In re Gorshtein

Decision Date04 November 2002
Docket NumberNo. 02 B 22092(ASH).,No. 02 B 22229(ASH).,No. 00 B 13259(ASH).,02 B 22229(ASH).,00 B 13259(ASH).,02 B 22092(ASH).
Citation285 B.R. 118
PartiesIn re Ludmilla GORSHTEIN, Debtor. In re Mandy Abreu a/k/a Migdalia Abreu, Debtor. In re Monique Saunders, Debtor.
CourtU.S. Bankruptcy Court — Southern District of New York

Michael A. Koplen, Attorney at Law, Nanuet, NY, for Ludmila Gorshtein.

Shmuel Klein, Attorney at Law, Spring Valley, NY, for Migdalia Abreu.

Eric C. Kurtzman, Kurtzman, Lipton, Matera, Gurock, SC, Spring Valley, NY, for Monique Saunders.

DECISION GRANTING SANCTIONS FOR MOTIONS TO LIFT STAY BASED ON FALSE CERTIFICATIONS

ADLAI S. HARDIN, Jr., Bankruptcy Judge.

This decision is provoked by an apparently increasing number of motions in this Court to vacate the automatic stay filed by secured creditors often based upon attorney affidavits certifying material post-petition defaults where, in fact, there were no material defaults by the debtors. The facts in three such motions are summarized here, as exemplars of a larger problem. In each case the debtor was required, with or without the assistance and expense of counsel, to marshal the evidence, prepare and file papers and appear in court to oppose a baseless motion. At risk in each case was the danger that a debtor's home would be lost to foreclosure without just cause and in violation of the debtor's rights under the Bankruptcy Code.

In circumstances such as these, where there is no colorable justification for the misrepresentation, sanctions will be imposed as compensation to the aggrieved debtor and in the confident expectation that the forewarning to secured creditors and their counsel of consequences made explicit by this decision will provide both deterrence and greater attention to the facts for all except the willfully deceitful or the incorrigibly inept.

Jurisdiction

This Court has jurisdiction over these contested matters under 28 U.S.C. § 1334(a) and 157(a) and the standing order of reference in this District dated July 10, 1984 (Acting Chief Judge Ward). These are core proceedings under 28 U.S.C. § 157(b).

The Problem in Context

In many courts in this country, such as the trial courts of the State of New York, factual submissions to the court on motions or otherwise must be made by affidavit of an individual having personal knowledge of the facts or the records from which the facts are drawn. Attorney affidavits generally are not accepted, except as to "attorney facts" (e.g., description or summary of proceedings in litigated matters) of which the attorney-affiant is the person who has knowledge of the facts. The rejection of factual submissions by attorneys or others not certifying to personal knowledge of the facts is undoubtedly predicated in part on the reasonable assumption that the potential for personal accountability for statements made subject to the penalties of perjury is an incentive to care and candor in the compilation and recitation of facts.

In this Court it has not been the practice to require affidavits based upon personal knowledge in routine motion practice. Thus, in motions by secured creditors for relief from the automatic stay in cases under Chapter 7 or Chapter 13, the facts are customarily presented in the form of an affidavit, affirmation or other pleading signed by an attorney for the secured creditor. Institutional creditors with computerized data systems and trained staff and their counsel generally do not make mistakes in the relatively simply task of accounting for a debtor's payments, and the facts concerning the debtor's default are rarely contested. Where the debtor and the creditor do disagree as to amounts due, the differences will almost always be reconciled by both sides sitting down and going over their respective records and accounts. Thus, in most routine lift stay motions in Chapter 7 and 13 cases the practice of using attorney submissions to present "client facts" is more expeditious and cost effective than requiring a client affidavit and generally does not jeopardize fundamental rights or notions of fairness.

In accordance with a standing order of the Bankruptcy Court in this District, virtually every lift stay motion in Chapter 7 and 13 cases is made on a Notice of Presentment, which notifies the debtor that there will not be a hearing in court unless the debtor serves and files written opposition.1 Many debtors either file for bankruptcy pro se or no longer have counsel to assist them when a lift stay motion is filed. Some debtors may lack the necessary skills or industry, however modest, to respond appropriately to defend their interests, and there is always a danger that some may not receive service of a motion, or may lose the papers, or may not understand the import or significance of the motion or how to respond to it.2 Where the adversary process cannot be counted on to make the system work, the administration of justice places a premium on the integrity and reliability of the written submissions on which important (even though routine) court orders are based. This Court examines every uncontested motion on Notice of Presentment to ascertain that the requisite factual predicate for the relief sought is alleged, particularly the facts concerning the debtor's default.3 If the unopposed motion alleges a post-petition default and other necessary facts, it will be granted. In short, the Court relies, as it must, on the secured creditor's written submission in granting relief.

From the foregoing it is evident that the system and debtors served by it are seriously at risk in cases where a lift stay motion is based on an allegation of material post-petition default where none exists. The debtor and his/her family may lose their home, and the debtor and other creditors may lose significant equity in foreclosure.

The Facts
In re Gorshtein

Secured creditor Chase Manhattan Mortgage Corporation (the "Secured Creditor") in this Chapter 7 case moved by Notice of Presentment dated April 17, 2002 for presentment May 22, 2002 for relief from the automatic stay so as to foreclose on a mortgage covering the debtor's home having a principal balance of $72,434.55. The unverified Motion signed by an outside attorney for the Secured Creditor stated:

3. Debtor has defaulted on the November 1, 2001 mortgage payment and has not remitted any subsequent payments. The arrears total $4,492.08 up to and including the April 1, 2002 payment.

The debtor responded by undated letter to the Court file stamped May 11, 2002. It appears from this letter, and subsequent submissions on behalf of the debtor and the Secured Creditor reveal, that although the debtor had been in default in November 2001, she had tendered all payments necessary to become current prior to the April 17 date of the Secured Creditor's Motion. Indeed, the Secured Creditor had cashed all her payments except the last two, which had been returned to the debtor. As of mid-May the debtor's only arrears consisted of the May mortgage payment of $738 and $1,946.88 for purported legal fees and disbursements in connection with the debtor's alleged but nonexistent default asserted in the April 17 Motion. At the hearing on the Motion the Secured Creditor conceded that the debtor was not in default in respect of her post-petition mortgage payments at the time the April 17 Motion was filed. Later, in response to the Court's order to show cause as to why the Secured Creditor should not be sanctioned, the Secured Creditor again did not contest the fact that the debtor had made all her post-petition mortgage payments prior to April 17 and gave no explanation for having represented to its outside counsel that the debtor was six payments in arrears at the time of the referral to counsel.

In re Abreu

This debtor filed her Chapter 13 petition in July 2000. An order was signed on February 22, 2001 confirming her Chapter 13 plan.

By Notice of Motion dated February 7, 2001 Fairbanks Capital Corp. (the "Servicing Agent") as servicing agent for the secured creditor moved for relief from the automatic stay to permit the creditor to foreclose its mortgage on the debtor's home. The Notice of Motion asserted that "Debtors [sic] have failed to make post-petition payments," and a Bankruptcy Specialist with the Servicing Agent swore in an affidavit that "No post-petition payments have been received from Debtor." The debtor, represented by counsel, filed opposition to the Motion demonstrating that the debtor had made all her post-petition payments, and the Motion was withdrawn.

Exactly one year later the Servicing Agent filed a second Motion by Notice of Presentment dated February 23, 2002, again seeking relief from the automatic stay so that the secured creditor could foreclose on the mortgage on the debtor's home "for cause, including debtor's failure to make post-petition payments." This second Motion was filed by the same attorney that filed the 2001 Motion and was supported by an Affirmation "under penalty of perjury" by the attorney dated February 23, 2002 stating "No post-petition payments have been received from DEBTOR since November 2001."

Once again the debtor, represented by counsel, opposed the Motion and demonstrated that she not only had timely paid all her post-petition payments, including the November 2001 and subsequent payments, but that her mortgage payment checks had been cashed. In fact, the second Motion, like the first, was baseless, and the Servicing Agent so conceded.

In response to the Court's order to show cause why the Servicing Agent and its attorney should not be sanctioned, the attorney made no response of his own (relying instead upon a submission by his retained counsel), and the Servicing Agent submitted an affidavit of its Bankruptcy Specialist. The Bankruptcy Specialist confirmed that in the second Motion, as in the first, "the debtor was, in fact, current with her post-petition obligations." The explanation for the Servicing Agent's false Motions was as...

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    ...488 (1980)). "Bad faith, for purposes of § 105, is characterized as an attempt to abuse the judicial process." In re Gorshtein, 285 B.R. 118, 124 (Bankr.S.D.N.Y.2002). "[C]ourts have held that false representations during bankruptcy proceedings constitute bad faith and are, therefore, subje......
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