Harrington v. Sterling (In re Sterling)

• Decision Date: 19 October 2016
• Docket Number: Adv. No. 15-01288 (SHL),Case No. 14-12608 (SHL)
• Citation: 558 B.R. 671
• Parties: In re: Everton Aloysius Sterling. Debtor. William K. Harrington the United States Trustee, Plaintiff, v. Everton Aloysius Sterling, Defendant. Everton Aloysius Sterling, Third-Party Plaintiff, v. Jacob Lew, Secretary of the United States Treasury, Yann Geron, Trustee, Fox Rothschild LLP, Richard J. Fox, Office of the United States Trustee, Loretta E. Lynch, Office of the United States Department of Justice, Thomas J. Curry, Office of the Comptroller of Currency, and John and/or Jane Doe No. 1 to John and/or Jane Doe, No. 50 Inclusive, the last 50 name persons Being unknown to Petitioner/Plaintiff, the persons and parties Intended being entities or corporations, Third-Party Defendants.
• Court: U.S. Bankruptcy Court — Southern District of New York

558 B.R. 671

In re: Everton Aloysius Sterling. Debtor.

William K. Harrington the United States Trustee, Plaintiff,

v.Everton Aloysius Sterling, Defendant.

Everton Aloysius Sterling, Third-Party Plaintiff,

v.Jacob Lew, Secretary of the United States Treasury, Yann Geron, Trustee, Fox Rothschild LLP, Richard J. Fox, Office of the United States Trustee, Loretta E. Lynch, Office of the United States Department of Justice, Thomas J. Curry, Office of the Comptroller of Currency, and John and/or Jane Doe No. 1 to John and/or Jane Doe, No. 50 Inclusive, the last 50 name persons Being unknown to Petitioner/Plaintiff, the persons and parties Intended being entities or corporations, Third-Party Defendants.

Case No. 14-12608 (SHL)

Adv. No. 15-01288 (SHL)

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

Signed October 19, 2016

APPEARANCES: UNITED STATES ATTORNEY FOR THE SOUTHERN DISTRICT OF NEW YORK, Counsel for the Third-Party Federal Defendants, 86 Chambers Street, Third Floor, New York, New York 10007, By: Emily E. Bretz, Esq., Stephen Cha-Kim, Esq.

EVERTON A. STERLING, Pro Se, c/o General Post 341, Bronx, NY 10469-9998

UNITED STATES DEPARTMENT OF JUSTICE OFFICE OF THE UNITED STATES TRUSTEE, 201 Varick Street, Room 1006, New York, New York 10014, By: Andrea B. Schwartz, Esq.

FOX ROTHSCHILD LLP, Counsel for Chapter 7 Trustee, 100 Park Avenue, Suite 1500, New York, New York 10017, By: Yann Geron, Esq.

MEMORANDUM OF DECISION

Sean H. Lane

, UNITED STATES BANKRUPTCY JUDGE

Before the Court is a motion (the “Motion”) [ECF No. 18] by the United States Government (the “Government”) seeking to dismiss Mr. Sterling's amended third-party complaint (the “Amended Third-Party Complaint”) in the above-captioned adversary proceeding [ECF No. 11].¹ Mr. Sterling's Amended Third-Party Complaint alleges that certain named government officials negligently administered his Chapter 7 bankruptcy case. Mr. Sterling claims that these individuals improperly denied him a discharge of his debts in his bankruptcy case and that he assigned his debts to the United States. The Government's Motion argues that Mr. Sterling's lawsuit is barred by the doctrine of sovereign immunity. The Government contends that the United States should be substituted as the sole defendant pursuant to the Federal Tort Claims Act, but that Mr. Sterling has failed to exhaust his administrative remedies for any such federal tort claims. In addition, the Government asserts that Mr. Sterling's Amended Third-Party Complaint fails to state a claim. Mr. Geron, the Chapter 7 trustee and his counsel, Fox Rothschild LLP, join in the Government's request to dismiss the Amended Third-Party Complaint for failure to state a claim.² For the reasons stated below, the Court grants the Motion and dismisses the Amended Third-Party Complaint.

BACKGROUND

On September 15, 2014, Mr. Sterling filed a voluntary bankruptcy petition under Chapter 7 of the Bankruptcy Code. See Voluntary Petition (Chapter 7) [Case No. 14–12608, ECF No. 1]. On the same day, Yann Geron (the “Chapter 7 Trustee”) was appointed as interim Chapter 7 Trustee and later was appointed as the permanent Chapter 7 Trustee pursuant to 11 U.S.C. § 702(d)

. See Complaint Objecting to Debtor's Discharge Pursuant to 11 U.S.C. §§ 727(a)(3), 727(a)(5), and 727(a)(6) (“Trustee Compl.”) ¶ 15 [ECF No. 1].³

Shortly thereafter, Mr. Sterling filed his schedules of assets and liabilities and statement of financial affairs. See Schedules [Case No. 14–12608, ECF Nos. 8, 10]; Statement of Financial Affairs [Case No. 14–12608, ECF No. 8-1]; see also Trustee Compl. ¶ 11.

In October 2014, the Chapter 7 Trustee convened the first meeting of creditors. See Notice of 341(a) Meeting of Creditors [Case No. 14–12608, ECF No. 5]; see also Trustee Compl. ¶ 26. The United States Trustee alleges that, at the meeting, Mr. Sterling was unable to clearly answer questions regarding where he had acquired the funds to purchase one of the properties listed on Schedule A. See Trustee Compl. ¶¶ 27–29. The United States Trustee alleges that Mr. Sterling claimed he had transferred the property to the United States pursuant to 12 U.S.C. § 95

. See

id. ¶ 30. The United States Trustee alleges that the Chapter 7 Trustee determined that he was unable to complete his examination of Mr. Sterling and said he would inform Mr. Sterling of what information would be needed at a later date. See

id. ¶ 31.

In January 2015, the Chapter 7 Trustee convened the second meeting of creditors. See id. ¶ 33. The United States Trustee alleges that Mr. Sterling refused to answer any questions at that meeting, stating that he did not consent to the questions and that the matter had been discharged pursuant to 12 U.S.C. § 95a(2)

. See

id. Mr. Sterling subsequently filed a number of documents purporting to convey ownership of his debts to the United States. See Aff. of Fact and Surrender of the Alledge [sic] Debtor Defendant/Legal Person/Legal Entity “Everton Aloysisus Sterling” (“Sterling Aff.”) at 1–3 [Case No. 14–12608, ECF No. 34]; Birth Registration Documents of Everton Sterling [Case No. 14–12608, ECF No. 34-1]; see also Trustee Compl. ¶ 34 (listing documents filed with the Clerk's Office). Several of these documents were sent to various departments of the New York State government and the federal government. See Sterling Aff. at 3.

In April 2015, the United States Trustee filed a Bankruptcy Rule 2004 application requesting various documents from Mr. Sterling, including federal and state tax returns, pay statements, documents relating to applications for credit, loans, or letters of credit, and books and records relating to any business in which Mr. Sterling had an interest. See Application for FRBP 2004

Examination at 3 [Case No. 14–12608, ECF No. 37]; see also United States Trustee's Document Request, attached as Exh. B to Decl. of Richard Fox in Support of the Application for FRBP 2004 Examination [Case No. 14–12608, ECF No. 37-1]. The Court granted the application and directed Mr. Sterling to appear for an oral examination. See Order, dated May 13, 2015 [Case No. 14–12608, ECF No. 38]. The United States Trustee alleges that Mr. Sterling failed to produce any of the documents requested or explain his failure to do so and that he failed to appear for the oral examination. See Trustee Compl. ¶¶ 40–41.

During his bankruptcy case, the Court granted relief from the automatic stay to the note and mortgage holder as to three pieces of real property owned by Mr. Sterling. See In re Everton Aloysius Sterling , 543 B.R. 385 (Bankr. S.D.N.Y. 2015)

. In that decision, the Court rejected various legal theories asserted by Mr. Sterling, including but not limited to his contention that he transferred his property to the United States under 12 U.S.C. § 95a(2)

and his arguments associated with the so-called sovereign citizen movement. See

id. at 399–400.

In July 2015, the United States Trustee filed this adversary proceeding objecting to Mr. Sterling's discharge pursuant to Sections 727(a)(3), (a)(5), and (a)(6) of the Bankruptcy Code

, for his alleged failure to produce information regarding his financial condition or business transactions, failure to account for the information contained in his Chapter 7 petition, his schedules, and statement of financial affairs, and failure to appear for the oral examination. See Trustee Compl. ¶¶ 47–48, 51, 56–58. The merits of the United States Trustee's Complaint have not yet been adjudicated.

In August 2015, Mr. Sterling filed his Third-Party Complaint, which includes four counterclaims. See Third-Party Compl. ¶¶ 24–35 [ECF No. 3]. The Third-Party Complaint names four defendants: (1) William K. Harrington, “the Plaintiff Trustee in the Adversarial Proceeding” (the “United States Trustee”);⁴ (2) Jacob Lew, Secretary of the Treasury; (3) Yann Geron, Chapter 7 Trustee; and (4) Richard W. Fox, a former trial attorney at the Office of the United States Trustee. See id. ¶¶ 3–6. The first claim alleges that the United States Trustee negligently failed to afford Mr. Sterling relief from his debts, as required by federal statutes, including 12 U.S.C. § 95(a)(2)

, 18 U.S.C. § 8, 31 U.S.C. § 3113, and House Joint Resolution (HJR) 192, June 5, 1933. See id. ¶¶ 14, 24–25. The second claim alleges malfeasance by the United States Trustee for failing to discharge Mr. Sterling's debts, pursuant to the same laws that he cites to as a basis for the negligence claim. See id. ¶¶ 26–28. The third claim alleges that the United States Trustee breached his fiduciary duty by failing to discharge Mr. Sterling's debts. See id. ¶¶ 29–32. Finally, the fourth claim alleges abuse of process by the United States Trustee for failing to acknowledge Mr. Sterling's affidavits in support of the discharge of his debts. See id. ¶¶ 33–35. Mr. Sterling seeks relief in the form of indemnification and discharge from his debt obligations. See id. ¶¶ 38–39.

Mr. Sterling subsequently filed the Amended Third-Party Complaint, which added Loretta E. Lynch, United States Attorney General, and Thomas J. Curry, Comptroller of the Currency, as third-party defendants. See Amended Third-Party Compl. ¶¶ 7–8. While not explicitly stated in the Amended Third-Party Complaint, it appears that Mr. Sterling alleges negligence by the Attorney General and the Office of the Comptroller of the Currency (the “OCC”) for failing to ensure his debts were discharged. See id. ¶¶ 26–34.⁵ Mr. Sterling also contends that the United States Trustee erred by failing to include the Secretary of the Treasury, the Attorney General, the Department of Justice, and the OCC in its complaint as proper parties and that it misapplied the Bankruptcy Code in denying Mr. Sterling the discharge of his debts. See Third-Party Compl. ¶ 34; Amended Third-Party Compl. ¶¶ 45–46.

The Government filed its Motion seeking dismissal of Mr. Sterling's Amended Third-Party Complaint for lack of subject matter jurisdiction and failure to state a claim under Federal Rules of Civil Procedure 12(b)(1...