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In re E.D.

March 30, 2009

IN RE E.D.
RICHARD A. SMITH, DEBTOR.



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

Bankr. Case No. 896-80189-478

MEMORANDUM & ORDER

Pending before the Court is the appeal of Appellants, Richard A. Smith, the Debtor in the closed, underlying Chapter 7 case, and others (collectively, "Debtor") of the May 13, 2009 Order of Bankruptcy Judge Dorothy Eisenberg ("May 2009 Order"). The Order granted Liberty Mutual Insurance Company's ("Liberty") motion and (1) rejected Appellants' complaint against Liberty, other sureties, and the Trustee, Kenneth P. Silverman ("Trustee"), (2) removed the Complaint and its assigned Adversary Case Number 8-08-08295 from the Bankruptcy Court's Docket, and (3) declared the Complaint to be a nullity. For the reasons that follow, Judge Eisenberg's Order is AFFIRMED.

BACKGROUND*fn1

On January 12, 1996, Debtor filed a petition seeking relief under Chapter 13 of the Bankruptcy Code. On July 11, 1996, the petition was converted to a Chapter 11 reorganization. On April 24, 1997, it was converted to a Chapter 7 liquidation. Kenneth P. Silverman, Esq. ("Silverman") was appointed the estate's Trustee on April 29, 1997. Silverman acted as the Chapter 7 Trustee until the final decree was issued on February 13, 2007.

In July 2008, Debtor filed a motion to reopen the case ("First Motion to Reopen"). In that attempt, Debtor sought to initiate an adversary proceeding against the Trustee's counsel for malpractice. Judge Eisenberg denied that motion on July 10, 2008, and held that Debtor lacked privity with the Trustee's counsel, and, therefore, could not sue counsel for malpractice. Debtor did not appeal that denial. Subsequently, on October 24, 2008, Debtor filed another motion to reopen in order to commence adversary proceedings against the Trustee and his bond ("Second Motion to Reopen"). Debtor alleged that the Trustee was negligent, and breached his fiduciary duty by failing to pursue and investigate certain claims, and that the insurance companies, Liberty Mutual Insurance Company, National Union Fire Insurance Company, and the Fireman's Fund Insurance Company ("Bondholders") who issued the blanket bonds, failed to ensure the Trustee's faithful performance of his duties ("Underlying Claims"). Judge Eisenberg denied Debtor's Second Motion to Reopen on January 26, 2009, concluding that the estate would not benefit from allowing Debtor to reopen the bankruptcy case, since the proposed complaint "could not withstand a motion to dismiss." In re Smith, 400 B.R. 370, 381 (E.D.N.Y. Bankr. 2009). Furthermore, the Bankruptcy Court stated the "only reason offered by the Movants to reopen this case . . . 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 the statutes having run." Id.

On the same date that Debtor filed the Second Motion to Reopen, about 20 months after the Chapter 7 case was closed, Debtor filed a complaint purportedly commencing an adversary proceeding against the Trustee, Liberty and several other sureties ("Complaint"). The Clerk of the Bankruptcy Court assigned the Complaint a new docket number, 8-08-08295. The Complaint recites that:

[the proceeding is an] adversary proceeding under 11 U.S.C. Sections 105 and 322(d); New York law, and Federal Rules of Bankruptcy Procedure 2010, 6009 and 7001 . . . this Court has jurisdiction over this adversary proceeding under 28 U.S.C. Sections 1334(a) and (b); 28 U.S.C. Section 157 and the standing Order of the District Court in this District, referring all bankruptcy cases filed in this District and all matters arising in and under said cases, and related thereto, to the Bankruptcy Judges of this District, as this action arises in and under and/or relates to, the Chapter 7 bankruptcy cases herein (No. 896-80189-478) of the Debtor Richard A. Smith (the "Debtor") . . . [and] this adversary proceeding is a core proceeding under 28 U.S.C. [§] 157(b)(2)(A), (E) and (O).

On or about January 28, 2009, Debtor again moved the Bankruptcy Court with an emergency application to reopen the Debtor's case to prevent the statute of limitations from expiring on the claims against the Bondholders. The Bankruptcy Court denied the motion on February 5, 2009. Debtor then sought identical relief from this Court, but this Court denied Debtor's application, recognizing that the emergency application was nothing more than a demand to "hurry up" and reverse the Bankruptcy Court's January 26, 2009 order. In re Richard Smith, No. 09-CV-0508, 2009 U.S. Dist. LEXIS 10719, at *8 (E.D.N.Y. Feb. 12, 2009). On April 1, 2009 Debtor appealed the Bankruptcy Court's order denying their motion to reopen. On March 24, 2010, this Court affirmed.

On March 5, 2009, Liberty moved the Bankruptcy Court to dismiss the Complaint. In an Order dated May 13, 2009 ("May 2009 Order"), Judge Eisenberg granted Liberty's motion. The Order stated:

Whereas, the complaint to commence the adversary proceeding, numbered 08-08295-dte, was filed notwithstanding the fact that the Debtor's bankruptcy case was closed, and Rule 5005(a)(1) of the Federal Rules of Bankruptcy Procedure states that complaints "shall be filed with the clerk of the district where the case under the Code is pending," and Whereas, that the Debtor's bankruptcy case was closed and not pending at the time the Debtor, Nelsi A. Smith and Carole Ann Caruso filed their complaint against Liberty, National Union Fire Insurance Company and the Trustee on October 24, 2008, and based upon the record made at the Hearing; it is hereby ORDERED, that Liberty's Motion is granted; and it is further ORDERED, that the Complaint filed by the Debtor, Nelsi A. Smith and Carole Ann Caruso on October 24, 2008, is a nullity having been filed in a closed case and without service and without authority of any court; and it is further ORDERED, that the Complaint is hereby stricken from the Court's docket.

Debtor now seeks to overturn the May 2009 Order.

DISCUSSION

I. Appellants' Appeal Of The May ...


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