In re Antonelli

In the Matter of Antonietta Antonelli d/b/a Westville Holdings, Inc Debtor

Case No. 11-20255/JHW

UNITED STATES BANKRUPTCY COURT DISTRICT OF NEW JERSEY

Dated: January 30, 2012

NOT FOR PUBLICATION

OPINION

APPEARANCES: Oren Klein, Esq.

Parker McCay, P.A.

P.O. Box 974

Marlton, New Jersey 08053 Counsel for Allan Goodman

Mark Ford, Esq.

Law Office of Mark W. Ford

P.O. Box 110

4 ½ North Broadway

Gloucester City, New Jersey 08030

Counsel for the Debtor

In this matter, Allan Goodman, Trustee of the Elisha R. Goodman Irrevocable Trust, a creditor in this bankruptcy, seeks to impose sanctions against the debtor and debtor's counsel for filing her bankruptcy case and various pleadings in connection with the case for improper purposes and in a vexatious manner. The movant relies on Federal Rule of Bankruptcy Procedure 9011, 11 U.S.C. § 105, 28 U.S.C. § 1927, and the court's inherent powers. Because the circumstances of this case represent a substantial abuse of the bankruptcy process on the part of the debtor's attorney, the debtor will not be sanctioned, but the motion is granted and sanctions will be imposed as to debtor's counsel.

FACTS

Antonietta Antonelli filed an individual Chapter 13 petition for bankruptcy on April 1, 2011. The filing occurred at about the time that eviction proceedings were scheduled to be filed in New Jersey Superior Court against the debtor and her family in an attempt to evict them from their residence at 800 Gateway Boulevard in Westville, New Jersey ("the Property"). The bankruptcy filing represented the latest effort by the debtor and her family to delay or thwart state court foreclosure proceedings brought by the mortgagee against the Property.

The movant herein, Allan Goodman, Trustee of the Elisha R. Goodman Irrevocable Trust ("Trust"), holds the three mortgages on the Westville property. The Property was originally purchased as vacant land by Orion Business Management ("Orion"), a construction company of which the debtor's husband, Gino Antonelli, was the president and sole owner. In March and April of 2006, during the construction of a building on the vacant land,¹ Mr. Antonelli borrowed a total of $250,000 from the Trust,² and executed two mortgages against the Property in favor of the Trust. The mortgages and notes were signed by Mr. Antonelli, as president of Orion, and each mortgage debt waspersonally guaranteed by both Mr. and Mrs. Antonelli. Mrs. Antonelli did not sign the mortgages.

At some point, Orion ceased its operations. Mr. Antonelli was also the sole owner of Westville Holdings, Inc. ("Westville"), and in July of 2006, he caused Orion to transfer the Property to Westville for $1.00; the deed was recorded in August 2006. (Exh. P-A, 4/13/2011). In February 2008, Mr. Antonelli, acting this time in his capacity as president of Westville, borrowed an additional $100,000 from the Trust and executed a third mortgage against the Property in favor of the Trust. Again, Mr. and Mrs. Antonelli guaranteed repayment, but Mrs. Antonelli did not sign the mortgage. An assignment of rents was included as an attachment to this 2008 mortgage.

At some point, the Antonellis moved into the Property. The mortgages on the Property went into default in April of 2008.³ In July of 2008, Mrs. Antonelli filed for Chapter 7 bankruptcy, case number 08-23644/JHW. She was represented by Mark Ford, Esquire. Neither the Trust nor Westville was listed as a creditor or otherwise mentioned in Mrs. Antonelli's schedules. In November 2008, Mr. Antonelli transferred ownership of Westville to his wife. (Exh. P-B, 5/26/2011). Mrs. Antonelli received a Chapter 7 discharge on December 19, 2008 and her case was closed on December 29, 2008.

On August 23, 2010, the Trust commenced a foreclosure proceeding against the Property in the New Jersey Superior Court, Gloucester County, Chancery Division, followed by a motion, filed in the foreclosure action on October 29, 2010, to appoint a rent receiver. On December 1, 2010, two days prior to the hearing on that motion, Mr. Antonelli filed for bankruptcy, case number 10-47276/JHW. He was also represented by Mr. Ford.

In Schedule A of Mr. Antonelli's Chapter 7 petition, he claimed a "tenancy interest" in the Property valued at $10,100.00. Schedule G, governing Executory Contracts and Unexpired Leases, indicated that the property was leased from Orion. On December 12, 2010, the Trust filed a motion in bankruptcy court for relief from the automatic stay as to the Property. By correspondence directed to the Honorable James E. Rafferty, J.S.C., the Superior Court judge before whom the foreclosure action was pending, Mr. Ford requested a stay of the foreclosure action against the Property while Mr. Antonelli's bankruptcy case was open. Appended to the correspondence was an affidavit from Mr. Antonelli in which he recited his unsuccessful attempts to date to negotiate a resolution of the defaulted mortgages with the Trust, and stated the following:

We [my wife and I] will try to make a final offer [to resolve the outstanding loan balances due to the Trust] in January of 2011. Should this fail, my wife will file a chapter 13 at the appropriate time, to see if we could resolve the outstanding issues in Federal Court.

Ex. P-14, 4/13/2011.

On January 12, 2011, this court granted the Trust relief from the automatic stay as to Mr. Antonelli to pursue the state law action against the Property.⁴ On March 18, 2011, the debtor received a Chapter 7 discharge and his case was closed on March 24, 2011.

After receiving relief from the automatic stay, the Trust continued to pursue the foreclosure action against the Antonellis in state court. On January 21, 2011, the Superior Court of New Jersey, Gloucester County, Chancery Division appointed Goodman Burlington Properties, L.L.C., of which Mr. Goodman is the manager, as the rent receiver. (Exh. P-F, 5/26/2011). Mr. Goodman then proposed a new leasing arrangement with the Antonellis which would have continued their "tenancy" if they had agreed to pay $1,600 each month plus all past due rents and a security deposit of unknown amount. (Exh. D-2, 4/13/2011). The Antonellis were informed that if they did not sign the new lease, their month-to-month lease would terminate on March 31, 2011, and an eviction action would be commenced thereafter. The proposed lease was not signed, and an eviction action was filed by the rent receiver in the Superior Court of New Jersey, Gloucester County, Law Division on April 8, 2011.

One week prior to the filing of the eviction action on April 1, 2011, Mrs. Antonelli filed this Chapter 13 bankruptcy.⁵ The petition reflected that the debtor was filing not only in her individual capacity, but also "dba Westville Holdings, Inc." She listed the Property on her Schedule A, "Real Property", as "Equitable own, 100%", with a value for her ownership interest of $0.00 and a $468,027.00 mortgage. The Trust was listed as a secured creditor on the Property with a mortgage of $468,027.00. On Mrs. Antonelli's Schedule B, "Personal Property," Westville Holdings was listed with the same address as the Property and with a value of "$0.00." No other secured creditors were listed; the debtor listed "Westville Boro" as an unsecured priority creditor with a claim of $1,100.00 for taxes, water, and sewer. The only unsecured creditor listed was Wharton Hardware, with a claim of $0.00.

The debtor's Chapter 13 plan proposed to pay $100.00 per month for the 60 month life of the plan, and to pay "the regular monthly mortgage payments" pending a refinance of the Trust mortgage by November 2011.⁶ The plan contained a motion to bifurcate the mortgage debt on the Property into secured ($228,000.00) and unsecured ($240,027.00) claims, and to void the unsecured portion of the Trust's lien. As well, the debtor sought to "reaffirm" her lease with Westville Holdings, executed on or about the day she filed her Chapter 13case, and proposed to pay $880.00 each month to the Trust outside the Plan. Notwithstanding the fact that the debtor does not qualify for a Chapter 13 discharge in this case because she received a Chapter 7 discharge in 2008, she nevertheless noted on her Chapter 13 plan that she seeks a discharge in this case.

Shortly after the filing, on April 13, 2011, the Trust filed a motion seeking (1) a declaration that the Property was not part of the bankruptcy estate; (2) an order granting relief from the stay nunc pro tunc as of April 1, 2011 as to the Property; and (3) a determination that any future bankruptcy filings of the debtor would not affect the relief from that stay. In its motion, the Trust argued that because title to the Property is vested in the name of Westville Holding, Inc., the debtor does not have any equitable or property interest in the Property. The entire history of the outstanding notes due from the debtor and her husband to the Trust was recited, including: that the notes went into default in 2008; that a foreclosure complaint was filed in August 2010; that two days prior to the return date of the Trust's motion to appoint a rent receiver, Mr. Antonelli filed a Chapter 7 case; that relief from the stay was granted to the Trust in January 2011; that a rent receiver was appointed, and that the debtor filed this Chapter 13 shortly before the rent receiver filed an eviction action in state court. The Trust contended that based on this history and other aspects of the case, including the fact that the Trust is the only real creditor in the case, that the debtor's employment as a "Project Manager" andher asserted lease with Westville Holdings, Inc. are highly suspect, that she is not entitled to a Chapter 13 discharge, and that her proposed plan to cram down the Trust mortgages is legally impermissible, the debtor filed her case in bad faith, and the filing served only to unduly burden and delay the Trust with its foreclosure and eviction action.

Besides a noncommittal response to the motion, in which she neither admitted nor...