United States District Court, E.D. New York
ROBERT L. PRYOR, ESQ., AS TRUSTEE OF THE BANKRUPTCY ESTATE OF GIUSEPPE L. TROMBA, Plaintiff,
GIUSEPPE L. TROMBA; ELLEN M. TROMBA; JJ TROMBA CORP.; ABC CORP., BEING A FICTITIOUS NAME; AND EASTERN SAVINGS BANK, FSB, Defendants.
The Trustee is represented by Anthony F. Giuliano of Pryor & Mandelup, L.L.P., Westbury, NY.
ESB is represented by Mickee M. Hennessy and Thomas A. Draghi of Westerman Ball Ederer Miller & Sharfstein, LLP, Uniondale, NY.
Defendant proceeds pro se.
MEMORANDUM AND ORDER
JOSEPH F. BIANCO, District Judge.
Pro se defendant Ellen Tromba ("defendant" or "E. Tromba") moves the Court to withdraw the reference to the U.S. Bankruptcy Court for the Eastern District of New York ("the Bankruptcy Court") in Pryor v. Tromba et al., 11-AP-9464 (REG), an adversary proceeding against her in the Bankruptcy Court, pursuant to 28 U.S.C. § 157(d), Rule 5011 of the Federal Rules of Bankruptcy Procedure, and Rule 5011-1 of the Local Bankruptcy Rules for the Eastern District of New York. Defendant argues that she should not be subject to the Bankruptcy Court's jurisdiction because (1) she is a non-debtor defendant and there is no subject matter jurisdiction over the claims against her; and (2) the requirements for permissive withdrawal of the reference are satisfied. Robert Pryor, the Trustee of Giuseppe L. Tromba's ("the Debtor" or "G. Tromba") Chapter 7 Bankruptcy Estate ("the Trustee" or "Pryor"), opposes. Eastern Savings Bank, FSB ("ESB"), a defendant and cross-claimant in the underlying bankruptcy proceedings, joins in the Trustee's opposition. For the following reasons, the Court denies the motion to withdraw the reference at this juncture. Thus, the denial is without prejudice to a future motion, if the circumstances warrant.
On April 27, 2011, G. Tromba filed a voluntary petition for relief from his creditors pursuant to Chapter 7 of the United States Bankruptcy Code, 11 U.S.C. § 101 et seq. (Trustee Opp. Mem. ¶ 4.) Pryor was qualified as the permanent trustee at the meeting of creditors on June 8, 2011. ( Id. ¶ 5.) At that meeting, the Debtor testified and it was revealed that, from 2003-2006, he was the owner in fee simple of 3 Sycamore Street in Miller Place, New York ("the Premises"). ( Id. ¶ 6.) By deed dated November 20, 2006, and recorded in the Suffolk County Clerk's Office on December 20, 2006 ("the Deed"), the Debtor purportedly conveyed his interest in the Premises to himself and defendant as husband and wife. (Id.) According to the Deed, the sum of "ten dollars and other valuable consideration" was paid in consideration of the premises transfer. (Id.; accord ESB Joinder Mem. ¶ 3.) Records and testimony also indicated that the Debtor obtained a mortgage from ESB on or about August 8, 2006, in the principal amount of $702, 000. (Trustee Opp. Mem. ¶ 7; accord ESB Joinder Mem. ¶ 2.) That mortgage was recorded on May 20, 2008. (Adversary Complaint ¶ 15, Trustee Opp. Mem. Ex. A.) G. Tromba also transferred $53, 000 to defendant on October 15, 2010, before the bankruptcy filing. (Trustee Opp. Mem. ¶ 8.) That transfer is listed on Question 7 of the Debtor's Statement of Financial Affairs, which concerns the transfer of gifts or other charitable contributions made within one year immediately preceding the commencement of the bankruptcy case. ( Id. )
G. Tromba defaulted on the mortgage on October 1, 2007, and has made no payments since then. (ESB Joinder Mem. ¶ 4.) ESB commenced a foreclosure action against the Trombas in state court in June 2008. ( Id. ) In February 2010, ESB moved for a judgment of foreclosure and sale. ( Id. ¶ 5.) On or about September 20, 2010, the state court signed a judgment of foreclosure and sale that provided that ESB was owed $946, 079.97 plus interest, and could proceed to sell the Premises in satisfaction of the amount due. ( Id. ¶ 6.) Two days before the foreclosure sale, the Debtor filed for bankruptcy. ( Id. ¶ 8.)
On October 27, 2011, the Trustee filed an adversary proceeding in Bankruptcy Court alleging, inter alia, several counts of fraudulent conveyance and one count to avoid the preference (cash) transfer. The Trustee is seeking to avoid the transfers of the Premises and the cash to defendant, to recover the value thereof, and to deny the Debtor a discharge for making the cash transfer with intent to hinder, defraud, or delay creditors within one year of the bankruptcy filing. (Trustee Opp. Mem. ¶ 9.) The Debtor answered and asserted various affirmative defenses on January 20, 2012. ( Id. ¶ 10.) After defendant failed to answer, the Trustee moved for default judgment against her on March 15, 2012. ( Id. ¶ 11.) That motion remains pending. ( Id. )
On April 3, 2012, E. Tromba filed a late answer and asserted affirmative defenses. ( Id. ¶ 12; see Answer, Trustee Opp. Mem. Ex. B.) Defendant requested the withdrawal of the adversary proceeding and a trial by jury; alleged that the Debtor was solvent on November 20, 2006, and not rendered insolvent by the transfer of part of his interest in the Premises to his wife; claimed that the Debtor received fair consideration in exchange for the cash transfer; and claimed that the Trustee's claims are barred by § 550 of the Bankruptcy Code. ( See Answer, at 12-13.) ESB answered on May 15, 2012, asserting affirmative defenses and cross-claims against the Trombas. (ESB Joinder Mem. ¶ 10.) Its fourth cross-claim seeks a declaratory judgment that the interests in the Premises purportedly conveyed by the Deed are subject to the prior and senior ESB mortgage. ( Id. ¶ 11.) Neither of the Trombas moved, answered, or responded to the cross-claims. ( Id. ¶ 12.)
On April 16, 2013, the Trustee filed a motion for summary judgment against the Trombas with respect to the transfers. (Trustee Opp. Mem. ¶ 13.) ESB also moved for summary judgment. ( Id. ) On April 30, 2013, the day before a hearing on the motions, defendant filed a Chapter 13 bankruptcy petition. ( Id. ¶ 14.) That case was dismissed for, among other things, defendant's failure to provide certain documents and other mandatory disclosures and to make certain payments to the Chapter 13 Trustee. ( Id. ) On August 23, 2013, one day before the next hearing on the summary judgment motions, defendant filed a second Chapter 13 case. ( Id. ) A settlement stipulation between ESB and the Trustee was approved on July 31, 2013, and supplemented and approved by the Bankruptcy Court in October 2013. (ESB Joinder Mem. ¶ 16.) Defendant withdrew her appeal of the stipulation on August 15, 2013. (Trustee Opp. Mem. ¶ 16.)
II. STANDARD OF REVIEW
District courts have original jurisdiction over civil proceedings "arising under" or "related to" bankruptcy cases brought pursuant to Title 11 of the United States Code, 28 U.S.C. § 1334. Pursuant to 28 U.S.C. §157(a), each district court may refer "any or all" bankruptcy proceedings "to the bankruptcy judges for the district." The Eastern District of New York has a standing order that provides for automatic reference of bankruptcy cases to the Bankruptcy Court ("1986 Standing Order"). Eastern District Administrative Order 264 (1986); see In re Global Aviation Holdings Inc., 496 B.R. 284, 286 (E.D.N.Y. 2013). The district court, however, retains the authority to withdraw the reference in two circumstances. See 28 U.S.C. § 157(d).
First, § 157(d) provides for mandatory withdrawal "if the court determines that resolution of the proceeding requires consideration of both title 11 and other laws of the United States regulating organizations or activities affecting interstate commerce." 28 U.S.C. § 157(d); see In re Global Aviation Holdings, 496 B.R. at 286. The Second Circuit... construes this provision narrowly, requiring withdrawal of the reference only if substantial and material consideration of non-Bankruptcy Code federal [law] is necessary for the resolution of the proceeding.' 496 B.R. at 286 (quoting In re Extended Stay, Inc., 466 B.R. 188, 196 (S.D.N.Y. 2011)). "Substantial and material consideration" means "significant interpretation, as opposed to simply application, of federal laws apart from the bankruptcy statutes." City of New ...