Burton v. Krohn (In re Swift), Case No. 94-10285-CEC

In re JOHN SWIFT, JR a/k/a John B. Swift And LINDA SWIFT a/k/a Linda S. Swift Debtor.

ROBERT BURTON, Plaintiff v. PAUL KROHN, in his official capacity as Chapter 7 Trustee, PAUL KROHN,in his personal capacity, KEVIN NASH, Esq., and GOLDBERG, WELPRIN,FINKEL & GOLDSTEIN, LLP Defendants.

Case No. 94-10285-CEC

Adv. Pro. No. 14-01045-CEC

UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF NEW YORK

January 27, 2016

Chapter 7

DECISION

Appearances:

Robert Burton

345 East 93rd Street

New York, NY 10128

Pro Se Plaintiff

J. Ted Donovan, Esq.

Goldberg, Weprin, Finkel & Goldstein, LLP

1501 Broadway

22nd Floor

New York, NY 10036

Attorney for Defendants

CARLA E. CRAIG Chief United States Bankruptcy Judge This matter comes before the Court on motion for judgment on the pleadings by defendants, Paul I. Krohn in his capacity as Chapter 7 Trustee, Paul I. Krohn in his personal capacity, Kevin Nash, Esq., and Goldberg, Weprin, Finkel & Goldstein, LLP (collectively "Defendants"), seeking to dismiss the complaint filed by Robert Burton ("Burton" or "Plaintiff") pursuant to Fed. R. Civ. P. 12(c), made applicable to this adversary proceeding by Rule 7012(b).¹ In addition, Defendants seek judgment on their counterclaim for sanctions pursuant to 28 U.S.C. § 1927.

Because Burton has failed to state a cause of action for intentional infliction of emotional distress or to allege grounds adequate to support the relief he seeks under Rule 9011, § 107, or New York Judiciary Law § 487, the complaint is dismissed. Because sanctions under 28 U.S.C. § 1927 are not available against non-attorney pro se litigants, and because the record does not establish bad faith warranting sanctions under the Court's inherent power, Defendants' motion for sanctions is denied, and Defendants' counterclaim is dismissed.

Background

On February 17, 2012, Paul I. Krohn ("Trustee"), as Chapter 7 Trustee in In re Swift (Case No. 94-10285-CEC), commenced an adversary proceeding against Robert Burton and Jean Bismuth (the "Declaratory Judgment Action"). (Compl., Adv. Pro. No. 12-01044, ECF Doc. No. 1.)² The Trustee's attorney in the Declaratory Judgment Action was Goldberg, Weprin, Finkel & Goldstein, LLP. (Compl., Adv. Pro. No. 12-01044, ECF Doc. No. 1.) In that proceeding, the Trustee sought, among other things, a declaratory judgment that a 50% interest in 3 cooperative apartments, units 2L, 2U, and 4M, located at 44-14 Newtown Road, Astoria, NY ("Apartments"),which Burton claimed to own, were in fact owned by John Swift, Jr., a debtor in the bankruptcy case ("Swift" or "Debtor"), and therefore were property of the bankruptcy estate. (Compl., ¶¶ 27-30, Adv. Pro. No. 12-01044, ECF Doc. No. 1.)

In the complaint in the Declaratory Judgment Action, the Trustee alleged that the apartments were "...long hidden assets...[u]ndisclosed throughout the many years of this case," which he first learned of from George Banat, a creditor of the Debtor, who contacted the Trustee in 2011, on the eve of the final meeting of creditors, after receiving the Trustee's proposed final report, "request[ing] information concerning the disposition of the Apartments." (Compl., ¶¶ 1, 15, 16, Adv. Pro. No. 12-01044, ECF Doc. No.1.) However, in papers later filed in connection with the parties' motions for summary judgment, the Trustee acknowledged that, in a complaint filed in 1994, objecting to the Debtor's discharge, he alleged that the Debtor owned interests in the Apartments which they had failed to disclose. (Suppl. Decl. in Opp'n to Def's. Mot. for Summ. J., ¶¶8-9, Adv. Pro. No. 12-01044, ECF Doc. No. 65.) He explained that until he re-read the complaint objecting to discharge (which, because it was filed in 1994, was not on the Court's electronic docket, but in archives) he did not remember the Apartments or the allegations he had made concerning them. (Suppl. Decl. in Opp'n to Def's. Mot. for Summ. J., ¶¶8-9, Adv. Pro. No. 12-01044, ECF Doc. No. 65.) In the decision granting the Trustee's motion for summary judgment in the Declaratory Judgment Action, it was noted that the Trustee did not explain why he failed to pursue the Debtor's interest in the Apartments in 1994. In re Swift, 496 B.R. 89, 100 (Bankr, E.D.N.Y. 2013) (Decision, p.12-13, Adv. Pro. No. 12-01044-CEC, ECF Doc. No. 76.) Despite the Trustee's delay in pursuing these assets, Burton's argument that the Trustee's claim to the Apartments was barred by laches was rejected, based on a balancing of the equities. In re Swift at 99-102 (Decision, p.12-13, Adv. Pro. No. 12-01044-CEC, ECF Doc. No. 76.)

Accordingly, on August 6, 2013, a decision and an order were entered in the Declaratory Judgment Action granting the Trustee's motion for summary judgment on the claims against Burton and declaring that the 50% ownership interest in the Apartments held by Burton is property of the bankruptcy estate. In re Swift, 496 B.R. 89 (Bankr, E.D.N.Y. 2013) (Decision, Adv. Pro. No. 12-01044-CEC, ECF Doc. No. 76; Order, Adv. Pro. No. 12-01044-CEC, ECF Doc. No. 75.) Burton was ordered to turn over the Apartments to the Trustee pursuant to § 542, and to account for monies received on account of his purported ownership interest in the Apartments throughout the period he had possession. In re Swift 496 B.R. at 106 (Decision, p.23, Adv. Pro. No. 12-01044-CEC, ECF Doc. No. 76.)

On March 24, 2014, Burton commenced this adversary proceeding against Defendants. (Compl., Adv. Pro. No. 14-01045-CEC, ECF Doc. No. 1.) The complaint alleges that certain unidentified statements made by Defendants in papers filed in the Declaratory Judgment Action were defamatory, constituted intentional infliction of emotional distress, warrant sanctions in the form of attorneys' fees under Rule 9011, violated New York Judiciary Law § 487, and should be expunged from the record, presumably pursuant to § 107. (Compl., ¶¶ 23, 26, Adv. Pro. No. 14-01045-CEC, ECF Doc. No.1.) Burton bases his claims on statements made by Paul Krohn in the Declaratory Judgment Action, allegedly accusing Burton:

A. of intentionally concealing the 44-14 [Apartments] Claim from plaintiff [Trustee] with the specific intent of criminally defrauding the Swift bankruptcy estate of its value

B. of having acted in concert with Debtor John Swift to fraudulently conceal that Claim from plaintiff [Trustee] with the specific intent of depriving the Swift bankruptcy estate of its benefit

(Compl., ¶ 11, Adv. Pro. No. 14-01045-CEC, ECF Doc. No. 1.) Burton further alleges that:

Defendants filed with [sic] false allegations about plaintiff with actual knowledge that such allegations would cause plaintiff intense emotional distress - as they did. Defendants published theirfalse allegations about plaintiff with the additional specific intents of :

A. making defense of #12-[0]1044 more difficult

B. wrongfully biasing the Court vs. plaintiff

C. extorting money from plaintiff to settle 12-[0]1044

(Compl., ¶¶ 21-22, Adv. Pro. No. 14-01045-CEC, ECF Doc. No. 1.)

On June 19, 2014, Defendants filed an answer in which they denied Burton's allegations and asserted affirmative defenses. (Answer, ¶¶1-8, Adv. Pro. No. 14-01045-CEC, ECF Doc. No. 15.) Defendants contend that all statements made in connection with the Declaratory Judgment Action are privileged as statements made in the course of litigation; that because the Trustee's knowledge of the existence of the Apartments in 1994 was disclosed to the Court and found to be "immaterial and of no detriment to the Plaintiff in the Declaratory Judgment Action, the doctrines of law of the case, res judicata, and collateral estoppel prevent Burton from re-litigating this issue; and that as a pro se litigant legal fees under Rule 9011 are unavailable to Burton as a matter of law. (Answer, ¶¶ 5-8, Adv. Pro. No. 14-01045-CEC, ECF Doc. No. 15.) Defendants also filed a counterclaim in which they allege that Burton's complaint was filed with "full knowledge of the lack of merit of the allegations contained therein, for the sole purpose of harassment," and as a "strategy to try to manufacture bogus claims," so that he would have something to bargain with in attempting to reduce the amount he will have to disgorge from monies received as a consequence of his purported ownership of the Apartments. (Answer, ¶11, Adv. Pro. No. 14-01045-CEC, ECF Doc. No. 15.) Defendants seek sanctions for costs, expenses, and attorneys' fees pursuant to 28 U.S.C. § 1927 for "knowingly, vexatiously and unreasonably increas[ing] the litigation before this Court." (Answer, ¶¶ 12-13, Adv. Pro. No. 14-01045-CEC, ECF Doc. No. 15.)

On July, 17, 2014, Burton filed a reply to Defendants' counterclaim contesting Defendants' legal analysis and asserting that Defendants' answer contained knowing false denials of allegations made in Burton's complaint. (Reply, ¶1, Adv. Pro. No. 14-01045-CEC, ECF Doc. No. 17.)

On April 20, 2015, pursuant to Fed. R. Civ. P. 12(c), Defendants moved for judgment on the pleadings, seeking dismissal of all of Burton's claims, and seeking judgment on their counterclaim and an award of sanctions. (Mot. for J. on the Pleadings, ¶¶ 1-4, Adv. Pro. No. 14-01045-CEC, ECF Doc. No. 28.)

On June, 26, 2015 Burton withdrew his defamation claim, acknowledging that it is unsupported by controlling law. (Reply Decl., ¶¶ 1-9, Adv. Pro. No. 14-01045-CEC, ECF Doc. No. 36.)

Jurisdiction

This Court has jurisdiction over this core proceeding pursuant to 28 U.S.C. §1334(b), the Eastern District of New York standing order of reference dated August 28, 1996, as amended by order dated December 5, 2012, and 28 U.S.C. §157(b)(1).

Legal Standard

In evaluating a motion for judgment on the pleadings under Fed. R. Civ. P. 12(c), the Court applies the same standard as for a motion to dismiss under Fed. R. Civ. P. 12(b)(6). Geron v. Seyfarth Shaw LLP (In re Thelen LLP), 736 F.3d 213, 218 (2d Cir. 2013); Johnson v. Rowley, 569 F.3d 40, 43 (2d Cir. 2009).

To overcome a motion to dismiss under Fed. R. Civ. P. 12(b)(6), a complaint must set forth "enough facts...