In re Taub

• Decision Date: 09 April 2010
• Docket Number: Adversary No. 08-1170-ess.,Bankruptcy No. 08-44210-ess.
• Parties: In re Chana TAUB, Debtor. Chana Taub, Plaintiff, v. Simon Taub, Defendant.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Eastern District of New York

427 B.R. 208

In re Chana TAUB, Debtor Chana Taub, Plaintiff, v. Simon Taub, Defendant.

Bankruptcy No. 08-44210-ess. Adversary No. 08-1170-ess.

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

April 9, 2010.

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Chana Taub, pro se.

David Mark, Esq., Kasowitz, Benson, Torres & Friedman LLP, New York, NY, for Pnina Kaufman.

Rosemarie Matera, Esq., Kurtzman Matera PC, Spring Valley, NY, for Esther Newhouse.

David Carlebach, Esq., Law Offices of David Carlebach, Esq., New York, NY, Proposed Attorney for Debtor.

Jacqueline Frome, Esq., Office of the United States Trustee, Brooklyn, NY, Office of the United States Trustee.

Leo Fox, Esq., Law Offices of Leo Fox, New York, NY, for Simon Taub.

MEMORANDUM DECISION ON MOTION TO RESTRAIN, MOTION TO COMPEL, AND ORDER TO SHOW CAUSE

ELIZABETH S. STONG, Bankruptcy Judge.

Before the Court are three matters that concern the administration of the estate of the Debtor and debtor-in-possession, Chana Taub.

The Court considers the Debtor's Motion to Restrain filed in the adversary proceeding Taub v. Taub, which seeks the entry of an order restraining her estranged husband Simon Taub from collecting rental income from certain properties titled in her name, and directing Mr. Taub to account for rental income he collected and to pay certain administrative expenses and other debts on behalf of and owed to her estate.

The Court also considers the Motion to Compel of Pnina Kaufman, who is Mr. Taub's sister and the representative of their father, Moshe Taub, which seeks the entry of an order compelling the Debtor to pay administrative expenses relating to real property titled in the Debtor's name at 1259 52nd Street, Brooklyn (the "52nd Street Property").

And the Court considers whether the best interests of creditors and the estate will be served by the appointment of a trustee under 11 U.S.C. § 1104(a)(2) or 11 U.S.C. § 1104(a)(3). This question arises from the Court's Order to Show Cause, issued on January 21, 2010 (the "OSC"), which directed the parties to show cause why the Court should not order the appointment of a trustee to perform the duties set forth in 11 U.S.C. § 1106, including the operation of the business of the Debtor.

These matters require the Court to take stock of the long and unproductive history of this bankruptcy case, which has been marked from the outset by acrimony, contentiousness, distrust, and the Debtor's failure to make any progress over twenty-one months toward the proposal and confirmation of a plan of reorganization. The motions seek orders to direct the parties to comply with the plain terms of the Bankruptcy Code, and the OSC contemplates the replacement of the Debtor with a trustee to manage the affairs of the estate free from the personal conflicts and hostilities that have hindered this case to this point. In the usual case, such relief would not be warranted. Zealous and professional advocacy of positions taken in good faith ought to advance the prospects for a successful reorganization. But this case shows that when zeal and good faith are swallowed up by animosity and recrimination, progress toward reorganization comes to a halt. And in this unusual situation, it is necessary to issue orders directing the enforcement of the Bankruptcy Code's terms and the appointment of a trustee.

Jurisdiction

The Court has jurisdiction over these matters pursuant to 28 U.S.C. §§ 1334(b), 157(b)(1), and 157(b)(2), and the Eastern District of New York standing order of reference dated August 28, 1986. This decision constitutes the Court's findings of fact and conclusions of law to the extent required by Federal Rule of Bankruptcy Procedure 7052.

Procedural History

Background

On July 1, 2008, the Debtor commenced this Chapter 11 bankruptcy case by filing, pro se, a voluntary petition for relief. She continues to operate and manage her estate as a debtor-in-possession in accordance with 11 U.S.C. §§ 1107 and 1108.

Property of the Estate

The Debtor claims an interest in seven real properties and the rental income that they generate. Her claimed interest in three of those properties (the "Grand Avenue Properties") is an equitable interest that arises from an equitable distribution claim she has asserted in a divorce proceeding against Mr. Taub, presently pending in Supreme Court, Kings County (the "Second Divorce Action"). See In re Taub, 413 B.R. 55, 58-60 (Bankr.E.D.N.Y. 2009) (reviewing the Debtor's first and second actions to divorce Mr. Taub). In Memorandum Decisions dated August 14, 2009, this Court vacated the automatic stay to permit the Debtor and Mr. Taub to proceed to entry of judgment on all issues in the Second Divorce Action, including equitable distribution, Taub, 413 B.R. at 68, and concluded that neither the Debtor nor her bankruptcy estate has a legal or equitable interest in the Grand Avenue Properties because an equitable distribution award has not yet been entered,¹Taub v. Taub (In re Taub), 413 B.R. 81, 91 (Bankr.E.D.N.Y.2009). As a result, the Debtor's estate has no interest in the Grand Avenue Properties, although this Court retains the power to enforce any equitable distribution award that the Debtor may receive. Taub, 413 B.R. at 68.

The Debtor has a legal interest in the remaining four properties (the "Titled Properties").² Three of these properties— the 52nd Street Property, 4819 14th Avenue, Brooklyn (the "14th Avenue Property"), and 1405 49th Street, Brooklyn (the "49th Street Property")—are titled solely in her name. The Debtor and Mr. Taub hold joint interests as tenants by the entirety in the fourth property, a vacation home located at 85 Forshay Road, Monsey, New York (the "Forshay Road Property"). In a third Memorandum Decision dated August 14, 2009, this Court declined to abstain from deciding the claims concerning the Titled Properties stated in the adversary proceeding Taub v. Taub, and concluded that the "Debtor possesses a legal interest in the Titled Properties, and that interest became property of her Chapter 11 bankruptcy estate under Bankruptcy Code Section 541 when the case was commenced." Taub v. Taub (In re Taub), 413 B.R. 69, 77 (Bankr.E.D.N.Y. 2009). This, in turn, "gave the Debtor a legal interest in the rents and proceeds from these properties, and that interest too became property of her Chapter 11 bankruptcy estate when the case was commenced." Id.

The Debtor also claims that Mr. Taub owes her several debts, and identifies these in her monthly operating reports (the "MORs"). For example, in the February 2010 MOR the Debtor asserts that Mr. Taub owes her $129,000 in post-petition rental income that he wrongfully collected from tenants of the Titled Properties. She also claims that Mr. Taub owes her rental arrears of approximately $110,000 for an apartment at the 14th Avenue Property that he has occupied since September 2005. And she claims that Mr. Taub owes her more than $28,750 in unpaid court-ordered monthly support.

Status of the Estate

The 52nd Street Property, the 14th Avenue Property, and the Forshay Road Property are investment properties that generate monthly rental income.³ The 49th Street Property is the Debtor's marital home and residence and does not generate rental income. The 14th Avenue Property, the Forshay Road Property, and the 49th Street Property each secures a mortgage.⁴ These mortgages call for monthly payments of approximately $11,000, which is some $800 less than the monthly rental income that the Debtor states she should be able to collect from the Titled Properties.⁵

But since the petition date, the Debtor has not made these mortgage payments or paid other administrative expenses for the Titled Properties.⁶ As a result, the estate's mortgage arrears with respect to the Titled Properties have increased by more than $11,000 for each month that this case has been pending. For example, the February 2010 MOR indicates that the 49th Street Property has accumulated post-petition mortgage arrears of nearly $220,000.⁷ The 14th Avenue Property has accumulated post-petition mortgage arrears of nearly $59,000. And the Forshay Road Property has accumulated post-petition mortgage arrears of more than $58,600.

Other unpaid post-petition expenses have accrued as well. At a January 20, 2010, hearing, the Debtor acknowledged that she has not paid quarterly real estate taxes due on the 52nd Street Property. The Debtor's sister, Esther Newhouse, now has a claim for more than $588,000 arising from loans to the Debtor for living expenses and legal fees and expenses associated with proceedings in the bankruptcy court and elsewhere. The Debtor has not complied with this Court's Order directing the payment of $14,732.20, in professional fees to a Court-appointed mediator. And on February 26, 2010, this Court approved fees of more than $316,000 for the Debtor's most recent outgoing counsel, the sixth proposed or retained counsel in her case, with payment to be addressed at a later date.

State Court Proceedings

The New York state courts will resolve certain issues that concern the Debtor's bankruptcy case, including the equitable distribution of marital property in the Second Divorce Action, as well as certain claims made by the Debtor against tenants in the 52nd Street Property that concern the non-payment of rent. This Court reviewed these proceedings in prior decisions. See, e.g., Taub, 413 B.R. at 58-60; Taub v. Hershkowitz (In re Taub), 417 B.R. 186, 194 (Bankr.E.D.N.Y.2009). The pendency of these proceedings does not affect this Court's jurisdiction over the Titled Properties, including the power to enter and enforce judgments related to those properties as necessary, and to hear two adversary proceedings that concern these properties.

Adversary Proceeding 08-1170—Chana Taub v. Simon Taub (In re Taub)

On July 29, 2008, the Debtor commenced this adversary proceeding to...