In re Meltzer

• Citation: 535 B.R. 803
• Decision Date: 25 August 2015
• Docket Number: No. 13 B 31151,13 B 31151
• Parties: In re: Michael H. Meltzer, Alleged Debtor.
• Court: United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois

535 B.R. 803

In re: Michael H. Meltzer, Alleged Debtor.

No. 13 B 31151

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

Signed August 25, 2015

Howard Leventhal, pro se

Malgorzata Kubiak, pro se

No appearance for Pegasus Electronics HK Ltd.

Attorneys for alleged debtor Michael H. Meltzer: Joel A. Stein, Jeffrey E. Schiller, Leon E. Farbman, Deutsch, Levy & Engel, Chartered, Chicago, IL

MEMORANDUM OPINION

A. Benjamin Goldgar, United States Bankruptcy Judge

Howard Leventhal uses the federal courts to make war on people who sue him or his ex-wife, Malgorzata Kubiak, in the state courts. Sometimes, he does this as retaliation. Sometimes, he does it to buy time. Sometimes, he does it to exert pressure. Whatever the motive, Leventhal's tactic is to “make a federal case” out of everything, turning mundane state court matters into federal litigation, something he believes (wrongly, most of the time) will intimidate his opponents and make them back off.

Leventhal employs two main techniques. He removes (or has Kubiak remove) state court actions to the district court, often removing the same action again after it has been remanded. He also files (or has Kubiak file) frivolous federal actions against state court opponents, naming as defendants not only the opponents themselves but often their lawyers and even their family members.

In 2013, Leventhal and Kubiak tried something new. When Kubiak failed to pay her rent and her landlord, Michael Meltzer, sued in the state court to evict her, Leventhal, Kubiak, and Pegasus Electronics HK Ltd. (a corporation Leventhal had just formed) filed an involuntary chapter 7 bankruptcy case against him. The goal, Leventhal announced before the filing, was to stall the eviction action and harass Meltzer. When the involuntary case was quickly dismissed, Meltzer sought damages and sanctions. After an evidentiary hearing, the court concluded the petition had been filed in bad faith and found Meltzer entitled to attorney's fees, costs, and punitive damages under section 303(i) of the Bankruptcy Code, along with other relief. See In re Meltzer, 516 B.R. 504, 506 (Bankr.N.D.Ill.2014). All that remains now is to determine the amounts of attorney's fees, costs, and punitive damages, as well as the propriety of an order Meltzer requests limiting the petitioners' ability to litigate in the federal courts.

For the reasons set forth below, Meltzer will be awarded $60,788.86 in attorney's fees and $105.17 in costs against Leventhal, Kubiak, and Pegasus, jointly and severally. Meltzer will also be awarded $120,000 in punitive damages against Leventhal, $40,000 in punitive damages against Kubiak, and $20,000 in punitive damages against Pegasus. Finally, Leventhal and Kubiak will be barred from filing anything in the bankruptcy court for this district (other than a notice of appeal from this decision) without first obtaining leave of court.

1. Jurisdiction

The court has subject matter jurisdiction over this case pursuant to 28 U.S.C. § 1334(a) and the district court's Internal Operating Procedure 15(a). This is a core proceeding under 28 U.S.C. §§ 157(b)(2)(A) and (O ). See In re Glannon, 245 B.R. 882, 887 (D.Kan.2000) ; In re Letourneau, 422 B.R. 132, 135 (Bankr.N.D.Ill.2010). Although the case has been dismissed, the court retains jurisdiction to award relief under sections 303(i) and (k) and to consider other sanctions. See Glannon, 245 B.R. at 886 ; Letourneau, 422 B.R. at 135 ; In re Davenport, 175 B.R. 355, 361–62 (Bankr.E.D.Cal.1994).

2. Background

Familiarity with the facts is assumed. What follows is an outline sufficient to provide context. A full account appears in the court's opinion finding sanctions warranted. See Meltzer, 516 B.R. at 506–13. A description of much (though not all) of Leventhal and Kubiak's other litigation appears in In re Meltzer, 534 B.R. 757, 768–70, 2015 WL 4550017, at *8–9 (Bankr.N.D.Ill. July 29, 2015).

Kubiak and Leventhal were once married, and during their marriage they lived in a house rented from Meltzer. They later divorced, and Leventhal moved out. In 2012, Kubiak stopped paying rent. When efforts to get her to pay proved unsuccessful, Meltzer served her with a notice terminating the tenancy. Rather than pay the rent or move out, however, Kubiak took a third tack: she told Meltzer she would sue him under the Fair Housing Act (“FHA”) if he did not let her remain on the premises. With Leventhal's assistance, she eventually filed an action against Meltzer in the district court that alleged Meltzer had sexually harassed her in violation of the FHA. See Kubiak v. Meltzer, No. 12 C 6849, 2013 WL 1114203 (N.D.Ill.2013).¹

But the FHA action did not have the desired effect. Meltzer went ahead and filed a forcible entry and detainer action against Kubiak in Illinois state court seeking to have her evicted. Acting as Kubiak's representative, Leventhal then threatened that if some sort of settlement could not be reached, he would file an involuntary bankruptcy petition against Meltzer. Leventhal's theory, described in an e-mail to Meltzer's lawyer, was that upon the filing of the petition, the claim in the eviction action would become part of the bankruptcy estate. Only the trustee, not Meltzer, would be able to pursue it.

Undaunted, in August 2013 Meltzer moved in the eviction action for a judgment of possession. Five days later, Leventhal, Kubiak, and Pegasus made good on Leventhal's threat, filing the involuntary petition that resulted in this case. Attached to the petition were three memoranda purporting to describe each petitioner's claim against Meltzer.

Despite the bankruptcy petition, the state court proceeded to trial on Meltzer's motion. And rightly so: under section 303(f) of the Code, the filing of an involuntary petition does not deprive an alleged debtor of his ability to use property of the estate pending entry of an order for relief. See 11 U.S.C. § 303(f). The claim therefore remained Meltzer's to pursue despite the petition. At the conclusion of the trial, the state court entered judgment in favor of Meltzer, awarding him $52,600 in damages against Kubiak and $5,000 in attorney's fees.

About a week later, Meltzer moved to dismiss the bankruptcy case and sought sanctions against Leventhal, Kubiak, and Pegasus for having filed it. Although the involuntary petition had failed to serve its intended purpose (since the eviction action had not been stopped), Leventhal opposed dismissal. His opposition made an evidentiary hearing necessary, and a hearing was set. When the petitioners failed to submit any pretrial materials, however, they were barred from presenting evidence at the hearing—and with no evidence forthcoming from the parties having the burden of proof, no hearing was needed. The motion was granted and the case dismissed.

In March 2014, the court held an evidentiary hearing on the final matters in the case: Meltzer's requests for relief under sections 303(i) and (k), 11 U.S.C. §§ 303(i), (k), and Bankruptcy Rule 9011, Fed. R. Bankr.P. 9011. Meltzer testified at the hearing, as did an attorney for Gene Schenberg, a creditor of Leventhal. Of the three petitioners, only Leventhal appeared. He called no witnesses himself and when required to testify invoked his Fifth Amendment privilege in response to all but two questions from Meltzer, declining even to say whether he was one of the petitioners in the case.

In its post-hearing decision, the court found that Leventhal, Kubiak, and Pegasus had filed the involuntary petition against Meltzer in bad faith. “Indeed,” the court said, “the bad faith was grotesque: the case was thoroughly fraudulent and an egregious abuse of the bankruptcy system. The bad faith call is not a close one.” Meltzer, 516 B.R. at 514. The evidence amply justified that conclusion for three reasons.

• First, the evidence showed that one of the petitioners, Pegasus, was bogus, a corporation Leventhal had created only two weeks before the petition was filed presumably to satisfy the three-creditor requirement in section 303(b)(1). The signature of the “attorney” for the corporation on the petition as well as on the memorandum concerning Pegagus's claim was forged; the person whose name appeared under it was neither an attorney nor a Pegasus employee, and she denied signing the memorandum. Id. at 509, 516–17.

• Second, the evidence showed that two of the three petitioning creditors, Leventhal and Pegasus, were not in fact creditors of Meltzer. They had no claims against him. The third petitioner, Kubiak, had a claim against Meltzer (the claim in the FHA action), but that claim was in bona fide dispute. Id. at 509, 517. None of the petitioners, then, was entitled under section 303(b)(1) to file an involuntary petition against Meltzer.

• Third, the evidence showed the petition was filed for an obviously improper purpose—not as a collective action to preserve value for creditors but as a tactical maneuver to gain a temporary advantage in Meltzer's state court eviction action. Id. at 508, 515–16. Worse still, the involuntary petition was part of a larger campaign of litigation abuse against Meltzer, one that included Kubiak's FHA action, a lis pendens recorded against Meltzer's property, an action in the state court to “foreclose” on the lis pendens, repeated attempts to remove state court litigation to the district court, and numerous appeals. Id. at 507–08, 510–12.²

Because the petition had been dismissed and had been filed in bad faith, Meltzer was awarded his attorney's fees and costs under sections 303(i)(1)(A) and (B), as well as punitive damages under section 303(i)(2)(B), against all three petitioners. See id. at 514–18. He was also awarded non-monetary relief under sections 303(k)(1) and (2). See id. at 518–19.

Since the hearing on sanctions had been bifurcated, see id. at 506 n. 1, the court set further briefing on the amounts of fees, costs, and punitive damages. Also to be briefed was Meltzer's request for an order under Rule 9011(c) —whi...