In re Massa, Bankruptcy No. 92-21841.

• Decision Date: 03 February 1998
• Docket Number: Bankruptcy No. 92-21841.
• Citation: 217 BR 412
• Parties: In re Louis Paul MASSA, Debtor.
• Court: U.S. Bankruptcy Court — Western District of New York

217 B.R. 412 (1998)

In re Louis Paul MASSA, Debtor.

Bankruptcy No. 92-21841.

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

February 3, 1998.

David D. MacKnight, Lacy, Katzen, Ryen & Mittleman, Rochester, NY, for Debtor.

Peter J. Craig, Knauf & Craig, L.L.P., Rochester, NY, for C. Donald & Rebecca Addona.

DECISION & ORDER

JOHN C. NINFO, II, Bankruptcy Judge.

ISSUES PRESENTED AND HOLDING

This matter is before the Court to decide: (1) whether bankruptcy courts and state courts have concurrent jurisdiction to determine that an unscheduled debt is nondischargeable pursuant to Section 523(a)(3)(B), even when the creditor whose debt was not scheduled may have had notice or actual knowledge of the filing of the debtor's bankruptcy case; and (2) if, in the exercise of concurrent jurisdiction, a state court may have erroneously determined that an unscheduled debt was nondischargeable pursuant to Section 523(a)(3)(B), whether the bankruptcy court can, directly or indirectly, assume jurisdiction to correct the error, including by purporting to enforce the discharge and injunction provisions of Section 524(a).

This Court holds that: (1) concurrent jurisdiction to determine that an unscheduled debt is nondischargeable pursuant to Section 523(a)(3)(B) exists from the moment a debtor files the schedules required by Section 521 and Rule 1007 and they fail to list a prepetition debt "of a kind specified" in Section 523(a)(2), (4), (6) or (15) with the name of the creditor holding the debt, and continues until either: (a) the schedules are amended so that a timely request for a determination of dischargeability is reasonably possible; or (b) the bankruptcy court or a state court with concurrent jurisdiction makes a determination of dischargeability pursuant to Section 523(a)(3)(B), notwithstanding that the creditor holding the unscheduled debt may have received notice or had actual knowledge of the debtor's bankruptcy case; and (2) once the state court assumes and exercises its concurrent jurisdiction to determine that an unscheduled debt is nondischargeable pursuant to Section 523(a)(3)(B), the "Rooker-Feldman Doctrine" is applicable and the bankruptcy court can no longer assume jurisdiction, pursuant to Section 524(a) or otherwise, to correct any erroneous determination. Any such error must be corrected through appropriate and available proceedings in the state court system.

BACKGROUND

On or about March 25, 1991, C. Donald Addona and Rebecca Addona (the "Addonas") commenced a civil action against Louis Massa (the "Debtor"), d/b/a Keseca Development Company, in the Supreme Court of Ontario County (the "State Court Action"), alleging that he had been guilty of fraud and false representations in connection with certain transactions which took place between the parties in 1989 and 1990 (the "Addonas Claim").

On June 19, 1992, after the State Court had denied a motion to withdraw filed by the Debtor's State Court attorneys (the "Debtor's State Court Attorneys"), in part because "withdrawal of counsel for the defendant at this time would allow him (the Debtor) to further delay discovery", the attorney for the Addonas (the "Addonas' State Court Attorney") filed a Note of Issue indicating that the State Court Action was ready for trial.

On July 1, 1992, the Debtor filed a petition initiating a Chapter 13 case.

On July 7, 1992, the Debtor's State Court Attorneys sent a letter to the Supreme Court Justice who was presiding over the State Court Action (the "State Court Justice"), with a copy to the Addonas' State Court Attorney, advising him that they had filed a renewed motion to be allowed to withdraw, combined with a motion to strike the Note of Issue. The letter further stated that, "We have been informed that the Defendant, Louis Massa d/b/a Keseca Development Company, has filed a Chapter 13 Bankruptcy in the Western District of New York. Accordingly, this action is now stayed and we request that the Court hold the motion in abeyance pending the disposition of the bankruptcy filing."

On July 14, 1992, the Debtor's State Court Attorneys sent an additional letter to the Addonas' State Court Attorney, with a copy to the State Court Justice, which referred to the July 7, 1992 letter and the bankruptcy filing, and indicated that, "the motion (to strike the Note of Issue) is being held in abeyance pending Mr. Massa's bankruptcy proceeding. In the event that the Chapter 13 is stricken, and a Chapter 7 is not filed, we will proceed with the motion."

On July 15, 1992, the Debtor filed the schedules and statements required to be filed by Section 521(1) and Rule 1007 of the Rules of Bankruptcy Procedure (the "Schedules"). These Schedules did not list the Addonas as creditors or disclose, as required, the pending State Court Action for fraud and false representations.

The Debtor's bankruptcy case was a lengthy and litigious one.¹ The case, which was originally filed as a Chapter 13 case on July 1, 1992, was converted to a Chapter 11 case on September 14, 1992, converted, by Court Order, to a Chapter 7 case on November 25, 1992, and thereafter administered as an asset case. On March 10, 1993, an Order was entered granting the Debtor a discharge (the "Discharge Order") and on May 28, 1997, the case was finally closed.

On November 24, 1997, the Debtor's case was reopened and the Debtor filed a motion (the "Contempt Motion") which requested that the Court enter an order: (1) enforcing the provisions of Section 524(a) and the Discharge Order; and (2) finding the Addonas, the Addonas' State Court Attorney and their new state court attorney (the "Collection Attorney") in contempt for their respective actions in continuing the State Court Action after the Discharge Order was entered, because the Addonas had notice of the Debtor's bankruptcy case in time to file a complaint to determine dischargeability, and, since they failed to file it, the Addonas Claim had been discharged.

The Contempt Motion alleged that: (1) on June 16, 1994, notwithstanding: (a) the letters which he had written to the State Court Justice and the Addonas' State Court Attorney in July, 1992 (the "Notices"), which gave the Addonas notice of the Debtor's bankruptcy case within the meaning of Section 523(a)(3)(B)²; and (b) the entry of the Discharge Order on March 10, 1993, the Debtor's State Court Attorneys once again made a motion (the "Withdrawal Motion") to strike the Note of Issue and to be authorized to withdraw as attorneys for the Debtor in the State Court Action³; (2) the Withdrawal Motion was granted;⁴ (3) on October 20, 1995, after the Debtor failed to appear for trial and an inquest into damages had been conducted, the State Court Justice, having made detailed written findings of fact and conclusions of law which indicated that the Debtor had committed fraud, signed a judgment in the amount of $342,587.97 in favor of the Addonas against the Debtor (the "State Court Judgment"); (4) at the time the State Court Judgment was signed, the Addonas' State Court Attorneys allegedly had provided the State Court Justice with a copy of a November 18, 1994 letter which he had received nearly a year earlier from the Debtor's bankruptcy attorney (the "November 94 Letter"), which stated, that: "I am not familiar with the case of Addona v. Massa, but you should know that Mr. Massa is in bankruptcy and there is a stay of all proceedings against him, furthermore, he is in a New York State correctional facility, and, therefore, he is unable to attend a trial on November 22, 1994, unless a Court orders the State to produce him."⁵; (5) after the entry of the State Court Judgment, the Addonas' State Court Attorney returned the file to them indicating that he did not collect judgments; (6) thereafter, the Collection Attorney was retained who, it is conceded, had no knowledge when retained of the Debtor's bankruptcy case or of the Notices, since there were no copies of the Notices or the November 94 Letter included in the file turned over to him; (7) by March 17, 1997, the Collection Attorney had executed upon the Debtor's 1993 Cadillac DeVille (the "Cadillac") and the Ontario County Sheriff (the "Sheriff") had scheduled an auction of the Cadillac for March 26, 1997; (8) on March 25, 1997, the Debtor, by a new attorney, filed with the Bankruptcy Court an Amended Voluntary Petition and Amended Schedules, which for the first time disclosed the Addonas Claim and the State Court Action, and also set forth that his Cadillac had been seized⁶; (9) on or about May 20, 1997, after the Sheriff canceled the auction because the Debtor had filed the Amended Petition and Schedules, the State Court Justice signed an Order requiring that the Debtor show cause (the "Order to Show Cause") why he should not be held in contempt for interfering with the auction and why the Cadillac should not now be sold; (10) in the Collection Attorney's affidavit in support of the Order to Show Cause, now that he had become aware of the Debtor's bankruptcy case because of the filing of the Amended Petition and Schedules, he alleged that:

(a) upon information and belief, after the filing of his petition, the Debtor had been prosecuted and convicted of insurance fraud and attempted grand larceny, and was presently on parole;

(b) the Debtor had filed a bankruptcy case on July 1, 1992, and received a discharge on March 10, 1993;

(c) at no time were the Addonas listed as creditors in the Debtor\'s bankruptcy proceeding;

(d) because of the failure to list the Addonas as creditors, they had no opportunity to file a complaint objecting to the discharge of the Addonas Claim, and, therefore, pursuant to Section 523(a)(3)(B), the Addonas Claim, which was incurred by fraud, was not discharged; and

(e) the filing of the Amended Petition and Schedules had no legal effect and was merely an attempt by the Debtor to delay and impede the enforcement of the State Court Judgment without legal justification;

(11) on June 24,...