In re Santos

• Decision Date: 02 February 2004
• Docket Number: Adversary No. 01-3622.,Bankruptcy No. 01-37301.
• Parties: In re Simon B. SANTOS, Debtor. Victoria Shaw, Plaintiff, v. Simon B. Santos, Defendant.
• Court: U.S. Bankruptcy Court — District of New Jersey

304 B.R. 639

In re Simon B. SANTOS, Debtor Victoria Shaw, Plaintiff, v. Simon B. Santos, Defendant.

Bankruptcy No. 01-37301.

Adversary No. 01-3622.

United States Bankruptcy Court, D. New Jersey.

February 2, 2004.

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Judith E. Rodner, West Orange, NJ, for Plaintiff.

Robert S. Molnar, Wayne, NJ, for Defendant.

OPINION

MORRIS STERN, Bankruptcy Judge.

I. BACKGROUND

Plaintiff, Victoria Shaw, brings this adversary proceeding against the debtor, Simon B. Santos, M.D., pursuant to 11 U.S.C. 523(a)(2)(A).¹ Santos, who filed a chapter 7 bankruptcy petition on June 21, 2001, is said to have defrauded Shaw and to have "committed consumer fraud by using unconscionable commercial practices, deception, fraud, false pretenses, false promises, and misrepresentations"² which resulted in substantial damage to Shaw. Trial was conducted on August 28 and 29, and September 24, 2003, the record was supplemented by Stipulation of Counsel of November 5, 2003 ("Stip.") and closing argument was heard on January 23, 2004.

Shaw's claims arise out of Santos' purported false representations regarding the quality of surgical procedures and medical care that would be provided to Shaw in the Dominican Republic. Shaw claims that Santos, a licensed New Jersey physician, offered low-cost plastic surgery in his clinic in Santo Domingo, holding out the high quality of facilities and services available there. Shaw contends that the reality was much different, and that after relying on Santos' misrepresentations, she underwent surgery in Santo Domingo with disastrous results.

Shaw's claims, all emanating from prepetition acts of the debtor, were the subject of a New Jersey Superior Court action, which was stayed by Santos' filing here. Thus, neither liability nor damages were determined in the state court.

At trial of the adversary proceeding, plaintiff's case included testimony from Shaw and three of her friends, who (along with Shaw) met with Santos in Shaw's home in April 1996, in a session where Santos described the cosmetic surgery available in Santo Domingo. Plaintiff also called Dr. Anthony C. Berlet, a board certified plastic surgeon who operated on Shaw after her return from Santo Domingo both to correct the appearance of areas operated on in Santo Domingo and to relieve Shaw of continuous pain resulting from the offshore surgery. Shaw's pain, however, is said to be chronic and not subject to relief by further interventional surgery, and cosmetic remediation has been imperfect at best.

Santos' case included testimony by his wife and himself. He denies any and all misrepresentations, though his case included no affirmative proofs as to the quality of the surgery performed on Shaw, the qualifications of the principal surgeon (who was not Santos), or the quality of overall medical care provided to Shaw in Santo Domingo.

Shaw contends that the fraudulent acts and false statements of Santos were as follows: (1) inter alia, at meetings and through promotional material, he represented that, if Shaw traveled to the Dominican Republic for plastic surgery, the techniques, equipment, and facilities available to her there would be the same as were available in the United States; (2) he distributed a promotional brochure to Shaw in New Jersey for the specific purpose of inducing her to go to the Dominican Republic for surgery (at a clinic that he was building), a brochure which misrepresented the quality of the services to be provided; (3) at a meeting with Shaw and her friends, Santos made misrepresentations regarding the facilities and the surgical techniques available to them in the Dominican Republic; (4) the misrepresentations specified that the surgeon or surgeons who would operate on Shaw were up to American standards using American techniques; (5) Santos induced Shaw to undergo plastic surgery in the Dominican Republic by emphasizing the low cost of that surgery; (6) Santos had allowed his medical malpractice insurance to lapse in 1995, but did not advise Shaw at the time of her 1996 surgery that he carried no medical malpractice insurance; (7) Santos led Shaw to believe that he was to be the primary surgeon in Santo Domingo but advised her on her arrival there that he would only be assisting; nevertheless, Santos specifically represented at that time that the primary surgeon who would operate on her was "up to American or New Jersey standards"; (8) though Santos had told Shaw in New Jersey that she would be operated on in Santos' brand new medical clinic, upon her arrival in Santo Domingo, she was advised that the clinic had not yet opened and that the surgery would be performed in a facility which was up to American standards; and (9) at all relevant times, Santos represented that multiple plastic surgery techniques could be performed on Shaw safely, and all in one surgical session.

Santos denies, in general terms, any misrepresentations.

II. JURISDICTION

Santos argues that Shaw would turn a garden-variety medical malpractice case (i.e., a "personal injury tort"), into a "consumer fraud," and has thus contrived this exception to discharge adversary proceeding. Moreover, Santos stresses that liquidation of Shaw's fraud claim requires this court to extend itself beyond its jurisdictional limits. Specifically, 28 U.S.C. 157(b)(2)(B), as part of the nonexclusive list of core proceedings for which bankruptcy judges may enter appropriate orders and judgments, provides for "allowance or disallowance of claims against the estate or exemptions from property of the estate, and estimation of claims or interests for the purposes of confirming a plan under chapter 11, 12, or 13 of title 11 but not the liquidation or estimation of contingent or unliquidated personal injury tort or wrongful death claims against the estate for purposes of distribution in a case under title 11." See also 28 U.S.C. 157(b)(2)(O). Ultimately, 28 U.S.C. 157(b)(5) provides:

The district court shall order that personal injury tort and wrongful death claims shall be tried in the district court in which the bankruptcy case is pending, or in the district court in the district in which the claim arose, as determined by the district court in which the bankruptcy case is pending.

Shaw contends that this is a matter dealing primarily with dischargeability of a claim, and that this court is authorized to determine the exception to discharge issue. But Shaw's pleadings would have this court go further and liquidate the claim (where damages happen to include alleged personal injury purportedly arising from misrepresentation).

The court concludes that it has jurisdiction over this matter pursuant to 28 U.S.C. 1334 and the Standing Order of Reference of the United States District Court of New Jersey dated July 23, 1984. To the extent that this court will hear this case, it will do so as a fraud exception to discharge proceeding, not as a "personal injury tort." See Lee-Benner v. Gergely (In re Gergely), 110 F.3d 1448, 1453-54 (9th Cir.1997) (a debtor-physician's purported misrepresentation as to the necessity for amniocentesis, followed by negligent performance of the procedure, gave rise to a debt deemed to be properly the subject of an exception to discharge adversary proceeding per 523(a)(2)(A) including personal injury damages from misperformed procedure). See also Britton v. Price (In re Britton), 950 F.2d 602, 604-05 (9th Cir.1991) (cosmetic surgeon's employee, misrepresenting himself as the physician and thus inducing surgery, was subject to the fraud exception to discharge adversary proceeding, including personal injury damages when surgery by the actual physician was negligently performed); Church v. Hanft (In re Hanft), 274 B.R. 917, 921-23 (Bankr.S.D.Fla.2002) (physician failing to disclose that he was practicing with a terminated license and without malpractice insurance or equivalent escrow of assets was subject to the fraud exception to discharge adversary proceeding including personal injury damages for failure to diagnose a tumor).³ Consider Robinson v. Louie (In re Louie), 213 B.R. 754, 760-61 (Bankr.N.D.Cal.1997) (Debtor's failure to disclose his HIV-positive status to life partner was determined to be potentially the basis for a fraud exception to discharge adversary proceeding for various damages, though damages based upon fear of contracting AIDS were not allowed).

The matter would thus be "core" within the purview of 28 U.S.C. 157(b)(2)(I) ("Core proceedings include ... determinations as to the dischargeability of particular debts ..."). And, Shaw had no choice but to bring the adversary proceeding to protect her claim from discharge.⁴ See 11 U.S.C. 523(c); FED. R. BANKR.P. 7001(6).

Though facially "core," this proceeding comes to this court prior to any determination of liability of Santos to Shaw (and, of course, without the Shaw claim being liquidated). Lee-Benner, Britton and Church raised the exception to discharge issue after state court judgments (though not necessarily judgments which specified all nondischargeable acts). In Robinson the state court proceeding was interrupted. The bankruptcy court delved deeply into the state court causes of action to decide what would be nondischargeable, but the inference in the case is that the state court action would proceed.

The Cohen Opinions are based on a complaint which brought to the bankruptcy court both the discharge issues and the liability/liquidation issues. The plaintiffs, tenants of debtor-landlord, alleged a violation of the New Jersey Consumer Fraud Act based upon the debtor-landlord's overcharging of rent in violation of a local ordinance. The bankruptcy court decided the full range of issues attributing liability to the landlord's actions. First, under common law fraud per 523(a)(2)(A) of the Bankruptcy Code, the court excepted those acts from discharge. Then, in a separate hearing centering on the Consumer...