In the Matter of Best v. MetLife Auto & Home Ins. Co., 2004 NY Slip Op 24519 (NY 5/4/2005)
| Decision Date | 04 May 2005 |
| Citation | 2004 NY Slip Op 24519 |
| Parties | IN THE MATTER OF EUGENE BEST ET AL., Plaintiffs, v. METlIFE AUTO AND HOME INSURANCE COMPANY, Defendant. EUGENE BEST ET AL., Plaintiffs, v. BETTER HOMES DEPOT, INC., Defendant. |
| Court | New York Court of Appeals Court of Appeals |
Gallagher, Walker & Bianco, Mineola, for defendants.
Peter M. McCabe, New York City, for plaintiffs.
The matter submitted for decision presents squarely a question novel to New York state courts: where a cause of action accrues either before or during the pendency of a bankruptcy proceeding brought by the plaintiff, does the cause of action survive bankruptcy and the plaintiff maintain legal capacity to sue on it where that underlying cause of action is neither asserted as an asset of the debtor's estate nor the claim administered in the bankruptcy proceeding but the bankruptcy proceeding is administratively dismissed summarily by the Bankruptcy Court without the entry of a discharge or plan of reorganization? The question presented must be answered in the negative.
The motion of the defendant in action No. 1, MetLife Auto and Home Insurance Company (the insurer), to dismiss pursuant to CPLR 3211 (a) has been submitted to the court by the parties as a matter of law for the facts essential to a resolution of this motion are not disputed.1 Briefly, as the reference to bankruptcy proceedings implicates, the claims advanced by the plaintiffs here arise in the context of their serious financial difficulties. In fact, one way or another, all of the litigations before this court and the Bankruptcy Court relate to the foreclosure and sale of the plaintiffs' home. The first round of bankruptcy filings was designed to stave off that calamity. The effort failed. On April 8, 1999, Better Homes Depot, Inc., the defendant in action No. 2, purchased the plaintiffs' Staten Island residence at a foreclosure sale. Presumably by way of a writ of assistance, the plaintiffs were actually evicted from their residence on December 16, 1999. Access to the premises at the sufferance of Better Homes was allowed thereafter on a periodic basis to enable the plaintiffs to remove any personal belongings. The plaintiffs contend in action No. 2 that Better Homes agreed to safeguard the balance of those belongings at their former residence. At some point between February 26, 2000 and March 4, 2000, plaintiffs further contend, all of their remaining items of personal property were, as a result of burglary or some other unauthorized act, removed from the locked and secured premises. The loss was discovered by the plaintiffs on March 6, 2000. In action No. 1, the plaintiffs allege that the defendant insurer breached the homeowner's insurance policy that it had issued to the plaintiffs by refusing to pay their $300,000 claim for the loss of that personal property, which the plaintiffs allege was still covered by the policy. Better Homes is sued in action No. 2 for conversion of the plaintiffs' personal belongings and, alternatively, in negligence for failing to safeguard them at the premises.
The uncontroverted litigation history of the plaintiffs' troubles is critical. In a less than five-year period, beginning September 11, 1997 and ending March 20, 2002, nine separate bankruptcy petitions under either chapter 7 or chapter 13 were filed by the plaintiffs in what can only be labeled as, in charity, an abuse of the bankruptcy system. Each petition was summarily dismissed by orders of the Bankruptcy Court for the Eastern District of New York. The plaintiffs do not deny that each of them filed bankruptcy petitions and that all of their petitions were dismissed as the insurer alleges. Indeed, the plaintiffs fasten to the dismissals. They argue, instead, that their (Affirmation in opposition of Peter M. McCabe, Esq. at 2.) Quite to the contrary, while the parade of petitions may have been of no legal consequence in the Bankruptcy Court, they are of consequence here.
The plaintiffs' string of abusive bankruptcy filings bracket in time the conduct which gives rise to the claims asserted against the defendants both in action No. 1 and action No. 2. To be specific, a chapter 13 proceeding was brought prior to and was pending at the time of the alleged theft and subsequent claim denial by the insurer. Three more chapter 13 petitions and a chapter 7 petition were filed after the alleged underlying actionable conduct of the defendants in 2000. Four of them were pending after the action against the insurer had been brought in this court. One of the chapter 13 proceedings was pending after both actions were commenced in this court. In this context, it is immaterial the chapter of the Bankruptcy Code or the number of petitions under which the relief was sought by the debtor plaintiffs. Assuming its bona fides, the chapter 13 proceeding already pending on March 6, 2000, which was not terminated until March 25, 2002, could have effectively divested the plaintiffs of their capacity to sue with respect to any undisclosed cause of action which had accrued prior to that filing or during the pendency of the proceeding. (See LaManna v. Carrigan, 196 Misc 2d 98, 104 [Civ Ct, Richmond County 2003].) The chapter 7 petition filed on October 26, 2000 would also capture these claims as assets of the debtors' estate and strip the plaintiffs of their capacity to sue on them. (See Santori v. Met Life, 11 AD3d 597 [2d Dept 2004].)2 Under any and all of these legal precedents, the claims alleged in the complaints here should have been listed as assets of the debtors and be administered or dealt with in any one of several bankruptcy proceedings they had brought. Failing that, as the insurer asserts on its motion, the plaintiffs should be out of court now.
To this, the plaintiffs offer their demurrer. It rests on section 349 of the Bankruptcy Code:
At the core, the plaintiffs argue, and this fact too is uncontested, that since there was no administration of any of the plaintiffs' assets, no discharge or restructuring of any of their debts and no order of the Bankruptcy Court otherwise, the administrative dismissal of each and every one of their bankruptcy proceedings revests all of their property, including the causes of action asserted here, in the plaintiffs and restores their legal capacity to sue on them.
This court is unaware of any New York state decision which settles the impact of the revesting provisions of a Bankruptcy Code §349 dismissal on our jurisprudence which holds debtor plaintiffs stripped of their legal capacity or standing to sue on causes of action which were or could have been listed as assets of the debtor and administered or otherwise dealt with as part of the debtor's bankruptcy estate. A Federal District Court sitting in an action removed from Supreme Court, New York County, on diversity grounds has, however, considered this very issue. Its decision, Kunica v. St. Jean Fin., Inc. (233 BR 46 [SD NY 1999]), is insightful and the logic compelling. Applying the Bankruptcy Code and principles of judicial estoppel akin to those underlying the rationale of Santori and other New York cases finding the former debtor in bankruptcy without capacity to sue, Kunica holds that parties in the situation of the plaintiffs here are similarly without authority to sue on claims unscheduled in bankruptcy despite a dismissal order under section 349 which contains no Bankruptcy Court direction that such assets not revest in the debtor. Kunica's guidance should and will be followed by this court.
Although the facts in Kunica are strikingly different from those in the two cases at bar, the controlling principles of law should not be. There, the plaintiff, Richard Kunica, alleged that he was the assignee of certain claims or causes of action belonging to a business entity, Sci-O-Tech. Sci-O-Tech had been wholly owned by a company controlled and led by Kunica as its president. On September 14, 1994, Sci-O-Tech filed a voluntary chapter 11 petition in the Bankruptcy Court for the Eastern District of Pennsylvania. A year later, on September 27, 1995, upon the joint motion of the trustee and the debtor, the Sci-O-Tech bankruptcy proceeding was dismissed. The assignment of the claims to Kunica came five months later on February 27, 1996. That was followed, on March 27, 1997, by Kunica's commencement of an action on one of the assigned claims in Supreme Court, New York County, which became the case removed to the Southern District. The defendants subsequently moved for summary judgment on the ground that Kunica, as a result of judicial estoppel, lacked standing to sue. The asserted judicial estoppel rested on the fact that Kunica's assignor, Sci-O-Tech, had failed to disclose the existence and the value of the now assigned claim during pendency of its chapter 11 case. Conceding that Sci-O-Tech's failure to disclose and schedule in its bankruptcy proceeding the claim now sued upon would deprive him of standing and legal capacity to assert it postbankruptcy if Sci-O-Tech had been granted a discharge or if a plan of reorganization had been approved by the Bankruptcy Court, Kunica rested his opposition to the summary judgment motion front and center on section 349 of the Bankruptcy Code. The Bankruptcy Court, he argued, had simply dismissed the chapter 11 proceeding without making any further order and, therefore, Sci-O-Tech should have been...
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