In re Lyubarsky

615 B.R. 924

IN RE: Yuri LYUBARSKY and Olga Lyubarsky, Debtors.

Case No: 18-16659-LMI

United States Bankruptcy Court, S.D. Florida.

Signed April 17, 2020

Leonid Nerdinsky, Esq., Hollywood Beach, FL, Gary F. Seitz, Philadelphia, PA, for Debtor.

Marcia T. Dunn, Miami, FL, pro se.

Michael P. Dunn, Joshua C. Kligler, Alexis S. Read, Dunn Law, P.A., Miami, FL, for Trustee.

MEMORANDUM OPINION ON DEBTORS' MOTION FOR ENFORCEMENT OF THE AUTOMATIC STAY AND FOR SANCTIONS

Laurel M. Isicoff, Chief United States Bankruptcy Judge

This matter came before the Court for trial on September 16 and 17, 2019, on [Amended] Debtors' Motion For Enforcement Of The Automatic Stay, Sanctions Against Vertonix Ltd And Its Counsel Arkady "Eric" Rayz For Fraud On The Court And Contempt For Willful Violations Of The Automatic Stay (ECF #81)(the "Sanctions Motion")¹ . I have considered all of the evidence presented at the trial, including the testimony of witnesses, the stipulated facts set forth in the Joint Pretrial Stipulation (ECF #134), as well as the docket in this case, and all pleadings filed associated with the Sanctions Motion, including the competing Proposed Findings of Fact and Conclusions of Law submitted by the parties. Based on all of the foregoing, and for the reasons detailed below, I find that Vertonix Limited ("Vertonix") and attorney Arkady "Eric" Rayz ("Rayz")(when referred to collectively - "Vertonix") violated the automatic stay, that the violation was willful, and that the Debtors are entitled to compensatory damages for emotional distress, for reasonable attorney's fees and costs, as well as punitive damages, all as set forth in the opinion that follows.^{2 ,3}

The parties have a long and tortured history going back many years, countries, and lawsuits. Vertonix has a judgment against the Debtors which the Debtors have been fighting for many years in various courts. In connection with that judgment Vertonix issued a writ of garnishment against the Husband Debtor's annuity held by Guardian Life Insurance Company of America ("Guardian Life"). The Debtors fought the garnishment unsuccessfully. On May 31, 2018, the Debtors filed this bankruptcy case.

There is no dispute that Vertonix and Rayz knew about the bankruptcy. In fact, Rayz reached out to Leonid Nerdinsky, Debtors' counsel, to set up a meeting with the Debtors and Nerdinsky on June 21, 2018, because Rayz was to be in Florida on that date on other business. The Debtors did not attend the meeting. At that meeting, Debtors' counsel testified that Rayz demanded the Debtors pay Vertonix $250,000.00 by June 25, 2018, or Rayz would send the chapter 7 trustee and the United States Attorney all the information he had about assets Rayz claimed the Debtors owned and had not disclosed on their bankruptcy schedules. Rayz claims that is not the case; rather, Rayz was simply delivering a counteroffer in a settlement discussion that had begun pre-petition, and therefore the offer was not a stay violation. Moreover, Rayz testified, he never threatened to tell the trustee anything; Rayz was merely advising Debtors' counsel that the Debtors had omitted assets, and those assets should be included on amended schedules. Rayz also testified he said the omissions could create discharge issues for the Debtors.

On the evening of June 26, 2018, Nerdinsky advised Rayz via e-mail that the Debtors were not going to pay $250,000.00 and that he believed Rayz' demand was "inappropriate". Starting shortly after 5:00 pm on June 26, and just before Nerdinsky sent his email to Rayz, Rayz sent the trustee several emails with information about assets that Rayz claimed had been omitted from the Debtor's schedules. Nerdinsky was not copied on those emails.

The filing of a bankruptcy case operates as an automatic stay against most entities from, among other actions, "any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title." 11 U.S.C. § 362(a).

If a party willfully violates the automatic stay a debtor who is injured by the willful violation is entitled to recover his or her actual damages including costs and attorneys' fees, and if appropriate, may also recover punitive damages. 11 U.S.C. § 362(k). A violation of the automatic stay is willful if the party knew the automatic stay was invoked and intended the actions which violated the stay. In re Jove Engineering, Inc. , 92 F.3d 1539, 1555 (11th Cir. 1996). A creditor must not only cease the act that would violate the stay, "it must also take all necessary affirmative action to stop the proceedings which are in violation of the automatic stay." In re Briskey , 258 B.R. 473, 477 (Bankr.M.D.Ala. 2001). To avoid a violation, the post-petition action must fall under an exception to 11 U.S.C. § 362(b) or else the party must obtain relief from the stay under 11 U.S.C. § 362(d). Lodge v. Kondaur Capital Corp. , 750 F.3d 1263, 1268 (11th Cir. 2014).

Vertonix's demand for payment was clearly a stay violation, and it was a willful violation because Vertonix knew about the bankruptcy filing and intended to make the demand. However, Vertonix argues that Rayz' payment demand was not a stay violation, because it was the post-petition continuation of settlement negotiations that began pre-petition. In support of its argument Vertonix relies on In re Diamond , 346 F.3d 224 (1st Cir. 2003) and In re Keaty , 350 B.R. 723 (Bankr.W.D.La. 2006).

Vertonix is correct that there are cases that carve out an exception to stay violations for settlement discussions. However, even if I were to agree with the holdings in the cases cited by Vertonix, those would be of no help to Vertonix here, because Rayz' "offer" on behalf of his client was made in the context of a threat.

In In re Jamo , 283 F.3d 392 (1st Cir. 2002), relied upon by the First Circuit in In re Diamond , the case cited by Vertonix, the court wrote:

To be sure, there is a fine line between hard-nosed negotiations and predatory tactics—and if the automatic stay is to have any bite, it must forfend against the latter. Courts have labored long to plot this line. The most sensible rule—and one that we endorse—is that a creditor may discuss and negotiate terms for reaffirmation with a debtor without violating the automatic stay as long as the creditor refrains from coercion or harassment....We believe that this measured approach gives effect to all parts of the statutory scheme, affording all parties a reasonable opportunity to consummate binding reaffirmation agreements while at the same time shielding debtors from unseemly creditor practices. Accordingly, we hold that, while the automatic stay is in effect, a creditor may engage in post-petition negotiations pertaining to a bankruptcy-related reaffirmation agreement so long as the creditor does not engage in coercive or harassing tactics.

In re Jamo , 283 F. 3d at 399. (internal citations omitted).

The First Circuit extended the Jamo holding in In re Diamond , holding that whether settlement negotiations violate the automatic stay depends on whether the creditor's negotiations "constituted impermissible ‘coercion or harassment.’ ". In re Diamond , 346 F.3d at 227. The court stated that in order to make that determination the court must "look at the context in which a statement is made." Id. In Diamond , the court found that a creditor's threat during settlement negotiations to seek revocation of a debtor's real estate license if the debtor didn't resolve an adversary proceeding in a manner favorable to the creditor violated the automatic stay. The First Circuit found the debtor's complaint sufficiently alleged a stay violation, reversing the bankruptcy court and the district court, both of which had dismissed the debtor's complaint.

All the courts that have adopted this "post-petition settlement" exception have the same standard – if the negotiations are coercive, if threats are made, if the debtor is harassed, the discussions are violations of the automatic stay. So, while the parties dispute whether the Vertonix $250,000.00 "offer" was a continuation of prepetition settlement discussions, the real issue is whether the "offer" was in fact coercive or threatening. I find that, irrespective of whether there was a pre-petition pattern of negotiation that could have been continued post-petition⁴ , Vertonix still violated the automatic stay because the $250,000.00 was not a settlement offer – it was a demand coupled with a threat.

There are many reasons that I find that Nerdinsky's testimony is believable and Rayz' is not regarding what occurred at the June 21 meeting. First, it is at least curious that Rayz felt the need to deliver his message in person, when Rayz could easily have told Nerdinsky by email that the Debtors' schedules appeared incomplete. Moreover, since all the settlement discussions that had previously occurred between the parties had been conducted by email or by phone, Vertonix did not present any evidence why this particular "counteroffer" needed to be made in person. The only logical conclusion is that the "message" was one that could not be in writing – that is, the message was the threat described by Nerdinsky.

Second, there is contemporaneous evidence to support Nerdinsky's version of the facts. Immediately following the meeting, Nerdinsky sent an email to his clients, which email is consistent with Nerdinsky's version of the discussion. Nerdinsky told his wife/law partner about what happened on the same day that it happened. Nerdinsky also advised the trustee about the conversation just a few days after it occurred.

In contrast, Rayz has only his testimony. I have several reasons to doubt Rayz' veracity. First, as I already noted, Rayz provided no reason why he needed to meet with Nerdinsky in person if Rayz' intentions were as noble as he testified. Second, Rayz submitted a photo of Mr. Lyubarsky taken in 2004 but edited to try to make the photo look recent (see ECF #54, p.45). Third,...