Layng v. Garcia (In re Garcia)

569 B.R. 480

IN RE: Marisa GARCIA, Debtor.

Patrick S. Layng, United States Trustee, Plaintiff,

v.Marisa Garcia, Defendant.

Case No. 14bk14023

Adversary No. 16ap00387

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

Signed July 19, 2017

Appearances : Counsel to the United States Trustee: M. Gretchen Silver, Office of the United States Trustee, Chicago, IL

Attorneys for Debtor: Ariel Weissberg and Devvrat Sinha, Weissberg and Associates, Ltd., Chicago, IL Gregory K. Stern, Dennis E. Quaid, Monica C. O'Brien and Rachel S. Sandler, Gregory K. Stern P.C., Chicago, IL

SERVICE LIST Counsel to United States Trustee, M. Gretchen Silver, Esq., Office of The United States Trustee, 219 S Dearborn Street, Room 873, Chicago, IL 60604

Counsel to Debtor, Ariel Weissberg, Esq., Devvrat Sinha, Esq., Weissberg and Associates, Ltd., 401 S Lasalle, Suite 403, Chicago, IL 60605 and Gregory K. Stern, Esq., Dennis E. Quaid, Esq., Monica C. O'Brien, Esq., Rachel S. Sandler, Esq., Gregory K. Stern, P.C., 53 W Jackson Boulevard, Suite 1442, Chicago, IL 60604

Timothy A. Barnes, United States Bankruptcy Judge

MEMORANDUM DECISION

The matter before the court is the Motion of Marisa Garcia (the "Debtor ") to Stay Adversary Proceeding [Adv. Dkt. No. 24] (the "Motion "), which seeks to stay the above-captioned adversary case (the "Adversary "). The Adversary was commenced by the filing of the Complaint Objecting to Debtor's Discharge and for other Relief [Adv. Dkt. No. 1] (the "Complaint ") by Patrick S. Layng, United States Trustee (the "U.S. Trustee "). In the Complaint, the U.S. Trustee alleged, inter alia , that the Debtor should be denied a discharge in her bankruptcy case, In re Marisa Garcia , 14bk14023 (Bankr. N.D. Ill. 2014) (Barnes, J.) (the "Bankruptcy Case "), due to alleged false oaths and concealment of the value of various personal and real properties during the Bankruptcy Case. In moving to stay the Adversary, the Debtor alleges, pending resolution of a parallel criminal investigation, that continuing with the Adversary might subject her to conflicting choices—namely to invoke a Fifth Amendment privilege against self-incrimination and the possible negative inferences arising therefrom, or to defend the Adversary and risk information therein being used in a criminal indictment.

After full consideration of the matter, the court finds that the relevant standards as applied to the facts herein as they presently exist weigh in favor of continuing with the Adversary. As such, the motion to stay is DENIED without prejudice.

JURISDICTION

The federal district courts have "original and exclusive jurisdiction" of all cases under title 11 of the United States Code, 11 U.S.C. §§ 101, et seq. (the "Bankruptcy Code "). 28 U.S.C. § 1334(a). The federal district courts also have "original but not exclusive jurisdiction" of all civil proceedings arising under the Bankruptcy Code, or arising in or related to cases under the Bankruptcy Code. 28 U.S.C. § 1334(b). District courts may, however, refer these cases to the bankruptcy judges for their districts. 28 U.S.C. § 157(a). In accordance with section 157(a), the District Court for the Northern District of Illinois has referred all of its bankruptcy cases to the Bankruptcy Court for the Northern District of Illinois. N.D. Ill. Internal Operating Procedure 15(a).

A bankruptcy judge to whom a case has been referred may enter final judgment on any core proceeding arising under the Bankruptcy Code or arising in a case under the Bankruptcy Code. 28 U.S.C. § 157(b)(1). In such matters, the court has constitutional authority to enter final orders, as "[t]he court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." 11 U.S.C. § 105(a) ; see also Zerand–Bernal Grp., Inc. v. Cox , 23 F.3d 159, 162 (7th Cir. 1994). The Complaint is based on section 727(a) of the Bankruptcy Code. Section 727 is unequivocally a bankruptcy cause of action. As one bankruptcy court explains, "[b]ecause the issue of whether a discharge should be revoked ‘stems from the bankruptcy itself’ ... the Court also has the constitutional authority to enter a final order[.]" McDermott v. Davis (In re Davis ), 538 B.R. 368, 370 (Bankr. S.D. Ohio 2015) (citations omitted). This includes an order staying the action itself. See Levey v. Systems Div., Inc. (In re Teknek, LLC ), 563 F.3d 639, 648 (7th Cir. 2009) (recognizing a bankruptcy court's power to grant or deny a motion to stay an adversary proceeding).

Accordingly, determination of the Motion is within the scope of the court's jurisdiction and constitutional authority.

PROCEDURAL HISTORY

The Debtor filed the Motion on April 13, 2017. The U.S. Trustee filed the United States Trustee's Response to Defendant's Motion to Stay Adversary Proceeding [Adv. Dkt. No. 33] (the "Response ") on May 11, 2017, arguing that there was no basis for a stay. The Debtor filed her Reply in Support of Her Motion to Stay Adversary Proceeding [Adv. Dkt. No. 35] (the "Reply ") on May 26, 2017. The Debtor and the U.S. Trustee argued their positions at a hearing that took place on June 7, 2017 (the "Hearing ").

In considering the Motion, the court has reviewed the Motion itself, the Response and the Reply, and all filings with respect to the foregoing. The court has also considered each of the parties' arguments at the Hearing. Though the foregoing items do not constitute an exhaustive list of the filings in the case, the court has taken judicial notice of the contents of the docket in this matter. See Levine v. Egidi , Case No. 93C188, 1993 WL 69146, at *2 (N.D. Ill. Mar. 8, 1993) (authorizing a bankruptcy court to take judicial notice of its own docket); In re Brent , 458 B.R. 444, 455 n.5 (Bankr. N.D. Ill. 2011) (Goldgar, J.) (recognizing same).

BACKGROUND

On April 15, 2014, the Debtor commenced the Bankruptcy Case by filing a Voluntary Petition for Relief under chapter 7 of the Bankruptcy Code. See Voluntary Pet. for Relief [Dkt. No. 1].

On the basis of the Debtor's various schedule amendments submitted to the court and her various testimonies during her meetings of creditors as required by 11 U.S.C. § 341(a) (the "341(a) Meetings "), the U.S. Trustee, on June 28, 2016, filed the Complaint consisting of four counts against the Debtor. Compl., at pp. 8–12. The Complaint sought denial of the Debtor's discharge under 11 U.S.C. § 727(a)(2)(A), (a)(4) and/or (a)(5), as the Debtor allegedly concealed her interest in personal property from the U.S. Trustee and her creditors, made numerous statements under oath that were knowingly false, and could not explain how she came to own the properties or business interests for which she was seeking a discharge.¹ Compl., at pp. 10–12.

The Debtor filed an answer to the Complaint on September 19, 2016, Answer and Affirmative Defense to Counts II, III, IV of the Complaint Objecting to Discharge [Adv. Dkt. No. 16], and entered into a Joint Discovery Plan on December 9, 2016. Joint Discovery Plan [Adv. Dkt. No. 21]. On April 7, 2017, however, at her deposition for this Adversary, the Debtor asserted her privilege against self-incrimination under the Fifth Amendment of the United States Constitution. See Resp., at p. 6.

Thereafter, on April 13, 2017, the Debtor brought this Motion seeking to stay the Adversary. In the Motion, the Debtor alleges that, on November 15, 2015, she was approached by a representative of the Federal Bureau of Investigation who informed her of an ongoing criminal investigation regarding alleged bankruptcy fraud committed during her 341(a) Meetings in the Bankruptcy Case. Shortly thereafter, the United States Attorney's Office for the Northern District of Indiana ("U.S. Attorney ") allegedly began communications with the Debtor's criminal defense counsel with respect to alleged inaccuracies in her Schedule B filed in her Bankruptcy Case. Mot., at pp. 4–5.

The Debtor further alleges that, in May 2016, the U.S. Attorney sent her and her attorney a draft document entitled "Waiver of an Indictment and Waiver of Venue" (the "Waiver "). Reply, at p. 3–4. The Waiver apparently included with it a draft of an information as well as a plea agreement. See Tr. 5–8, June 7, 2017 [Adv. Dkt. No. 40]. The Debtor clarified at the Hearing that the Waiver was given to the Debtor's bankruptcy counsel through the Debtor's criminal counsel, who in turn received the Waiver from the Debtor's husband's criminal counsel.² See Tr. 11–12, 24, June 7, 2017 [Adv. Dkt. No. 40]. When the Debtor did not sign the Waiver, the U.S. Attorney allegedly informed her criminal counsel that the case "will be transferred to the Northern District of Illinois for prosecution." Reply, at p. 4. Later, on June 16, 2016, the Debtor's husband and son were indicted in a separate case involving mail fraud in a scheme to defraud and obtain money from the Department of Housing and Urban Development. Mot., at p. 5; Resp., at p. 5. The Debtor and U.S. Trustee agree that the indictment of the Debtor's son and husband is unrelated to the Debtor's Bankruptcy Case, the alleged fraud in the Waiver, or this Adversary. See Tr. 12, 30, June 7, 2017 [Adv. Dkt. No. 40]; Resp., at p. 5; Mot., at p. 5.

The Debtor argues that, pending resolution of the presumed parallel criminal investigation against her, continuing with the Adversary might subject her to conflicting choices—namely to invoke a Fifth Amendment privilege against self-incrimination and the possible negative inferences arising therefrom, or to defend the Adversary and risk information therein being used in a criminal indictment. The Debtor therefore requests a six³ month stay of the Adversary so that she has an "ability to mount a defense" in an alleged, potential criminal case, "without effectively conceding [the Adversary] by being forced to continue to assert her Fifth Amendment Privilege." Mot., at p. 9; see also Reply, at p. 10 (arguing that a stay will allow any threat of criminal prosecution to...