In re Drexel Burnham Lambert Group, Inc.
| Decision Date | 29 October 1993 |
| Docket Number | Bankruptcy No. 90 B 10421 (FGC),No. Civ. 90-6954 (MP),93 Civ. 4576 (MP).,Civ. 90-6954 (MP) |
| Parties | In re The DREXEL BURNHAM LAMBERT GROUP, INC., et al., Debtors. Henry G. MINDLIN, Appellant, v. The DREXEL BURNHAM LAMBERT GROUP, INC., et al., Appellees. |
| Court | U.S. District Court — Southern District of New York |
Leonard Steiner, Steiner & Libo, Beverly Hills, CA, for appellant Henry G. Mindlin.
Peter Gruenberger, John H. Bae, Weil, Gotshal & Manges, New York City, for appellee DBL Liquidating Trust.
Appellant, adjudicated personally bankrupt in involuntary proceedings, seeks recovery on claims which he had not disclosed to his creditors in his bankruptcy proceedings. After his discharge from bankruptcy, Appellant instituted arbitration proceedings on a claim which was disclosed in the bankruptcy proceeding. Over Appellee's objection, Appellant was allowed to expand his submission to assert claims he had not disclosed as assets. An Award thereon was made by the arbitration panel. Appellant then filed a proof of claim in the Drexel bankruptcy proceedings based on the total arbitration Award. The state court subsequently vacated the Award in a non-final order. On motions for summary judgment filed by both parties with respect to Appellant's proof of claim, the Bankruptcy Court (Conrad, B.J.) dismissed the portion of Appellant's proof of claim based on claims undisclosed in Appellant's bankruptcy, holding that by operation of law, unscheduled claims were forfeited by the Appellant and belonged to his creditors and the trustee. 11 U.S.C. § 554 (1993).
Affirmed.
Appellant Henry G. Mindlin ("Mindlin"), a registered representative of Drexel Burnham Lambert Group Inc. ("Drexel"), a brokerage firm, was dismissed in June of 1985 on the grounds that he had allegedly made unauthorized and undisclosed loans from accounts of Drexel clients to the account of a co-conspirator. He was also charged with making misleading statements to a Drexel client, Jan Koorn, who subsequently sued Mindlin and Drexel for damages in California Superior Court. Koorn's suit against Mindlin was stayed when an involuntary bankruptcy petition was filed against Mindlin. Koorn's case against Drexel continued, however, and Drexel was held liable to Koorn for Mindlin's misconduct. A judgment of $2,256,750, including $2,000,000 in punitive damages, was entered against Drexel.
While the Koorn suit was pending, Mindlin's personal bankruptcy proceeded in the Central District of California. Pursuant to Section 521 of the Bankruptcy Code, Mindlin was required to disclose in his bankruptcy schedules all property and claims owned by him, including tangible property of every description, liquidated debts, contingent and unliquidated claims including counterclaims of Mindlin, and any "property of any kind not otherwise scheduled." The only property here relevant that Mindlin scheduled was 200 shares of Drexel Group Stock held by Drexel, purchased by Mindlin under an employee stock ownership plan. On May 26, 1988, Mindlin was discharged from bankruptcy.
Nine months after discharge from bankruptcy, on February 10, 1989, Mindlin filed for arbitration against Drexel, seeking to recover his Drexel Group stock mentioned above (the "Stock Claim"). Drexel had placed the stock in a Group account pending a determination of Mindlin's liability over to Drexel for contribution or indemnification on the Koorn judgment. On the first day of arbitration (April 19, 1990), over Drexel's objection, Mindlin sought to expand his arbitration submission to add "Additional Claims" against Drexel for alleged lost earnings, wrongful termination, untimely filing of termination forms, and failure to provide Mindlin with posting books and other documents concerning Mindlin's former Drexel customers. Drexel's counsel requested time to research and respond to those Additional Claims, which was denied, and the Additional Claims were added to the submission. On May 9, 1990, the panel awarded Mindlin $351,656 in compensatory damages and $100,000 in punitive damages on all claims.
On May 21, 1990, Drexel filed a petition in California State Superior Court to vacate the arbitration Award on the grounds that the arbitrators had exceeded their powers, had improperly considered claims forfeited by Mindlin in his bankruptcy, and had denied Drexel an opportunity to research and respond to the expansion of the submission.
On May 30, 1990, Drexel filed a petition for relief under Chapter 11 of the Bankruptcy Code. This effectively stayed all matters pertaining to Mindlin and Drexel, except for the filing of claims in the Drexel bankruptcy.
Mindlin filed proof of claim in the Drexel bankruptcy on August 23, 1990 for the arbitration Award plus interest, in the amount of $461,964.38 ("Claim No. 549"). The proof of claim remained pending until two years later, after a plan of reorganization was approved. On May 21, 1992, Mindlin moved in the Bankruptcy Court for summary judgment on his proof of claim, which was denied on September 3, 1992.
Thereupon, Drexel served its Petition to Vacate the arbitration Award, on the grounds inter alia that the arbitrators had exceeded their powers in entertaining claims which Mindlin had forfeited by omitting them from his schedules in personal bankruptcy. Acting on that petition, on November 23, 1992, the California Superior Court vacated the arbitration Award. Mindlin has appealed that ruling.
Drexel then moved in the Bankruptcy Court for partial summary judgment on Mindlin's unscheduled Additional Claims. On April 9, 1993, the Bankruptcy Court granted the motion, excising all the Additional Claims from Mindlin's proof of claim. This reduced Mindlin's proof of claim to $18,600 (the value of the Stock Claim). Final judgment on the Additional Claims was entered on May 12, 1993.
Mindlin now appeals three rulings of the Bankruptcy Court: (1) the September 3, 1992 Order denying Mindlin's motion for summary judgment on the totality of the arbitration Award; (2) the April 9, 1993 Order excising the claims unscheduled by Mindlin in his bankruptcy and reducing the proof of claim to $18,600; and (3) the May 12, 1993 Order directing entry of final judgment on the Additional Claims.
Appellant advances three discrete contentions on appeal: (1) the Bankruptcy Court erred in denying Appellant's motion for summary judgment on the arbitration Award claim; (2) this Court lacks jurisdiction to review the Bankruptcy Court's grant of Drexel's motion for partial summary judgment; and (3) the Bankruptcy Court erred in granting Drexel's motion for partial summary judgment on the unscheduled and forfeited claims.
Mindlin asserts that, in denying his motion for summary judgment, the Bankruptcy Court's consideration of the pending petition to vacate the arbitration Award was erroneous because Drexel had failed to timely serve Mindlin with its petition to vacate. Under California law, a party has 100 days from the service of an arbitration Award in which to file a petition to vacate the Award and to serve that petition on his opponent. Cal.Civ.Proc.Code § 1288 (West 1993). Drexel filed the petition to vacate with the California state court 11 days after the arbitration panel's decision; it did not serve Mindlin with the petition. On May 30, 1990, however, Drexel filed for bankruptcy, thereby triggering an automatic stay on all pending proceedings against Drexel pursuant to 11 U.S.C. § 362, in effect suspending the 100-day requirement.
Appellant contends that the automatic stay did not relieve Drexel of its duty to serve its Petition to Vacate within 100 days. By its terms, Section 362 of the Bankruptcy Code provides that the filing of a bankruptcy petition operates as a stay of "actions or proceedings against the debtor." Appellant contends, however, that Drexel's Petition to Vacate was a separate action from the arbitration proceeding, brought by, not against, the debtors, so that Section 362 did not stay Drexel's duty to serve Mindlin with the Petition.
It is clear that Section 362 acts to stay arbitration proceedings brought against the debtor. See In re Chas. P. Young Co., 111 B.R. 410, 417 (Bankr.S.D.N.Y.1990). Furthermore, an appeal of a judicial decision is a continuation of the original proceeding for Section 362 purposes. See Teachers Ins. & Annuity Ass'n of Am. v. Butler, 803 F.2d 61, 65 (2d Cir.1986). Moreover, the status of the debtor on appeal — i.e., whether he appears as appellant or appellee in the (disputably) stayed litigation — is irrelevant to the applicability of Section 362 so long as suit was originally brought against the debtor. See Barbier v. Shearson Lehman Hutton, 943 F.2d 249, 250 (2d Cir.1991) (); Ostano Commerzanstalt v. Telewide Systems, Inc., 790 F.2d 206, 207 (2d Cir.1986) (). These decisions compel the conclusion that Section 362 stays petitions to vacate arbitration awards.
Appellant seeks to distinguish between an appeal of a lower court decision and a petition to vacate an arbitration award. He points out that a petition to vacate requires notice and the payment of a filing fee. The distinctions are specious; notice to the opponent and the payment of a filing fee are also requirements of appeals of judicial decisions. More importantly, Appellant's proffered distinction is supported neither by the language of Section 362 nor by the logic and policy underlying the automatic stay provision.1 To distinguish arbitration proceedings from all other proceedings in this context would, as commented by the Bankruptcy Court, "elevate form over...
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