In re Cruz
| Decision Date | 21 June 2000 |
| Docket Number | No. 97-B-40236 (AJG).,97-B-40236 (AJG). |
| Citation | 254 BR 801 |
| Parties | In re Mario CRUZ and Mercedes Cruz, Debtors. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
Dennis J. O'Sullivan, Flushing, for Mario Cruz.
Law Offices of Bernard D'Orazio, P.C., New York, of Counsel: Bernard D'Orazio, for Enterprise Auto Sales Corporation.
This matter came before the Court upon the Application for Order Reopening Case, Allowing the Amendment of Schedule F, and Finding Enterprise Auto Sales Corp. and Bernard D'Orazio in Contempt of Court (the "Application") filed on behalf of Mario Cruz (the "Debtor" or "Mr. Cruz") and upon Enterprise Auto Sales Corporation's ("Enterprise") opposition thereto. Upon consideration of the pleadings filed in this matter and the arguments raised and presented during the hearings in this matter, the Court makes the following findings of fact and conclusions of law.
Mario Cruz and Mercedes Cruz ("the Debtors") filed a voluntary petition for relief under Chapter 7 of Title 11 of the United States Bankruptcy Code ("Bankruptcy Code") on January 13, 1997. Subsequent to the meeting of creditors held on February 19, 1997, the Chapter 7 trustee, Hal M. Hirsch, Esq., filed a report of no distribution, deeming this bankruptcy case a "no asset" case.1 The Debtors received their discharge on May 7, 1997 and the bankruptcy case was closed on May 19, 1997.
In late 1998 a summons and complaint were issued on behalf of Enterprise upon the Debtor2 seeking recovery of a prepetition car loan debt in the Civil Court of the City of New York (the "State Court"). Upon learning of the issuance of the summons and complaint, Mr. O'Sullivan, attorney for the Debtor, forwarded documents evidencing the aforementioned discharge to Mr. D'Orazio, attorney for Enterprise. Thereafter, Mr. D'Orazio informed the Debtor by letter that Enterprise intended to continue to pursue its claim in State Court because Enterprise was never notified of the bankruptcy.
A judgment of default (the "Default Judgment") was entered by the State Court against Mr. Cruz on January 28, 19993 in the amount of $8,747.27 including interest and costs and disbursements. On April 7, 1999, the Debtor, upon advice of counsel, applied for an Order to Show Cause to Vacate Default Judgment and to Restore to the Calendar and/or to Dismiss (the "Order to Show Cause") with the State Court. Upon the return date of the Order to Show Cause, Mr. D'Orazio, as counsel to Enterprise, and the Debtor, pro se, appeared before the Court. According to counsel for Enterprise, the State Court suggested that settlement discussions ensue. The Debtor ultimately agreed to a settlement with Enterprise in the total amount of $7,500.00, payable at the rate of $200.00 per month, without interest. A settlement agreement (the "Settlement Agreement") was signed by the Debtor before a notary public. Apparently, the Debtor participated in the settlement discussions and signed the Settlement Agreement without seeking further advice from counsel. There was no evidence presented to the Court that any payments were made pursuant to the Settlement Agreement.
Thereafter, counsel for the Debtor filed the Application, and this Court heard arguments from counsel. Following the hearing, the Court informed the parties that it wanted further information concerning the events surrounding the State Court proceeding. The parties submitted additional pleadings and documentation, with the last submission being provided in February 2000. With that submission the record was closed. As to the actions of the State Court regarding the Settlement Agreement, Mr. D'Orazio represents that he informed the State Court clerk of the settlement, however he found no evidence that the State Court (1) participated in or approved the actual settlement, (2) reviewed the Settlement Agreement or (3) "so ordered" any part of the record.
The Debtor requests that the Court reopen the case to add Enterprise as a creditor pursuant to 11 U.S.C. § 350(b)4 and hold Enterprise and its counsel, Mr. D'Orazio, in contempt pursuant to §§ 105 and 524(a)(2) and award actual damages, costs, attorneys' fees and punitive damages to the Debtor.
In seeking to reopen the bankruptcy case pursuant to § 350(b) to amend Schedule F and include Enterprise as a creditor and list the debt owed to it, the Debtor argues that by operation of law, the debt to Enterprise was discharged pursuant to § 727(b), and that § 523(a)(3) does not preclude the discharge of the Enterprise debt. Further, the Debtor maintains that the Settlement Agreement is unenforceable because it fails to comply with the requirements of § 524(c) and (d) regarding reaffirmation agreements.
Enterprise argues that since the debt owed to Enterprise was not listed in the Debtors' Chapter 7 bankruptcy case it was not discharged. Enterprise cites § 523(a)(3)(A) as support. Further, it argues that because the Debtor raised and resolved the issue before the State Court, by entry into the Settlement Agreement, he is precluded from rearguing it before this Court.
Regarding the Debtor's request to reopen the bankruptcy case to list Enterprise, he seeks that relief even though he contends that the Enterprise debt was already discharged by operation of law. Apparently, the Debtor seeks this relief based upon either the view that reopening the case and listing Enterprise will have some unspecified effect upon the status of the dischargeability of the debt, or the view that the reopening of the case to list Enterprise will provide an accurate reflection of the debts that were discharged in the event any question arises in the future about what debts were discharged. The Debtor cites § 350(b) in support of his motion to reopen the bankruptcy case. Section 350(b) provides that:
A case may be reopened in the court in which such case was closed to administer assets, to accord relief to the debtor, or for other cause.
The Bankruptcy Code does not define "cause," and the decision to reopen a case is discretionary with the Court. In re Chalasani, 92 F.3d 1300, 1307 (2d Cir. 1996). Many courts have addressed the effect of a failure to list a creditor in a Chapter 7 no asset case and have rendered varying decisions concerning the discharge of such unlisted debts in the context of a motion to reopen a bankruptcy case. Ultimately the decision to reopen the case will depend on whether the unlisted debt, assuming it is not a § 523(a)(2), (4) or (6) debt and this is a "no asset" case, was discharged as a matter of law under the § 727(b) discharge order (the "Discharge Order") or determined to be discharged based upon consideration of the circumstances surrounding the failure to list the debt. Therefore, this Court will address the discharge issue before it determines whether cause exists under § 350(b).
At first blush it would appear that the preclusionary rules of res judicata, collateral estoppel, judicial estoppel or the Rooker-Feldman doctrine5 would prevent the Court from reviewing the actions of the State Court or the Settlement Agreement that resolved the State Court action since the Debtor had clearly submitted to its jurisdiction and had raised the issue this Court is now being asked to decide. However, those preclusionary rules, for the reasons discussed hereinafter, would not be applicable if, as a matter of law, an unlisted debt in a "no asset" case is discharged by the discharged order and the provisions of § 524 either (1) void any judgment that is a determination of the personal liability of a debtor with respect to a discharged debt, or (2) render unenforceable any agreement, pertaining to that debt, that did not comply with its provisions.
Pursuant to § 727(b), a discharge in a Chapter 7 case discharges a debtor from all debts arising before the filing of the bankruptcy petition, except those that are excepted from discharge. Section 727(b) states as follows:
Except as provided in section 523 of this title, a discharge under subsection (a) of this section discharges the debtor from all debts that arose before the date of the order for relief under this chapter, and any liability on a claim that is determined under section 502 of this title as if such claim had arisen before the commencement of the case, whether or not a proof of claim based on any such debt or liability is filed under section 501 of this title, and whether or not a claim based on any such debt or liability is allowed under section 502 of this title.
Section 523 sets forth those debts that are excepted from discharge, and § 523(a)(3) refers to debts that are not listed or scheduled in cases for which a timely proof of claim or a timely request for a determination of dischargeability for that debt could not be filed. Section 523(a)(3) states as follows, in relevant part:
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