Krohn v. Burton (In re Swift), Case No. 94–10285–CEC
| Decision Date | 03 November 2014 |
| Docket Number | Adv. Pro. No. 12–1044–CEC,Case No. 94–10285–CEC |
| Citation | 519 B.R. 39 |
| Parties | In re John Swift, Jr. aka John B. Swift and Linda Swift aka Linda S. Swift, Debtors. Paul I. Krohn, Chapter 7 Trustee, Plaintiff, v. Robert Burton and Jean Bismuth, Defendants. |
| Court | U.S. Bankruptcy Court — Eastern District of New York |
J. Ted Donovan, Esq., Goldberg Weprin Finkel Goldstein LLP, 1501 Broadway, 22nd Floor New York, NY 10036, Attorneys for Plaintiff.
Robert Burton, 345 East 93rd Street 18–G, New York, NY 10129, Pro Se.
Justin Sher, Esq., Sher Tremonte LLP, 41 Madison Avenue, 41st floor, New York, NY 10011, Attorneys for Joseph Tedeschi.
DECISION
This adversary proceeding was commenced by the chapter 7 trustee, Paul I. Krohn (the “Trustee”), to recover a one-half interest in cooperative apartments 2L, 2U, and 4M located at 44–14 Newtown Road, Astoria, N.Y. (the “Apartments”) from Robert Burton. The Court previously granted the Trustee's motion for summary judgment in this proceeding, declaring that the estate holds a 50% ownership interest in the Apartments, directing Burton to turn over the Apartments to the Trustee pursuant to 11 U.S.C. § 542,1 and directing Burton to provide an accounting of all the rents and proceeds he received on account of the Apartments (the “Summary Judgment Decision”). In re Swift, 496 B.R. 89 (Bankr.E.D.N.Y.2013). Burton, a real estate investor and former attorney, now seeks to amend his answer to include third-party claims against Joseph Tedeschi, who holds the remaining 50% ownership interest in the Apartments. However, the Court lacks subject matter jurisdiction over the proposed third-party claims because they have no conceivable effect on the bankruptcy estate. For this reason, the proposed amendment would be futile, and Burton's motion to amend is therefore denied.
This Court has jurisdiction of this adversary proceeding pursuant to 28 U.S.C. § 1334(b), and the Eastern District of New York standing order of reference dated August 28, 1996, as amended by order dated December 5, 2012. This adversary proceeding is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (E). This decision constitutes the Court's findings of fact and conclusions of law to the extent required by Bankruptcy Rule 7052.
On January 12, 1994, John Swift, Jr. (“Swift”) and Linda Swift (together, the “Debtors”) filed a voluntary joint petition under chapter 7 of the Bankruptcy Code, and the Trustee was appointed as chapter 7 trustee of the Debtors' estates. The Debtors did not list any real property on Schedule A or stock in any cooperative corporation on Schedule B. They listed unsecured claims totaling $14,735,608, including $2,200 owed to “Equity Preservation Co., c/o Robert Burton, Esq., 2118 Utopia Pkw, Queens, New York 11357,” on Schedule F. (Case No. 94–10285–CEC, ECF No. 1 p. 13, Schedule F ¶ 19.)
On April 25, 1994, the Trustee commenced an adversary proceeding to deny the Debtors a discharge pursuant to § 727, alleging, among other things, that “[u]pon information and belief, Swift has a one-half interest in three (3) co-op apartments located at 44–14 Newtown Road, Astoria, New York, which purportedly is owned jointly with Joseph Tedeschi....” (Adv. Pro. No. 94–1146–MAH, ECF No. 1 ¶ 26; ECF No. 65, Ex. B ¶ 26. )2 On September 30, 1994, a default judgment was entered against the Debtors denying them a discharge pursuant to § 727(a)(3) for failing to maintain books and records.
On February 17, 2012, the Trustee commenced this adversary proceeding against Burton and Jean Bismuth, the Debtors' son-in-law, seeking a declaratory judgment that the estate is the 50% owner of the stock and Apartments, and seeking turnover of the Apartments, which were managed and controlled by Burton.
On April 2, 2012, Burton filed an answer (the “Original Answer”), in which he contended that he purchased Swift's interest in the Apartments in April or May 2004 from Bismuth, more than a decade after the Debtors commenced this bankruptcy case, for $30,000. The Original Answer contains two affirmative defenses and one counterclaim (the “First Affirmative Defense,” the “Second Affirmative Defense,” and the “Counterclaim,” respectively). The First Affirmative Defense is actually a series of affirmative defenses, including the equitable defenses of waiver, estoppel, time bar, laches, evidence spoliation, unclean hands, unjust enrichment, acquiescence, and equitable subordination. The Second Affirmative Defense is equitable estoppel. The Counterclaim asserts that Burton relied on representations made by Tedeschi and Tedeschi's attorney, Jack D'Emic, that Bismuth was the beneficial owner of Swift's 50% share of the Apartments,and seeks compensation for time and money that Burton claims he spent on renovating, renting and managing the Apartments. Although designated as a counterclaim against the Trustee, the Counterclaim, in substance, seeks to recover from Tedeschi for any liability that Burton may have to the Trustee. Burton also listed Tedeschi as a third-party defendant in the caption of the Original Answer. On April 12, 2012, the clerk of the court issued a third-party summons against Tedeschi and served it on Burton. Burton, however, never served the third-party summons on Tedeschi. (ECF Nos. 6 and 7.)
On August 9, 2012, Burton filed a motion to amend his answer (the “Motion to Amend”) to include another affirmative defense (the “Third Affirmative Defense”) and third-party claims against Tedeschi (the “Third–Party Claims”). The Third Affirmative Defense asserts a claim against the Trustee for breach of fiduciary duty, seeks equitable subordination of the Trustee's claim, a surcharge against the Trustee, and dismissal of this adversary proceeding based on detrimental reliance and estoppel. The Third–Party Claims are exactly the same as the Counterclaim in the Original Answer, except that they are designated as the “Fourth Affirmative Defense and First Third Party Cause Pf [sic] Action Against Third Party Defendant Joseph Tedeschi.”
On August 28, 2012, the Trustee filed opposition to the Motion to Amend and filed a cross-motion for summary judgment (the “Plaintiff Summary Judgment Motion”), seeking declaratory judgment that the estate is the owner of a one-half interest in the Apartments and an order directing that the Apartments be turned over to the Trustee pursuant to § 542, together with an accounting of rents and income.
On October 3, 2012, Tedeschi filed an answer to the Counterclaim in the Original Answer, in which he asserts that the Counterclaim is not actually a third-party claim and argues that the allegations against Tedeschi are irrelevant and have no bearing on the adversary proceeding.
January 22, 2013, Mr. Burton filed a motion for summary judgment seeking dismissal of this adversary proceeding based upon the defenses of waiver, estoppel, time bar, laches, unclean hands, acquiescence, and equitable subordination (the “Burton Summary Judgment Motion”). On July 12, 2013, the Court closed the record on the Burton Summary Judgment Motion and the Plaintiff Summary Judgment Motion, and on July 16, 2013, the Court took the Motion to Amend under advisement.
On August 5, 2013, the Court granted the Plaintiff Summary Judgment Motion and denied the Burton Summary Judgment Motion, declared that the estate holds a 50% ownership interest in the stock and the Apartments, directed Burton to turn over the Apartments to the Trustee pursuant to § 542, and directed Burton to provide an accounting of all the rents and proceeds he received on account of the Apartments. Swift, 496 B.R. 89. On August 19, 2013, Burton filed a motion to reconsider the Summary Judgment Decision, and on January 9, 2014, the Court denied his motion to reconsider. Burton appealed to the district court, and his appeal was dismissed on May 14, 2014. (ECF No. 103.)
At a hearing on May 20, 2014, Burton renewed his request to amend his answer in order to assert his claims against Mr. Tedeschi. On May 30, 2014, the Court restored the Motion to Amend to the court's calendar to address the Third–Party Claims. (ECF No. 100.) On July 17, 2014, Burton filed a declaration in further support of the Motion to Amend. (ECF No. 111.)
Fed.R.Civ.P. 15(a), made applicable by Fed. R. Bankr.P. 7015, governs motions to amend pleadings, and provides that leave to amend “shall be freely given when justice so requires.” Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962). “[T]he decision to grant or deny a motion to amend rests within the sound discretion of the district court.” Henriquez v. Kelco Landscaping Inc., 299 F.R.D. 376, 378 (E.D.N.Y.2014).
“To determine whether leave to amend should be granted, it is appropriate to take into account the nature of the amendment requested.” Freidus v. Barclays Bank PLC, 734 F.3d 132, 140 (2d Cir.2013). For example, “[l]eave to amend may properly be denied if the amendment would be ‘futile.’ ” Grullon v. City of New Haven, 720 F.3d 133, 140 (2d Cir.2013) (quoting Foman, 371 U.S. at 182, 83 S.Ct. 227 ) (alteration omitted). The issue of futility of a proposed amendment may arise in a number of contexts, including, as pertinent here, when the court lacks subject matter jurisdiction over the proposed amended claim. See U.S. Underwriters Ins. Co. v. Ziering, No. 06–CV–1130, 2010 WL 3419666, at *2 (E.D.N.Y. Aug. 27, 2010) (); Ricciardi v. Kone, Inc., 215 F.R.D. 455, 456 (E.D.N.Y.2003) ().
The district courts have original and exclusive jurisdiction over all cases under the Bankruptcy Code, and original, but not exclusive, jurisdiction of civil...
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