In re Chaitan, Case No. 1–13–42802–nhl

• Decision Date: 30 September 2014
• Docket Number: Case No. 1–13–42802–nhl
• Citation: 517 B.R. 419
• Parties: In re: Krishna Chaitan and Carol Chaitan aka Carol Margaret Chaitan aka Carol M. Chaitan fka Carol Dominique fka Carol Margaret Dominique fka Carol M. Dominique, Debtors.
• Court: U.S. Bankruptcy Court — Eastern District of New York

517 B.R. 419

In re: Krishna Chaitan and Carol Chaitan aka Carol Margaret Chaitan aka Carol M. Chaitan fka Carol Dominique fka Carol Margaret Dominique fka Carol M. Dominique, Debtors.

Case No. 1–13–42802–nhl

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

Signed September 30, 2014

Entered October 1, 2014

Muennich & Bussard, LLP, by: Chistopher Bussard, 30 Vessey St., 16th Floor, New York, NY 10007, Attorney for Debtor.

Corporation Counsel of the City of New York, by: Gabriela P. Cacuci, 100 Church Street, New York, NY 10007, Attorney for the NYC Office of Administrative, Trials and Hearings

Chapter 7

MEMORANDUM DECISION AND ORDER DENYING OBJECTION TO PROOF OF CLAIM

HONORABLE NANCY HERSHEY LORD, United States Bankruptcy Judge

Krishna Chaitan and Carol Chaitan (the “Debtors”), filed a motion under 11 U.S.C. § 502(b)(1) (the “Objection”) to object to Proof of Claim No. 1 (the “Claim”) filed by the New York City Office of Administrative Trials and Hearings (“OATH”), arising from a series of citations issued by the Environmental Control Board (“ECB”). The issues before the Court are: (1) whether this Court has jurisdiction to entertain the Objection; (2) whether the Debtors have standing to object to the Claim; (3) whether a preclusion doctrine prohibits this Court from invalidating the Claim; and (4) whether the Claim is valid under applicable law.

JURISDICTION

This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b), and the Eastern District of New York standing order of reference dated August 28, 1986, as amended by order dated December 5, 2012. This matter is a core proceeding under 28 U.S.C. § 157(b)(2). This decision constitutes this Court's findings of fact and conclusions of law to the extent required by Rule 7052 of the Federal Rules of Bankruptcy Procedure.

BACKGROUND

In 2008, Diananand Sundarsingh (“Diananand”) and Mr. Chaitan co-signed a mortgage (the “Mortgage”) secured by 8 Trinity Place, Staten Island, New York (the “House”).¹ Objection Ex. A, ECF No. 27–2. Mr. Chaitan claims that Diananand and his brother Damien Sundarsingh (“Damien”) lived in the House, and that Diananand “owned the house through a straw man, his brother Damien Sundarsingh.” Objection ¶ 9, ECF No. 18. Also in 2008, Damien executed and recorded a deed (the “Deed”) purporting to transfer the House from himself to himself and “Krishne Chaitan.” Objection Ex. C, ECF No. 18–3. Mr. Chaitan asserts that he never exercised ownership rights to, or had a key for, the House. Objection ¶ 9, ECF No. 18. The Sundarsingh brothers subsequently abandoned the House and the Mortgage went into default. Objection ¶¶ 10–11, ECF No. 18.

The abandoned House fell into disrepair with overgrown shrubbery obstructing the sidewalk and refuse accumulating in the yard. Objection ¶ 12, ECF No. 18. On September 29, 2010, the ECB issued the first of numerous citations to “Krishne Chaitan” (or iterative spellings thereof) for violations of the New York City Administrative Code, including § 16–118 (prohibiting litter); § 16–120 (specifying acceptable receptacles for the removal of waste material); and § 16–123 (requiring the removal of snow, ice, and dirt from sidewalks).² Objection Ex. D 25, ECF No. 18–4. Each time the ECB issued a citation, an officer filled out and signed the ticket and attempted to personally serve it upon an individual at the House. Finding no one present, the officer affixed the ticket, and mailed a copy, to the House. The front of each ticket described the details of the violation and stated:

If you do not appear (or pay by mail if permitted) you will be held in default and subject to the maximum penalties permitted by law. Failure to appear or pay a penalty imposed may lead to suspension of your license or other action affecting licenses you now have or may apply for as well as the possibility of a judgement [sic] entered against you in Civil Court

...

I, an employee of [N.Y.C. Department of Sanitation] personally observed the commission of the civil violation charged above.

Objection Ex. D, ECF No. 18–4.

In December of 2009, Mr. Chaitan received and ignored a summons in a foreclosure action against the House.³ Objection Ex. E, ECF No. 18–5.

On August 20, 2012, Mr. Chaitan learned of the Deed to Damien and “Krishne Chaitan.” Around this time, he began receiving collection calls regarding the citations and requested a hearing to contest the accrued citations (the “Initial Citations”). Objection ¶ 17, ECF No. 18. On October 11, 2012, Mr. Chaitan, represented by counsel, presented his arguments to an Administrative Law Judge (the “ALJ”) at OATH. After hearing the case on its merits, the ALJ dismissed three of the Initial Citations, due to technical defects, and upheld the remainder. On November 16, 2012, Mr. Chaitan filed an administrative appeal with the ECB and, on January 23, 2013, the ECB upheld the ALJ's decision in a written opinion. Mr. Chaitan did not file an Article 78 petition to challenge the ECB's decision.

Because no one remedied the violations at the House, the ECB continued to issue citations in September and October of 2012 (the “Additional Citations” and, together with the Initial Citations, the “Citations”). Mr. Chaitan did not pursue available state remedies to challenge the Additional Citations.

On May 7, 2013, the Debtors filed a petition under chapter 7 of the Bankruptcy Code. On June 27, 2013, OATH filed the Claim for the unpaid Citations and, on September 23, 2013, the Debtors filed the Objection.

The Court heard oral arguments at a hearing on the Objection held on December 4, 2013. On January 10, 2014, OATH and the Debtors filed briefs addressing the Debtors' standing to object, an issue raised at the hearing. OATH Standing Brief, ECF No. 32; Debtor Standing Brief, ECF No. 33.

DISCUSSION

For the reasons discussed below: this Court has jurisdiction to hear the Objection, as the Rooker–Feldman doctrine is inapplicable; the Debtors have standing to object to the Claim, as the debt is non-dischargeable; the Court is precluded from entertaining the Objection, as a previously decided matter; and the is Claim is allowed, as the underlying citations are valid.

1. Jurisdiction & the Rooker–Feldman Doctrine

OATH argues that under the Rooker–Feldman doctrine, this Court lacks jurisdiction to question the underlying Citations' validity. The Rooker –Feldman doctrine provides that a lower federal court, including a bankruptcy court, has no jurisdictional authority to review state-court judgments. In re 56 Walker LLC, No. 13–11571, 2014 WL 1228835, at *3 (Bankr.S.D.N.Y. Mar. 25, 2014). The narrow doctrine is confined to “cases brought by state-court losers complaining of injuries caused by state-court judgments rendered before the district court proceedings commenced and inviting district court review and rejection of those judgments.” Lance v. Dennis, 546 U.S. 459, 464, 126 S.Ct. 1198, 163 L.Ed.2d 1059 (2006) (quoting Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284, 125 S.Ct. 1517, 161 L.Ed.2d 454 (2005) ); In re 231 Fourth Ave. Lyceum, LLC, 513 B.R. 25, 31–32 (Bankr.E.D.N.Y.2014). The doctrine applies even if the case raises a federal question. Exxon Mobil, 544 U.S. at 284, 125 S.Ct. 1517. However, Rooker–Feldman only strips federal courts of jurisdiction over cases filed after a state court renders a judgment; it is inapplicable to administrative decisions. Verizon, 535 U.S. at 644 n. 3, 122 S.Ct. 1753 ; Mitchell v. Fishbein, 377 F.3d 157, 165 (2d Cir.2004) ; Van Harken v. City of Chi., 103 F.3d 1346, 1348–49 (7th Cir.1997) ; Narey v. Dean, 32 F.3d 1521, 1525 (11th Cir.1994) ; Scott v. Flowers, 910 F.2d 201, 206–08 (5th Cir.1990) ; Abiuso v. Donahoe, 12–CV–1713 (JFB)(ETB), 2014 WL 1330641 at *8 (E.D.N.Y. Mar. 31, 2014) ; Birmingham v. Ogden, 70 F.Supp.2d 353, 362–65 (S.D.N.Y.1999). Only after a state court reviews an administrative agency's decision does the decision constitute a state-court judgment to which Rooker–Feldman applies. See Hason v. Office of Prof'l Med. Conduct, 314 F.Supp.2d 241, 247 (S.D.N.Y.2004).

The ECB and OATH operate outside of the New York State court system and their decisions are administrative.⁴ Because a state court never reviewed the ECB and OATH decisions, they are not state-court decisions. Hason v. Office of Prof'l Med. Conduct, 314 F.Supp.2d at 247. Accordingly, the Rooker–Feldman doctrine is inapplicable and does not limit this Court's jurisdiction over the Objection.

2. Standing

OATH argues that the Debtor lacks standing—a prerequisite for seeking judicial redress. Standing arises from a legally protected interest in a case's outcome. Tachiona v. United States, 386 F.3d 205, 210 (2d Cir.2004). Standing in a bankruptcy case requires a pecuniary interest in the case's outcome. In re Slack, 164 B.R. 19, 22 (Bankr.N.D.N.Y.1994). Although an individual has pecuniary interests in his debts before filing a bankruptcy petition, the chapter 7 discharge generally strips a debtor of these interests, thus eliminating his standing to object to most claims. Id. However, if there is a reasonable possibility for a surplus or distribution in the case, then the chapter 7 debtor has standing to object as a residual claimant. In re 60 East 80th St. Equities, Inc., 218 F.3d 109, 115–16 (2d Cir.2000) ; Pascazi v. Fiber Consultants, Inc., 445 B.R. 124, 127 (Bankr.S.D.N.Y.2011). Alternatively, when a claim is non-dischargeable, the chapter 7 debtor has standing to object as a residual debtor. In re Toms, 229 B.R. 646, 651 (Bankr.E.D.Pa.1999).

Here, the “Debtors concede that neither a distribution nor a surplus is likely.” Debtor Standing Brief 3, ECF No. 33. However, the Debtors and ECB agree that “to the extent that the ECB's claim is valid, it is non-dischargeable.” Debtor Standing Brief 3, ECF No. 33; see also OATH Standing Brief 8–9, ECF No. 32. Accordingly, the Debtors have standing to challenge the non-dischargeable Claim as residual debtors.

3. Preclusion

OATH argues that res judicata and collateral...