5.) However, UMEZ has produced a process server's affidavit of service that belies the latter claim. (See Fleming affirmation in opposition, exhibit A.)
UMEZ's complaint sets forth causes of action for: (1) breach of contract (against VBE with respect to the loan); (2) breach of contract (against Michael and Susan Van Brackle with respect to the guaranty); and (3) court costs and legal fees (against all defendants). (See notice of motion, exhibit F, ¶¶ 6-16.) Instead of answering, defendants have interposed this motion to dismiss.
At the outset, UMEZ concedes that VBE and Michael Van Brackle "are entitled to an Order dismissing the Complaint as against them." (See Fleming affirmation in opposition ¶ 2.) This is clearly true, given that the September 22, 2004 final decree of United States Bankruptcy Court for the Eastern District of New York discharged VBE's obligations pursuant to the loan, and that Michael was not a party to the guaranty. (See notice of motion, exhibits B, F [B].) Accordingly, the court initially grants this motion on consent to the extent of dismissing the complaint as against VBE and Michael Van Brackle.
Susan Van Brackle (hereinafter Van Brackle) raises two arguments in support of her application for dismissal. The first is that CPLR 3211 (a) (5) bars UMEZ from maintaining its breach of contract claim against her, because the September 9, 2004 order of the United States Bankruptcy Court for the Eastern District of New York discharged the debt underlying that claim. (See notice of motion, Axiotis affirmation ¶ 5 [a].) UMEZ counters that Van Brackle's bankruptcy discharge does not apply to this claim because she improperly failed to list UMEZ as a creditor on her chapter 7 bankruptcy petition. (See Fleming affirmation in opposition ¶¶ 5-6.) After reviewing the applicable law, the court finds in Van Brackle's favor and dismisses the complaint.
11 USC § 727 (b), which governs discharges in chapter 7 bankruptcy liquidations, states that "[e]xcept as provided in section 523 of this title, a discharge under . . . this section discharges the debtor from all debts that arose before the date of the order for relief under this chapter . . . ." 11 USC § 523, entitled "Exceptions to discharge," states, in pertinent part, that:
The debts "specified in paragraph (2), (4), and (6)" of 11 USC § 523 (a) are called "intentional tort debts," and refer to debts that were obtained via false pretenses, fiduciary fraud, or wilful and malicious injury to property, respectively. (See e.g. In re Strano, 248 BR 493, 497-500 [D NJ 2000].) 11 USC § 523 (a) treats all debts other than intentional tort debts as presumptively discharged by 11 USC § 727 (b), unless the debtor has omitted them from the schedule submitted to the Bankruptcy Court and thereby prevented his or her creditors from filing timely claims. (11 USC § 523 [a] [3] [A].) Because the breadth of the discharge that 11 USC § 727 (b) affords is so comprehensive, however, even unscheduled debts are dischargeable. (See e.g. In re Beezley, 994 F2d 1433, 1435 [9th Cir 1993].) The statute treats only intentional tort debts differently, by permitting creditors to request that a court determine whether or not these debts are, in fact, dischargeable — i.e., whether or not the creditor actually committed an intentional tort. (11 USC § 523 [a] [3] [B].)
In 1983, Congress enacted rule 2002 of the Federal Rules of Bankruptcy Procedure, entitled "Notices to Creditors, Equity Security Holders, United States, and United States Trustee." Subdivision (e) of rule 2002 provides that:
"In a chapter 7 liquidation case, if it appears from the schedules that there are no assets from which a dividend can be paid, the notice of the meeting of creditors may include a statement to that effect; that it is unnecessary to file claims; and that if sufficient assets become available for the payment of a dividend, further notice will be given for the filing of claims."*
Federal Rules of Bankruptcy Procedure rule 2002 (e) operates as a permanent toll on the statutory claims bar period for creditors to file their claims that lasts until the time, if any, there is discovery of some distributable assets belonging to the debtor. As a consequence, a number of Circuit Courts of Appeal have held that Federal Rules of Bankruptcy Procedure rule 2002 (e) abrogates the strict scheduling requirements of 11 USC § 523 (a) (3) (A) in "no asset" filings where the petitioner has only automatically dischargeable debts (i.e., no intentional tort debts). These courts reason that "[a]n omitted creditor who would not have received anything even if he had been originally scheduled, has not been harmed by omission from the bankrupt's schedules and the lack of notice to file a proof of claim." (Judd v Wolfe, 78 F3d 110, 115 [3d Cir 1996]; see also In re Beezley, 994 F2d at 1436 [ ]; In re Madaj, 149 F3d 467, 472 [6th Cir 1998] [ ]; In re Moretti, 260 BR 602, 609 [1st Cir 2001] []; In re Parker, 313 F3d 1267, 1269 [10th Cir 2002] [ ].)
Although the United States Court of Appeals for the Second Circuit has not yet formally adopted this interpretation of the Bankruptcy Code and Rules and the United States Supreme Court has not yet passed on this issue, two of the United States District Courts and three of the United States Bankruptcy Courts within this Circuit have done so. (See In re Deutsch-Sokol, 290 BR 27, 31 [SD NY 2003] [ ...
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