Garcia v. Sklar (In re Sklar)
| Citation | 626 B.R. 750 |
| Decision Date | 20 April 2021 |
| Docket Number | Adv. Pro. No. 20-01318 (MG),Case No. 19-11740 (MG) |
| Parties | IN RE: Nosson SKLAR, Debtor. Dulce Garcia, Plaintiff, v. Nosson Sklar, Defendant. |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York |
DEREK SMITH LAW GROUP, PLLC, Attorneys for the Plaintiff, One Penn Plaza, Suite 4905, New York, New York 10119, By: Alexander Gabriel Cabeceiras, Esq.
LAW OFFICES OF NARISSA A. JOSEPH, Attorneys for the Defendant, 305 Broadway, Suite 1001, New York, New York 10007, By: Narissa A. Joseph, Esq.
APPENDIX: TIMELINE...––––
This opinion addresses issues stemming from a procedural imbroglio from the filing of a complaint in the district court on November 16, 2017 by Dulce Garcia ("Garcia" or the "Plaintiff") against the debtor-defendant in this case, Nosson Sklar ("Sklar," the "Defendant," or the "Debtor") while his earlier chapter 11 bankruptcy case was pending in this Court.1 The complaint asserted claims for employment discrimination, sexual harassment, assault and battery, and gender-motivated violence. The Defendants did not respond to the complaint, so on March 24, 2020, Garcia obtained a default judgment against the Defendants, including Sklar, in the amount of $284,785.01, which included damages for economic losses, emotional distress, punitive damages, attorneys' fees and costs, all of which were assessed jointly and severally against all Defendants.
On November 13, 2020, Garcia filed a denial of discharge adversary complaint against Sklar in this chapter 7 case. Due to Garcia's potential lack of notice or actual knowledge of Sklar's bankruptcy case, the claims on which Garcia obtained her judgment might very well be non-dischargeable. But Garcia's complaint in the district court was filed, and the district judge entered a default judgment on liability, during Sklar's first bankruptcy case, which was filed on August 29, 2017 and dismissed on October 31, 2018. And, then, the magistrate judge conducted a damages inquest and issued a report and recommendation on the amount of damages, and the district judge adopted the report and recommendation and entered judgment against Sklar, all during Sklar's second bankruptcy case, which was filed on May 29, 2019 and remains pending.2 The second bankruptcy petition and schedules (as originally filed) do not disclose Garcia's claim, the filing of her district court lawsuit, or the default judgment entered by the district court. One thing is crystal clear and bears emphasis—neither the district judge nor the magistrate judge knew or had any reason to know about Sklar's first or second bankruptcy cases. Sklar did not appear in the district court case; and Garcia's lawyer asserts that neither he nor Garcia knew about Sklar's first or second bankruptcy cases, a factual assertion that may need to be tested in the adversary proceeding. The usual rule is that, as a result of the automatic stay, the filing of Garcia's district court lawsuit, and any rulings by the district court, while the automatic stay is in place, are void.
Garcia's lawyer argues, despite the procedural irregularities, the district court judgment against Sklar should be enforced, and Sklar should be denied a discharge (or at least Garcia's claim should be excepted from discharge). Sklar's lawyer never filed anything regarding the effect of the stay on Garcia's lawsuit, and never filed an objection to the motion to lift the stay. Sklar's lawyer did, however, file briefs regarding the timeliness of Garcia's denial of discharge complaint and the effect of 28 U.S.C. § 157(b)(5). Other important issues are either poorly addressed or not addressed at all by the parties.
The Court now considers the following questions: (1) whether the judgment against Sklar is void; (2) whether to lift the automatic stay, either retroactively to validate the judgment, or prospectively to permit Garcia to return to the district court to file a new action against Sklar; (3) whether Garcia had notice or actual knowledge of Sklar's bankruptcy; (4) whether Garcia's claims against Sklar that were asserted in the district court complaint can be adjudicated by this Court as part of the claims-allowance process or must be tried in the district court under 28 U.S.C. § 157(b)(5) ; and (5) whether any of the claims asserted in the denial of discharge adversary complaint should be dismissed.
For the reasons explained below, the Court concludes as follows: (1) all of the proceedings and rulings in Garcia's district court case are void against Sklar; (2) the automatic stay will be lifted to permit Garcia to start over again in the district court; (3) further proceedings in this Court are required to determine when Garcia had notice or actual knowledge of Sklar's bankruptcy; (4) because Garcia's claims against Sklar include personal injury claims, and neither party has consented to adjudication of the claims in this Court, section 157(b)(5) requires that Garcia's non-bankruptcy law claims be tried in the district court; and (5) all of the claims asserted in the denial of discharge adversary complaint must be dismissed—specifically, the claims asserted under sections 523(a)(11), 523(a)(19)(B)(i)–(iii), and 1328(f) are dismissed as inapplicable to this chapter 7 case, and the claims under sections 523(a)(6) and 727(a)(4)(A) are dismissed as untimely. However, Garcia is granted leave to amend the Adversary Proceeding to assert a claim for an exception to discharge under section 523(a)(3).
Pending before the Court is the Amended Motion for Relief from the Automatic Stay Pursuant to Section 362(d)(1) filed on November 23, 2020 (the "Lift-Stay Motion," Main Case ECF Doc. # 85-1)3 filed on behalf of Garcia. The Lift-Stay Motion seeks to lift the stay of the "District Court Action"4 filed in the United States District Court for the Southern District of New York (the "District Court") on November 16, 2017, including claims for employment discrimination, sexual harassment, assault and battery, and gender-motivated violence against Sklar and five business entities he managed, owned, and operated. ("District Court Complaint," Main Case ECF Doc. # 85-3.)
In her adversary proceeding (the "Adversary Proceeding," Adv. Proc. 20-01318), Garcia seeks an exception to discharge for the damages claim arising from a default judgment she obtained against Sklar in the District Court Action, and a total denial of Sklar's discharge due to the nondisclosure of that lawsuit in his petition and schedules.5 Garcia also filed a motion objecting to discharge on November 6, 2020 in the Main Case. ("Motion Objecting to Discharge," Main Case ECF Doc. # 81.)
The deadline for responses to the Lift-Stay Motion was December 1, 2020. (Main Case ECF Doc. # 85.) On December 1, 2020, the chapter 7 trustee filed a statement of no objection to the Lift-Stay Motion. (Main Case ECF Doc. # 87.) There have been no other responses to the Lift-Stay Motion.
In the Adversary Proceeding, Sklar's lawyer filed a brief objecting to the timeliness of Garcia's adversary complaint objecting to discharge ("Defendant's Brief," AP ECF Doc. # 10), and a supplemental brief refusing consent to this Court determining Garcia's claims as part of the claims-allowance process. ("Defendant's Supplemental Brief," AP ECF Doc. # 13.) Garcia filed a brief in further support of relief from the stay6 and in further support of a finding that Garcia's claims are non-dischargeable. ("Plaintiff's Brief," AP ECF Doc. # 13.) The Plaintiff's Brief did not address any timeliness issues.
No responses have been filed to the Motion Objecting to Discharge.
The Court has held multiple hearings and conferences in the Main Case and the Adversary Proceeding and has encouraged the parties to reach a consensual resolution. However, settlement discussions have proven unsuccessful. Therefore, this opinion addresses the issues that need to be resolved to move the Main Case and the Adversary Proceeding forward.
On August 29, 2017 (the "First Petition Date"), the Debtor filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code. ("First Petition," Case No. 17-12394, ECF Doc. # 1.) That chapter 11 case (the "First Bankruptcy Case") was dismissed on October 31, 2018. The dismissal order stated:
Debtor ha[d] failed to prosecute this chapter 11 case for a prolonged period of time, to appear at his adjourned meeting of creditors, to pay any fees to the United States Trustee or to file any operating reports since the commencement of the case, and ha[d] failed to deliver basic documents reasonably requested by the United States Trustee.
("Dismissal Order," Case No. 17-12394, ECF Doc. # 47.)
On May 29, 2019 (the "Second Petition Date"), the Debtor filed a second voluntary petition for relief under chapter 11 of the Bankruptcy Code. ("Second Petition,"...
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