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Penberthy v. Chickering

United States District Court, S.D. New York

January 13, 2017

BEVERLY PENBERTHY, Plaintiff,
v.
DONN A. CHICKERING, Defendant.

          OPINION & ORDER

          PAUL A. ENGELMAYER, District Judge

         Defendant Donn A. Chickering ("Chickering") moves under Federal Rule of Civil Procedure 12(c) for judgment on the pleadings and for dismissal of the claims brought by his ex-wife, plaintiff Beverly Penberthy ("Penberthy"). Penberthy seeks a declaratory judgment that various debts owed to her by Chickering under a 1994 settlement agreement were not discharged by his intervening (2001-2004) bankruptcy proceeding. She also seeks injunctive relief requiring Chickering to buy and maintain life insurance in her favor, and seeks money damages in the amount of $958, 666.63, reflecting the sum allegedly still owed to her under the settlement agreement. Chickering counters that Penberthy's claims must be dismissed because Penberthy, a creditor in the bankruptcy proceeding, agreed to the discharge, and because the bankruptcy court confirmed the discharge, such that her claims here are barred by the doctrines of issue preclusion and judicial estoppel.

         For the following reasons, the Court grants Chickering's motion for judgment on the pleadings.

         I. Background and Procedural History[1]

         A. The Parties' Settlement Agreement

         Penberthy and Chickering were once married to each other. Dkt. 1 ("Compl."), at 11. On February 2, 1994, in connection with their pending divorce action in the Supreme Court of New York for the County of New York, Penberthy and Chickering executed a Stipulation of Settlement (the "Settlement Agreement"). Id. at 12-13. The Settlement Agreement provided that (1) Chickering would immediately pay a "distributive award" to Penberthy in the amount of $1 million, (2) Penberthy would be awarded sole ownership of the marital residence in Rye, New York, plus two vehicles, (3) Chickering would maintain health insurance in favor of Penberthy for three years, and pay for any uninsured medical dental, or psychiatric expenses that Penberthy incurred during that time, unless Penberthy received free insurance from her employer, and (4) Chickering would pay Penberthy "as and for her support and maintenance, "[2] $83, 333.33 per month for a term of six years, totaling $6 million. See Dkt. 15, Ex. 1 ("Settlement Agreement") ¶¶ 6, 23, 25, 35-36.[3]

         On July 25, 1994, Penberthy and Chickering were adjudged divorced. Compl. ¶ 25. The Settlement Agreement was incorporated into the Judgment of Divorce. Dkt. 15, Ex. 3 ("Judgement of Divorce").

         B. Chickering's Bankruptcy Proceeding

         On October 25, 2001, Chickering filed for Chapter 7 bankruptcy in the United States Bankruptcy Court for the Central District of California (the "Bankruptcy Court"). Compl. ¶ 34. In that proceeding, Chickering listed Penberthy as the holder of an undisputed non-priority unsecured claim, totaling $ 1 million, which Chickering represented was due to a "dissolution settlement (1994)." Dkt. 15, Ex. 5, at 3.

         On June 25, 2002, Penberthy filed a Proof of Claim in Chickering's bankruptcy case for $1, 297, 716.33. Of this, she claimed that $1, 047, 716.33 was entitled to priority status, under 11 U.S.C. § 507(a)(7). Dkt. 15, Ex. 6 ("Proof of Claim") at 1. Of the $1, 047, 716.33 that her Proof of Claim asserted was entitled to priority status, Penberthy asserted that $916, 666.63 was due to her under the Settlement Agreement. Proof of Claim at 2.

         Chickering, however, disputed Penberthy's characterization of her claim as for priority debt. And when he converted his Chapter 7 bankruptcy proceeding into a Chapter 11 proceeding, he filed a proposed plan of reorganization that again classified Penberthy's claim as a non-priority, general unsecured claim.

         Significant here, on February 18, 2004, Chickering filed a second amended disclosure statement (the "Disclosure Statement"), which described his second amended plan of reorganization. It specifically addressed the treatment of priority unsecured claims under the plan, citing the Bankruptcy Code's requirement that any claims entitled to priority under 11 U.S.C. §§ 507(a)(3)-(a)(7), [4] be placed in separate classes within the plan. Dkt. 15, Ex. 7a ("Disclosure Statement"), at 22-33. The Disclosure Statement explained that the holders of such claims were entitled to priority treatment under the plan, and that they would then have the option either to accept or reject the plan. Id. The Disclosure Statement stated, however, that Chickering was "not aware of any claims that would qualify as Sections 507(a)(3), (a)(4), (a)(5), (a)(6), and (a)(7) priority unsecured claims under the Plan." Id. at 33. Consistent with that statement, the Disclosure Statement did not classify any claims in a priority class. Id. at 29-33. With regard to the treatment of general, non-priority, unsecured claims, the Disclosure Statement stated that such claims were "not entitled to priority under Bankruptcy Code Section 507(a)." Id.

         As to Chickering's debts to Penberthy, the Disclosure Statement specifically classified these as "Class 4" general unsecured claims, which included them along with "[a]ll general unsecured claims ... but excluding claim of Woodland Trucking [Company]."[5] Id. at 33-37. In Exhibit E to the Disclosure Statement, Chickering again listed Penberthy as a "Class 4" unsecured creditor. Dkt. 15, Ex. 7b, at 107.

         The Disclosure Statement explained that confirmation of the proposed plan (i.e. the second amended plan) would discharge Chickering "to the fullest extent permitted by the Bankruptcy Code, " from any debts and obligations incurred prior to the confirmation of that plan. Disclosure Statement at 63-64. It further stated that any creditors would be enjoined from bringing any legal action based on the discharged claims following the plan's confirmation. Id. at 64.

         The Disclosure Statement was served on Penberthy and her counsel, who at the time was chairman of the bankruptcy practice group at the law firm then known as Dewey Ballentine LLC, Notwithstanding Penberthy's earlier designation of her debts as priority debts in her Proof of Claim, neither Penberthy nor her counsel objected to any aspect of the Disclosure Statement.

         On April 16, 2004, the Bankruptcy Court approved the Disclosure Statement, as well as Chickering's proposed ballot form that creditors were supposed to use to vote on the plan proposed in the Disclosure Statement. Dkt. 15, Ex. 8. The court-approved ballot forms explicitly listed which class each creditor was in, and asked each creditor to vote to accept or reject the plan. Dkt. 15, Ex. 10.

         On April 20, 2004, Chickering filed his Second Amended Chapter 11 Plan of Reorganization, Dkt. 15, Ex. 9 (the "Confirmed Plan, " or the "Plan"). Mirroring the Disclosure Statement, the Plan stated that Chickering was "not aware of any claims that would qualify as Sections 507(a)(3), (a)(4), (a)(5), (a)(6), and (a)(7) priority unsecured claims under the Plan, " and did not classify any claims in a priority class. Id. at 11. Also like the Disclosure Statement, the Plan defined general unsecured claims as "unsecured claims not entitled to priority under Bankruptcy Code Section 507(a), " and it listed Chickering's debt to Penberthy as a general unsecured claim. Id. at 11-15. The Plan provided for general unsecured claims to be paid, pro rata, from receipts based on sales of coal by West Virginia Mid Vol, Inc., a non-debtor affiliate of Chickering's that operates a coal mine. Dkt. 15, Ex. 7a, at 33-34.

         On May 5, 2004, Penberthy cast her ballot in favor of the Plan. Dkt. 15, Ex. 10. Penberthy's ballot stated that "The undersigned, a Class 4 (General Unsecured Claims) holder under the Plan hereby: ACCEPTS the Plan." Id. at 4. Penberthy once again did not in any way object to the Plan's classification her as an unsecured general creditor.

         On June 8, 2004, the Bankruptcy Court issued an order confirming the Plan, Dkt. 15, Ex. 12, and finding that the Plan satisfied "[e]ach and every requirement of Section 1129(a) of the Bankruptcy Code necessary for confirmation, " Dkt. 15, Ex. 11. Neither Penberthy nor any other ...


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