Geltzer v. Brizinova (In re Brizinova)

554 B.R. 64

In re: Estella Brizinova and Edward Soshkin, Debtors.

Robert L. Geltzer, Chapter 7 Trustee of the Estate of Estella Brizinova and Edward Soshkin, Plaintiff

v.Estella Brizinova and Edward Soshkin, Defendants.

Case No. 12-42935-ess

Adv. Pro. No. 15-01073-ess

United States Bankruptcy Court, E.D. New York.

Signed July 20, 2016

Robert A. Wolf, Esq., Tarter Krinsky & Drogin LLP, 1350 Broadway, 11th floor, New York, NY 10018, Attorneys for Robert L. Geltzer, as Chapter 7 Trustee of the Estate of Estella Brizinova and Edward Soshkin Karamvir Dahiya, Esq., Dahiya Law Offices, LLC, 75 Maiden Lane, Suite 506, New York, NY 10038, Attorneys for Estella Brizinova and Edward Soshkin

MEMORANDUM DECISION ON AMENDED MOTION TO DISMISS ADVERSARY COMPLAINT

HONORABLE ELIZABETH S. STONG, UNITED STATES BANKRUPTCY JUDGE

Introduction

This adversary proceeding was commenced by Robert L. Geltzer, the Chapter 7 Trustee of the Estate of Estella Brizinova and Edward Soshkin, against defendants Estella Brizinova and Edward Soshkin, the Debtors in this case. The Trustee seeks to recover alleged estate property that, he asserts, the Defendants have improperly refused to turn over, in violation of Bankruptcy Code Section 542. The Trustee also seeks declaratory relief, injunctive relief, and compensatory and punitive damages pursuant to Bankruptcy Code Sections 362(a) and 362(k), based on the Defendants' alleged transfer of estate property in violation of the automatic stay. And the Trustee seeks an award of compensatory and punitive damages based on a theory of common law conversion.

The Defendants have moved to dismiss the Complaint for failure to state a claim upon which relief may be granted. The questions posed by this motion are whether the Trustee has adequately pleaded claims for turnover of property of the estate, violations of the automatic stay, and conversion of estate property. The Trustee alleges that pursuant to Section 542, the Defendants are required to turn over post-petition proceeds from ENSI Consulting, Inc. (“ENSI”), an auto supply parts company listed by the Debtors on Schedule B—Personal Property as owned one hundred percent by Ms. Brizinova. The Trustee also alleges that the estate is entitled to recover damages under Bankruptcy Code Sections 362(a) and 362(k) for violations of the automatic stay arising from the Defendants' post-petition transfer of some or all of their interest in ENSI. And the Trustee alleges that the Defendants willfully and knowingly converted estate property, damaging the estate in the amount of $250,000, and seeks an award of punitive damages in an amount to be determined by this Court.

The Defendants seek the dismissal of this action pursuant to Federal Rule of Civil Procedure 12(b)(6), made applicable here by Federal Rule of Bankruptcy Procedure 7012(b) on grounds that the Trustee has not adequately pleaded his claims, and pursuant to the common law doctrine of laches. For the reasons set forth below, the Defendants' motion is granted in part and denied in part, and leave to replead is allowed.

Jurisdiction

This Court has jurisdiction over this proceeding pursuant to 28 U.S.C. §§ 1334(b) and 157(b)(1). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(E). And as a core matter, this Court has constitutional authority to enter a final judgment, because the Trustee's claims stem “from the bankruptcy itself.” Stern v. Marshall, 564 U.S. 462, 499, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). For these reasons, this Court has jurisdiction and the authority to consider and enter judgment on these claims under 28 U.S.C. § 1334(b) and the Standing Order of Reference dated August 28, 1986, as amended by Order dated December 5, 2012, of the United States District Court for the Eastern District of New York.

Background

Procedural History

The Defendants are husband and wife who filed this joint bankruptcy petition on April 24, 2012. The Trustee was appointed on that date. On Schedule B, the Defendants indicate that as of the petition date, Ms. Brizinova held one hundred percent of the stock of ENSI, a New York corporation. According to Schedule B, the value of Ms. Brizinova's interest in the ENSI shares as of the petition date was zero. On Schedule F—Creditors Holding Unsecured Nonpriority Claims, the Defendants list a debt owed to Bank of America in the amount of $1,196.68, which arises from a business credit card they co-signed with ENSI; two joint debts owed to Chase Business in the amounts of $2,853.15, and $0.00, as co-signers on a business credit card with ENSI; a joint debt owed to PlasmaGlow in the amount of $657.01, as co-signers on a business credit card with ENSI; and a joint debt owed to Racer's Equipment Warehouse in the amount of $1,636.32, as co-signers on a business credit card with ENSI. Those same creditors are listed on Schedule H—Codebtors, where ENSI is listed as codebtor. On Schedule I—Current Income of Individual Debtor(s), the Defendants indicate that Mr. Soshkin was employed by ENSI as a bookkeeper and customer service representative, and had been so employed for the past ten years. Also on Schedule I, the Defendants indicate that Ms. Brizinova was a packer for ENSI, and had similarly held that position for ten years. On the Statement of Financial Affairs, the Defendants indicate that between 2010 and 2012, they together received income from ENSI's operations in the total amount of $19,620.

The Defendants' Statement of Financial Affairs states that on the petition date, two collection actions were pending against Mr. Soshkin and ENSI. In response to question 18 on the Statement of Financial Affairs, the Defendants state that ENSI was a business “in which the debtor was an officer, director, partner, or managing executive of a corporation, partner in a partnership, [or] sole proprietor ... within six years immediately preceding the commencement of this case, or in which the debtor owned 5 percent or more of the voting or equity securities within six years immediately preceding the commencement of this case.” Defs' Bankr.Pet. p. 37. On the “Current Monthly Income Details,” the Defendants list average monthly income for the period between October 2011 and March 2012 of $599 and $545.67, respectively. Defs' Bankr.Pet. p. 49. The Defendants also filed monthly income statements for ENSI during this bankruptcy case.

The first meeting of creditors with the Trustee, pursuant to Bankruptcy Code Section 341, was scheduled for May 24, 2012. Additional Section 341 meetings were scheduled in 2012, 2013, and 2014. On August 30, 2012, the Clerk of Court issued a Notice of Discovery of Assets, and that notice set a deadline for creditors to file claims by November 28, 2012. The Defendants received a discharge on July 24, 2012.

On October 4, 2012, the Court entered an order pursuant to Bankruptcy Rule 2004, directing the Defendants to produce certain documents “as owners of NC Consulting, Inc., as well as any other businesses in which they have an ownership interest,” for a period of six years before the petition date, and to appear for an examination by the Trustee. Order Auth. Rule 2004 Exam, at 1. On October 25, 2012, the Defendants filed a motion to vacate the Rule 2004 Order and to quash the subpoena, and the Court scheduled a hearing for November 20, 2012. That hearing was adjourned to January 22, 2013, and on that date, the parties agreed to proceed with the Rule 2004 examination.

On March 13, 2014, the Trustee commenced an adversary proceeding against Nick Soshkin and Igor Soshkin, the Defendants' sons, seeking to recover allegedly fraudulent transfers by the Defendants to their sons of certain interests in real and personal property located in Florida. The parties resolved the Trustee's claims by entering into a stipulation of settlement, which was approved by this Court on December 12, 2014. As noted above, this action followed some six months later.

The Allegations of the Complaint

On June 23, 2015, more than three years after the petition date, the Trustee commenced this adversary proceeding. The Trustee alleges that prior to the petition date, Ms. Brizinova held a one hundred percent ownership interest in ENSI which, as the Defendants testified at the Section 341 meeting, was in the business of selling auto parts over the internet. According to the Trustee, subsequent to the petition date, the Defendants continued to operate ENSI on at least two websites, autoaccessorystore.com and mimousa.com , and generated proceeds from the operation of those websites. The Trustee alleges that those sale proceeds are property of the Defendants' estate, and that despite his demands, the Defendants have not turned them over to the estate.

In his First Claim for Relief, asserted under Bankruptcy Code Section 542, the Trustee alleges that the sale proceeds are estate property that the Defendants have failed to turn over notwithstanding his demand. He seeks an order directing the Defendants to turn over the sale proceeds, in an amount to be proven at trial, which the Trustee estimates to be at least $250,000, plus interest.

In his Second Claim for Relief, asserted under Bankruptcy Code Sections 362(a) and 362(k), the Trustee alleges, upon information and belief, that despite the Defendants' knowledge that the bankruptcy estate had become the owner of their interest in ENSI, they transferred to one or more unnamed third parties some or all of their interest in ENSI, together with some or all of the sale proceeds, after the petition date. The Trustee further alleges that the Defendants took these actions willfully and “with full knowledge” that their actions violated the automatic stay. Compl. ¶ 20. The Trustee seeks a declaratory judgment that the Defendants violated the automatic stay; an order enforcing the stay and enjoining the Defendants from making further transfers of the estate's interest in ENSI; damages under Bankruptcy Code Section 362(k) in an estimated amount of $250,000, plus interest and...