In re Caporal
| Docket Number | 23-10087-t13 |
| Decision Date | 21 July 2023 |
| Parties | In re: DEMETRA GEORGIA CAPORAL, Debtor. |
| Court | U.S. Bankruptcy Court — District of New Mexico |
Before the Court is a motion for relief from the automatic stay filed by Debtor's estranged husband. He seeks stay relief so he and Debtor can complete a divorce proceeding, including property settlement, pending in state court. Debtor opposes the motion; she argues that allowing the state court to finalize the divorce would unduly delay her bankruptcy case effectively denying her relief. If Debtor prevails, the Court would in essence have to divide the marital property.
The Court holds that the state court is the better forum for such tasks. The Court therefore will modify the stay and abstain from exercising its jurisdiction over the property settlement. Once the state court apportions the marital property and liabilities, Debtor can take up her chapter 13 plan and seek confirmation if she still needs bankruptcy relief.
A. Facts.[1]
The Court finds:[2]
Debtor and Dr. Demosthenis Klonis ("Klonis") were married in 1997. They have twin boys, born in 2003.
Klonis a cardiac surgeon, got into legal trouble in or around 2008. Allegations were made that he was performing unnecessary pacemaker implant surgeries. One result of the allegations that he and Debtor engaged in "asset planning." The planning included creating, in October 2009, Mook and Chick, LLC, a Texas limited liability company (the "LLC"). Half the membership interest was assigned to Debtor's revocable trust and the other half to Klonis' revocable trust. In March 2010 Klonis conveyed his 25% interest in certain real property in Santa Fe (known as the "Roberts Building") to the LLC.
Members' rights and obligations are set out in a lengthy "Company Agreement" signed by Debtor and Klonis. Under the agreement, it takes two thirds of the membership interests to authorize certain transactions. For example, if Debtor proposed that the LLC sell its interest in the Roberts Building but Klonis objected, the sale could not be completed. The Company Agreement also has restrictions on the sale of membership interests. If Debtor wanted to sell her interest in the LLC to a third party, the interest would first have to be offered to the LLC, then to Klonis, then to a third party, all offers being on, materially, the same terms. Finally, after mediation and arbitration, the Company Agreement has processes to follow in the event of a "deadlock." Given their history, Debtor and Klonis are likely to deadlock in their views about how to deal with the LLC interests and/or the Roberts Building. Thus, any attempt by Debtor to sell her LLC interest probably would result in protracted, expensive litigation.
Another consequence of Klonis's legal troubles was that he began spending more and more time in Greece (he is a dual citizen), away from Debtor and the children. The separation took its toll on the marriage. Klonis filed a divorce petition in Oklahoma on August 1, 2017. Two days later Debtor filed a divorce petition in New Mexico. The New Mexico proceeding was dismissed in March 2018 because the Oklahoma case had been filed first. After much litigation, the Oklahoma case was dismissed for lack of subject matter jurisdiction on October 21, 2020. Debtor filed a new divorce proceeding in New Mexico on August 10, 2020. The case proceeded slowly while Klonis appealed the Oklahoma court's dismissal of his divorce action. After the Oklahoma Supreme Court denied Klonis' petition for certiorari on January 18, 2022, however, the litigation in the New Mexico divorce proceeding picked up. Klonis filed a motion for a bifurcated decree of divorce on January 9, 2023.
Debtor filed this case on February 7, 2023, and filed her first chapter 13 plan on March 2, 2023. The bar date in the case was April 18, 2023. The filed claims can be summarized as follows:
On June 1, 2023, Debtor filed an amended chapter 13 plan. The plan proposes monthly payments of $350 for 60 months and to pay the home mortgage "outside" the plan. In addition, the plan proposes to sell Debtor's membership interest in the LLC and estimates that the sales proceeds would be between $400,000 and $625,000. The net proceeds would be paid to creditors. Together, the proposed plan payments would be sufficient to pay creditors in full, only if Klonis' large claim is disallowed. On the other hand, if Klonis' claim is allowed in full, the plan could not be confirmed because of the "best interests of creditors test."[3]
Klonis objected to the amended chapter 13 plan, arguing, inter alia, that Debtor cannot sell her LLC membership interest.
Klonis' proof of claim reflects his position in the divorce proceeding, where he argues that Debtor improperly dissipated community assets. The proof of claim includes, for example, alleged debts because of the following:
Item
Value
Money removed from Husband's Mother's account
$147,000
Money removed from Safe Deposit Box
$214,680
Money removed from George Klonis Arvest Bank Account
$115,533.33
Money removed from Vageli Klonis Arvest Bank Account
$113,172.86
Loan given to Wife's Brother
In each case, Klonis declares that the item is a marital "asset," assigns it to Debtor, and asserts a claim for the same amount. According to Klonis, the total value of these and other "assets" is $1,911,206.77. He assigns them all to Debtor and asserts a claim against her for $1,911,206.77.
Debtor objected to Klonis' proof of claim on May 8, 2023. The claim objection is pending. The Court would not be able to rule on Klonis' claim without adjudicating the entire marital dispute between Debtor and Klonis and dividing all marital assets and liabilities.
B. Modifying the Automatic Stay "For Cause."
Klonis asks that the Court lift the automatic stay "for cause" under 11 U.SC. § 362(d)(1). The automatic stay generally stays "litigation, enforcement of liens, and other actions, be they judicial or otherwise, which would affect or interfere with property of the estate, of the debtor, or which is in the custody of the estate." In re Jim's Maint. & Sons Inc., 418 Fed.Appx. 726, 728 (10th Cir. 2011) (quoting Pursifull v. Eakin, 814 F.2d 1501, 1504 (10th Cir. 1987)).
The automatic stay is intended In re Curtis, 40 B.R. 795, 798 (Bankr. D. Utah 1984), quoting Fidelity Mortgage Investors v. Camelia Builders, Inc., 550 F.2d 47, 55 (2d Cir. 1976). Bankruptcy courts may modify the automatic stay for "cause." § 362(d)(1).
The Tenth Circuit has held that because "there is no clear definition of what constitutes 'cause,' discretionary relief from the stay must be determined on a case by case basis." Chizzali v. Gindi (In re Gindi), 642 F.3d 865, 872 (10th Cir. 2011), overruled on other grounds, TW Telecom Holdings Inc. v. Carolina Internet Ltd., 661 F.3d 495 (10th Cir. 2011). "Cause" is considered a fact, not a conclusion of law, and a finding of cause is reversible only if "clear error" was committed. In re JE Livestock, Inc., 375 B.R. 892, 893-94 (10th Cir. BAP 2007).
1. The Curtis factors. Motions for relief from the automatic stay are often filed so litigation pending in another forum can proceed to judgment. In such situations, the Tenth Circuit "has not set forth a precise framework or exhaustive set of factors for analyzing whether cause exists." In re Gindi, 642 F.3d at 872. Courts often turn to 12 non-exclusive factors identified in Curtis to assist in the analysis. See, e.g., In re Busch, 294 B.R. 137, 141 (10th Cir. BAP 2003) ("Twelve factors were identified in [Curtis] as some of the issues a bankruptcy court might consider when determining whether to lift the stay to permit pending litigation in another forum."). The "Curtis factors" are: (1) Whether the relief will result in a partial or complete resolution of the issues; (2) The lack of any connection with or interference with the bankruptcy case; (3) Whether the foreign proceeding involves the debtor as a fiduciary; (4) Whether a specialized tribunal has been established to hear the particular cause of action and that tribunal has the expertise to hear such cases; (5) Whether the debtor's insurance carrier has assumed full financial responsibility for defending the litigation; (6) Whether the action essentially involves third parties, and the debtor functions only as a bailee or conduit for the goods or proceeds in question; (7) Whether litigation in another forum would prejudice the interests of other creditors, the creditors' committee and other interested parties; (8) Whether the judgment claim arising from the foreign action is subject to equitable subordination under Section 510(c); (9) Whether movant's success in the foreign proceeding would result in a judicial lien avoidable by the debtor under Section 522(f); (10) The interest of judicial economy and the expeditious and economical determination of litigation for the parties; (11) Whether the foreign proceedings have progressed to the point where the parties are prepared for trial; and (12) The impact of the stay on the parties and the 'balance of hurt.' Curtis, 40 B.R. at 799-800. The Court weighs the Curtis factors as follows:
Factor
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