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In re Smith

February 12, 2009


The opinion of the court was delivered by: Seybert, District Judge

E.D. Bankr. Case No. 896-80189-478



Presently pending before the Court is an Order to Show Cause, which was filed on February 9, 2009 by a former debtor, Richard A. Smith (the "Debtor"), his wife, Nelsi A. Smith ("Nelsi"), and his sister, Carole Ann Caruso ("Carole") (collectively referred to as the "Movants"). In essence, despite their claims to the contrary, the Movants seek an expedited reversal of the January 26, 2009 Order of Bankruptcy Judge Dorothy Eisenberg ("January 26 Order") denying their motion to reopen the previously closed bankruptcy case. For the following reasons, Movants' Emergency Motion is DENIED.


On January 12, 1996 the Debtor filed a petition for relief under Chapter 13 of the Bankruptcy Code (the "Code"). After approximately ten years, the bankruptcy case came to a close: On February 7, 2007 the Trustee filed a no-asset report, and the case was closed on February 13, 2007. The Final Decree was signed that same day, and the Chapter 7 Trustee, Kenneth P. Silverman, Esq. ("Trustee"), was discharged. Nearly a year and a half later, on July 2, 2008, the Movants filed a motion to reopen the Debtor's Chapter 7 case in order to commence an adversary proceeding against the discharged Trustee's Counsel for malpractice due to the Trustee's alleged failure to take action on certain causes of actions held by the Debtor's estate. On July 10, 2008, Judge Eisenberg denied that motion due to the failure of the Movants to establish privity with the Chapter 7 Trustee's counsel; Movants did not appeal that decision. Subsequently, the Movants sought to reopen the Chapter 7 case in order to proceed with an adversary proceeding for malpractice against the former Chapter 7 Trustee, both personally and on his bond, due to alleged breaches of his fiduciary duty and negligence in the performance of his duties.*fn2

In response, the Trustee argued that the New York statute of limitations bars the Movants' suit. The Trustee's position is that the statute of limitations on the underlying claims against Meadow ended in December 2000, and therefore the proposed breach of fiduciary duty and negligence claims against him had run as of December 2003.

In the January 26 Order, Judge Eisenberg held that, under the circumstances, reopening the case would be inappropriate: the [Movants' proposed] complaint could not withstand a motion to dismiss[,] and there cannot be any relief afforded to the Movants or this Debtor's estate. The only reason offered by the Movants to reopen this case at this time is to examine into the acts of the Trustee in order to fish for evidence to support the Movants' unproven allegations of wrongdoing in spite of all statutes having run. Such a fishing expedition was available to Movants for over 10 years. To allow this case to be reopened on this basis would be a waste of the parties' and the Court's time and resources. Thus, the Court, in exercising its rightful discretion, denies the Movants' motion to reopen the Debtor's bankruptcy case. (January 26 Order at 19).

Nevertheless, Movants maintain that Judge Eisenberg made several errors in her analysis. According to the Movants, the statute of limitations applicable to Movants' claims against the trustee's bonds will expire on Friday, February 13, 2009, but Judge Eisenberg overlooked that argument because "the Former Trustee and his counsel regularly appear before Judge Eisenberg, [and thus] it is clear . . . that that Court will always be reluctant to grant Movants any relief with respect to the Proposed Action." (Movs.' Emergency Mot. 8-9). On their current motion, Movants will not be granted relief from this Court either.


In deciding whether to grant a stay pending appeal pursuant to Bankruptcy Rule 8005, a district court must consider the following factors: (1) whether the movant will suffer irreparable injury absent a stay, (2) whether a party will suffer substantial injury if a stay is issued, (3) whether the movant has demonstrated 'a substantial possibility, although less than a likelihood, of success' on appeal, and (4) the public interests that may be affected." In re Albicocco, No. 06-CV-3409, 2006 U.S. Dist. LEXIS 65359, at *2-3 (E.D.N.Y. Sept. 13, 2006) (quoting Hirschfeld v. Bd. of Elections in the City of N.Y., 984 F.2d 35, 39 (2d Cir. 1993) (quoting Dubose v. Pierce, 761 F.2d 913, 920 (2d Cir. 1985)). The Second Circuit has yet to expressly rule on whether these factors should be considered on balance or whether all four elements must be satisfied, and courts in this Circuit have ruled both ways. See In re Adelphia Commuc'n Corp., 361 B.R. 337, 347 (S.D.N.Y. 2007) (noting the rift among the district courts but using the balancing of factors standard); In re Albicocco, 2006 U.S. Dist. 65359, at *3-4 n.2 (collecting cases but not deciding because even under the more generous balancing standard the stay would be denied). It is clear, however, that the movant bears the burden of proving that a stay should be granted, In re Albicocco, 2006 U.S. Dist. 65359, at *3, and stays pending an appeal are only granted in limited circumstances, In re Aston Baker, No. 05-CV-3487, 2005 U.S. Dist. LEXIS 36969, at *10-11 (E.D.N.Y. Aug. 31, 2005). The situation now before the Court is not one of those limited circumstances.

Currently, Movants cannot file a new complaint against the trustee. In essence, Movants are asking this Court to allow them to file a new complaint, but in order to do this, the Movants do not need anything stayed pursuant to Bankruptcy Rule 8005. In reality, Movants need this Court to "hurry up" and reverse Judge Eisenberg's January 26 Order. Requesting such relief, however, is truly inappropriate here, where Movants have had years, not days, to seek the relief they are requesting. The Court will address Movants arguments when they are brought properly to this Court, on appeal; upon its initial review of Judge Eisenberg's January 26 Order, the Court notes that reversal is unlikely on appeal.


For the foregoing reasons, Movants' Emergency ...

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