In re Meltzer
| Decision Date | 27 August 2014 |
| Docket Number | No. 13 B 31151.,13 B 31151. |
| Citation | 516 B.R. 504 |
| Parties | In re Michael H. MELTZER, Alleged Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Howard Leventhal, pro se.
Malgorzata Kubiak, pro se.
No appearance for Pegasus Electronics HK Ltd.Joel A. Stein, Jeffrey E. Schiller, Deutsch, Levy & Engel, Chartered, Chicago, IL, for alleged debtor Michael H. Meltzer.
When Malgorzata Kubiak stopped paying rent and her landlord, Michael Meltzer, tried to evict her, Kubiak's ex-husband, Howard Leventhal, started a litigation campaign meant to stall the eviction and harass Meltzer. The campaign—which included a frivolous district court action under the Fair Housing Act, two attempts to remove Meltzer's eviction action to the district court, the filing of a lis pendens against Meltzer's property, and a frivolous action in the state court to “foreclose” on the lis pendens—culminated in the filing of an involuntary bankruptcy petition against Meltzer. The petition was premised on disputed and even fictitious claims, and one of the petitioning creditors was phony, a Hong Kong corporation Leventhal had formed only two weeks before.
The involuntary petition was eventually dismissed on Meltzer's motion. Now before the court after an evidentiary hearing are his requests for sanctions against the petitioners under section 303(i) of the Bankruptcy Code and Bankruptcy Rule 9011 and for relief under section 303(k).
For the reasons discussed below, Meltzer's requests will be granted. This bankruptcy case was filed in bad faith, the petition was not only false but fraudulent, and the petition was filed for an improper purpose. Meltzer is therefore entitled to relief under section 303(k) as well as to sanctions under section 303(i) and Rule 9011, including attorney's fees, costs, and punitive damages. (Meltzer concedes he has no quantifiable actual damages other than attorney's fees). The matter will be continued for Meltzer to prove up his attorney's fees and costs.1 It will also be continued for the parties to brief (1) the appropriate amount of punitive damages, and (2) the propriety of Meltzer's request under Rule 9011 for an order permanently barring Leventhal and anyone associated with him from filing papers in this court.
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 consider the requests for relief under sections 303(i) and (k) and Rule 9011. See Glannon, 245 B.R. at 886 ; Letourneau, 422 B.R. at 135.
The following facts are drawn from the testimony at the hearing, the exhibits admitted into evidence, the docket of the bankruptcy court, and the docket of the district court in a related matter.2
Michael Meltzer is a resident of Littleton, Colorado, where he has lived since 1999. (Tr. at 109–10). Before 1999, he lived in a home at 5687 Rosos Parkway, Long Grove, Illinois, that he owned. (Id. at 110). Apparently, Meltzer kept the Rosos Parkway property after moving to Colorado, because in 2006, he started renting it out. (Id. ).
On December 10, 2009, Howard Leventhal entered into a lease with Meltzer for the Rosos Parkway property. (Tr. at 110–11; see Meltzer Ex. 14). The term of the lease was two years, expiring on December 9, 2011. (Meltzer Ex. 14 at 1).
At the time Leventhal and Meltzer entered into the lease, Leventhal was married to Malgorzata (“Meg”) Kubiak. (Tr. at 111–12). Both lived at the Rosos Parkway property and paid the rent. (Id. ). Some time in 2010, however, Leventhal and Kubiak apparently decided to divorce. (See id. at 112). Leventhal stopped paying rent in July or August 2010; when Meltzer asked about the unpaid rent, Leventhal suggested that he “contact my soon-to-be ex-wife.” (Id. ).
From then on, Meltzer assumed Leventhal had moved out (although, Meltzer said, “I had doubts about that”) and began treating Kubiak as the tenant. (Id. ). In February 2012, Meltzer signed a letter agreement renewing the lease but with Kubiak rather than Leventhal as lessee. (Meltzer Ex. 15). The lease was renewed for an additional year; the term expired on December 10, 2012. (Id. ).
For a time, Kubiak made the rental payments. (Tr. at 113). Then, in 2012, she stopped. (Id. at 113–14). When Meltzer contacted her about the unpaid rent, Kubiak said she intended to buy the property but could not until she received a discharge in a pending bankruptcy case, something she expected to receive on June 30, 2012. (Id. at 113).3 In May 2012, Meltzer began to lose patience and told her he wanted to “wrap it up by May 15th.” (Id. ). If that did not happen, he said, he would take legal action. (Id. ).
Evidently, Kubiak neither bought the property nor became current on the rent, because on June 25, 2012, Meltzer served her with a 30–day notice terminating the tenancy. (See Meltzer Ex. 3 at 6; Ex. 5 to Meltzer Ex. 3). Kubiak responded by threatening to sue Meltzer under the Fair Housing Act if he did not let her remain in the property. (Tr. at 116; Ex. 7 to Meltzer Ex. 3).
On August 27, 2012, Kubiak made good on her threat, filing an action against Meltzer in the district court. (Tr. at 117; see Meltzer Ex. 3); see Kubiak v. Meltzer, et al., No. 12 C 6849 (N.D.Ill.) (the “FHA action”). Kubiak alleged in her complaint that Meltzer had sexually harassed her by suggesting that when his terminally ill wife died, he would move into the property and “cohabitate with Kubiak,” reducing her rent. (Meltzer Ex. 3 at 3). The complaint named as defendants not only Meltzer but also his wife, his father, and the lawyers representing him in his landlord-tenant dispute with Kubiak. (Id. at 1).
Two weeks later, Meltzer filed a forcible entry and detainer action (the “eviction action”) against Kubiak in Illinois state court. (Tr. at 114; see Meltzer Ex. 16). Kubiak immediately removed the eviction action to the district court (Tr. at 118; Dist. Ct. Dkt. No. 5),4 and Meltzer immediately moved to remand it (Dist.Ct.Dkt. No. 19). In March 2013, the district court granted the motion to remand, returning the eviction action to the state court. (Id. No. 66). Kubiak moved for reconsideration, but her motion was denied. (Id. No. 72).
From December 2012 to August 2013, Kubiak and Meltzer discussed settlement of the FHA action. (See id. Nos. 36–44, 47, 67, 77, 89, 94–95, 99). Leventhal sought to participate in the discussions (id. Nos. 44, 45), but the district court refused to let him (id. Nos. 44, 66). When it became clear Leventhal would not be allowed to participate, Kubiak refused to continue the discussions (see id. Nos. 68, 100), and the district court ordered Meltzer to answer or otherwise plead to Kubiak's complaint (id. No. 102). In its order, the district court specifically noted: (Id. ).
Meanwhile, Meltzer proceeded with his remanded eviction action, filing an amended complaint in April 2013. (Meltzer Ex. 17). The amended complaint alleged that Kubiak owed $47,900 in unpaid rent as well as $2,400 in late charges under the lease. (Id. at 3).
In August 2013, the eviction action came to a head. On August 1, Leventhal sent Meltzer's attorney an e-mail stating that unless a settlement were reached, he and Kubiak would file an involuntary bankruptcy petition against Meltzer. (Meltzer Ex. 36). “As you know,” Leventhal said, “until a bankruptcy is discharged, legal claims [of the debtor] become part of the bankruptcy estate and may only be litigated by the bankruptcy trustee, not by the debtor.” (Id. ).
The threat must not have discouraged Meltzer, because on August 2 he filed a motion in the eviction action seeking a judgment of possession. (See Meltzer Ex. 18 at 20). The motion was set for hearing on August 7. (Id. ).
On August 5, 2013, two days before the hearing in the eviction action, Leventhal, Kubiak, and Pegasus Electronics HK Ltd., a Hong Kong corporation, filed an involuntary bankruptcy petition against Meltzer. (Meltzer Ex. 1; Tr. at 71). Although the petition bore what appeared to be the signatures of Leventhal and Kubiak, there was no hand-written signature for Pegasus. The Pegasus signature line displayed an electronic signature for “Pauline Ng, atty.” (Id. ). The petition gave the same Hong Kong address for Pegasus and for Ng. (Id. ).
Attached to the petition were three documents, each styled “Co–Petitioner's Memorandum in Support of Involuntary Bankruptcy Petition.” (Id. at 3–13). Each memorandum purported to describe the particular petitioner's claim against Meltzer.
• The Pegasus memorandum asserted that Meltzer was obligated to Pegasus “in the amount of HKD 58,284.72 or approximately 7,514.50 U.S. dollars at the most recent exchange rate.” (Id. at 4). No basis was given for the Pegasus claim. The Pegasus memorandum bore what appeared to be an ink-stamped (rather than hand-written) signature for Pauline Ng. (Id. ).
• Leventhal's memorandum asserted that Meltzer owed him $4,238.64 because Meltzer had “fraudulently informed the Lake County Department of Public Works” that Leventhal was “financially responsible for ... water and sewer service” at the Rosos Parkway property, Leventhal had paid the bills, and Meltzer had refused to reimburse him “despite numerous demands.” (Id. at 6). Attached to the memorandum was a water and sewer bill for the property showing “Howard Leventhal” as the customer. (Id. at 8).
• The Kubiak memorandum...
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