Purewal v. Kalsi (In re Kalsi)

637 B.R. 33

IN RE: Kanwaldeep Singh KALSI, Debtor.

Namrita Purewal, Plaintiff,

v.Estate of Kanwaldeep Kalsi, The Trustee of the Estate of Kanwaldeep Kalsi, Kanwaldeep Kalsi, Defendants.

Case No. 20-10330 (MG)

Adv. Pro. No. 21-01159 (MG)

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

Signed March 3, 2022

NAMRITA PUREWAL, Pro se, 67 Liberty Street, Fifth Floor, New York, NY 10005, By: Namrita Purewal.

LAW OFFICES OF ALLA KACHAN, P.C., Attorneys for Debtor, 3099 Coney Island Avenue, 3rd Floor, Brooklyn, NY 11235, By: Alla Kachan, Esq.

LAMONICA HERBST & MANISCALCO, LLP, Attorneys for Angela Tese-Milner, in her capacity as Chapter 7 Trustee, LaMonica Herbst & Maniscalco, LLP, 3305 Jerusalem Avenue, Wantagh, NY 11793, By: Salvatore LaMonica.

MEMORANDUM OPINION AND ORDER DETERMINING WHICH OF NAMRITA PUREWAL'S CLAIMS AGAINST THE DEBTOR ARE ENTITLED TO PRIORITY AND WHICH ARE EXCEPTED FROM DISCHARGE UNDER SECTIONS 523(A)(5) AND 523(A)(15) OF THE BANKRUPTCY CODE

MARTIN GLENN, CHIEF UNITED STATES BANKRUPTCY JUDGE

Namrita Purewal ("Ms. Purewal" or "Purewal"), the former spouse of the debtor Kanwaldeep Singh Kalsi ("Kalsi" or "Debtor"), filed Proof of Claim # 8-1 (the "Proof of Claim") in Kalsi's chapter 7 case, asserting debts owed to her arising from a divorce that she asserted were excepted from discharge under sections 523(a)(5) and (a)(15). She also filed this pro se adversary proceeding naming as defendants Kalsi and the chapter 7 trustee, Angela Tese-Milner (the "Trustee"). (See "Complaint," ECF Doc. # 1.) The Trustee also filed an adversary proceeding against Ms. Purewal seeking a determination that certain real property is property of the Debtor's estate. (See Tese-Milner v. Purewal (In re Kalsi) , Adv. Pro. No. 21-01177 (MG).) Ms. Purewal's claims against Kalsi, asserted on a variety of legal theories both in the Proof of Claim and in the Complaint, allege among other things that Kalsi wrongfully misappropriated Ms. Purewal's separate property to purchase a home in Southampton (the "Southampton Property") and a condominium in New York City (the "Liberty Street Condominium"), with title to both properties recorded in Kalsi's name only, even though her funds were used to make the purchases. (Complaint ¶¶ 13–14, 29–33.) In an earlier opinion in this adversary proceeding, the Court granted the Trustee's motion to dismiss and determined that the Southampton Property was property of the estate, free of any unrecorded interest or constructive trust in favor of Purewal.¹ See Purewal v. Estate of Kalsi (In re Kalsi) , Adv. Pro. No. 21-01159 (MG), 2021 WL 3573749 at *1 (Aug. 12, 2021) ("Trustee MTD Opinion"). The case remains pending against the Debtor because the Debtor has not "filed a motion to dismiss, but instead filed an answer to the Complaint ...." Id. at *1, n.2. Additionally, in the Trustee's adversary proceeding against Purewal, the Court granted the Trustee's summary judgment motion and determined that the Liberty Street Condominium is property of the estate, free of any unrecorded interest or constructive trust in favor of Purewal.² (See Adv. Pro. No. 21-1177 (MG), ECF Doc. # 23.)

Ms. Purewal has obtained substantial monetary awards in the Divorce Action (defined below) commenced by the Debtor. Some of those awards are entitled to priority treatment under section 507(a)(1) of the Bankruptcy Code, and other parts of her awards are only entitled to treatment as unsecured claims. It appears unlikely that Kalsi's bankruptcy estate will have sufficient funds available for distribution to satisfy all administrative expenses and priority creditor claims, and certainly not enough to satisfy all unsecured claims.

The question then is which, if any, of Ms. Purewal's prepetition claims that are not satisfied in full in distributions from the Debtor's estate are excepted from discharge? Two particular sections of the Bankruptcy Code except from discharge debts of a debtor "for a domestic support obligation," 11 U.S.C. § 523(a)(5), and "to a spouse, former spouse, or child of the debtor and not of the kind described in paragraph (5) that is incurred by the debtor in the course of a divorce ... made in accordance with State ... law ...." Id. § 523(a)(15).

This Opinion and Order addresses the following issues surrounding Ms. Purewal's claims: (1) which claims are entitled to priority treatment; (2) whether or not her claims are entitled to priority treatment, which claims are excepted from discharge if not paid in full from the distribution of estate property; and (3) which, if any, of Ms. Purewal's remaining claims should be dismissed.

I. BACKGROUND

On September 27, 2017, the Debtor commenced a divorce action (the "Divorce Action") against Ms. Purewal in the Supreme Court of New York, County of Suffolk (the "State Court"). (See "Matrimonial Order," In re Kanwaldeep Singh Kalsi , Case No. 20-10330 (MG) ("Main Case") ECF Doc. # 146 at 1.)³ On February 3, 2020, the Debtor initially filed for relief under chapter 11. (See Main Case ECF Doc. # 1.) Upon the filing, the automatic stay paused the Debtor's Divorce Action. On March 31, 2020, the Court issued a memorandum opinion and order lifting the stay to allow Ms. Purewal and the Debtor to continue the Divorce Action (1) "to determine the interest of the Debtor and Purewal in marital property and the Debtor's permanent domestic support obligations and (2) retaining jurisdiction over the distribution of property of the Debtor's estate." (Main Case ECF Doc. # 27 at 2.)

The Debtor's chapter 11 case was converted to one under chapter 7 on December 4, 2020. (Main Case ECF Doc. # 57.) On December 21, 2020, two notices were filed: (i) a form 309A providing notice to creditors of the Debtor's chapter 7 bankruptcy case ("Form 309A," Main Case ECF Doc. # 62) and (ii) a notice of possible dividends ("Notice of Possible Dividends," Main Case ECF Doc. # 63). Form 309A established the deadline to object to discharge as March 8, 2021 ("Objection to Discharge Deadline"). (Form 309A at 2.) The Notice of Possible Dividends set the bar date to file proofs of claim as March 25, 2021 ("Bar Date"). (Notice of Possible Dividends.) On February 26, 2021, Ms. Purewal timely filed the Proof of Claim. (Proof of Claim.)

Ms. Purewal did not file an objection to the Debtor's discharge by the Objection to Discharge Deadline. This adversary proceeding was commenced by Ms. Purewal on June 9, 2021, after that deadline had passed.⁴ (Complaint at 1.) Her six requests for relief were as follows:

1. A declaration that defendants hold the described property as constructive trustees for the benefit of the plaintiff;

2. A declaration that defendants, or either of them, do not possess or own any interest in the described property;

3. Ordering the conveyance of the described property from defendants to plaintiff, free and clear of any and all interests, liens, and claims;

4. Awarding plaintiff damages in that amount of $3.5 million

5. Awarding costs of suit incurred; and

6. Granting such other and further relief as the court may deem proper.

(Id. at 7.)

The Trustee MTD Opinion dismissed claims 1 through 3 of the requested relief. See Trustee MTD Opinion at *1. Of Ms. Purewal's remaining requests for relief, the following were not addressed by the Trustee MTD Opinion: (i) the requested award for damages in the amount of $3.5 million and (ii) the requested award for costs of the suit. The Trustee's motion to dismiss stated that Ms. Purewal provided "no factual or legal basis for such relief in the Complaint" for both requests. (ECF Doc. # 7, ¶¶ 51–52.) Additionally, the Debtor filed an answer to the Complaint that denies all assertions made by Ms. Purewal in the Complaint and asserts that the Court should dismiss the Complaint in its entirety. ("Answer," ECF Doc. # 9 ¶¶ 36, 53.) However, the Debtor has not filed a motion to dismiss. On July 27, 2021, Ms. Purewal filed a reply to the Trustee's motion to dismiss which did not mention the requested damages award or court costs. ("Reply," ECF Doc. # 21.) Recovery of damages by Purewal is addressed in this Opinion. Recovery of costs by the prevailing party is dealt with through the filing of a bill of costs. See Fed. R. Bankr. P. 7054(b)(1) and Fed. R. Civ. P. 54(d)(1). Costs could not be taxed against the Trustee who is a prevailing party; costs, if any, against Kalsi would, in any event, appear to be limited to the adversary proceeding filing fee.

On September 24, 2021, the Hon. Deborah Poulos issued the Matrimonial Order in the Divorce Action. (Matrimonial Order at 42.) Kalsi appealed the Matrimonial Order on October 10, 2021, and this appeal remains pending. (ECF Doc. # 38.) On December 10, 2021, the Court entered an Order requesting that the State Court clarify which portions of the Matrimonial Order are considered "equitable distribution" under state law. ("Order Requesting Clarification," ECF Doc. # 41.) The Order Requesting Clarification further stated that it was "unclear ... which portions of the Matrimonial Order are non-dischargeable under Bankruptcy Code section 523(a)(15)." (Id . at 1.) "Matrimonial awards that are determined to be ‘equitable distribution’ are unsecured claims that are not entitled to a priority under section 507(a)(1)(A), but they are non-dischargeable under Bankruptcy Code section 523(a)(15)." (Id. at 1–2.) In response to the Order Requesting Clarification, Judge Poulos entered an order clarifying which portions of the award she previously awarded were equitable distribution ("Equitable Distribution Awards"). Judge Poulos clarified that the following are Equitable Distribution Awards:

(1) All proceeds from the sale of the Liberty Street Condominium and Southampton Residence including a stipulated separate property credit of $739,000.00.

(2) The equalization of bank accounts amounting to $171,985.38 at the time the Divorce Action commenced.

(3) Fifty percent of the escrow funds in the amount of $42,903.00 with each party to receive $21,451.50 which the State Court

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