Rey v. Laureda et al

UNITED STATES BANKRUPTCY COURT FOR PUBLICATION
EASTERN DISTRICT OF NEW YORK
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In re: Case No. 95-15616-608
JOSE A. REY, Chapter 7
Debtor.
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JOSE A. REY, Adv. Proc. No. 04-1416-608
Plaintiff,
-against-
ROSARIO LAUREDA and
FREDERIC WALKER, ESQ.,
Defendants.
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OPINION
APPEARANCES:
David J. Weiss, Esq.
666 Old County Road
Suite 700
Garden City, New York 11501
Attorney for Plaintiff
Frederic Walker, Esq.
220 East 76th Street
New York, New York 10021
Attorney for Defendant
Frederic Walker, pro se
CARLA E. CRAIG
United States Bankruptcy Judge
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This matter comes before this Court on the motion of Jose A. Rey (the "Debtor"), who
seeks summary judgment in this adversary proceeding pursuant to Federal Rule of Civil
Procedure 56(c), made applicable to these proceedings by Rule 7056 of the Federal Rules of
Bankruptcy Procedure.
The Debtor asserts that a state court judgment obtained on October 18, 2004 by Rosario
Laureda, through her attorney, Frederic Weiss (Ms. Laureda and Mr. Weiss, collectively, the
"Defendants") is void because it violates the order of this Court, dated January 12, 1996 (the
"Discharge Order"), discharging the Debtor of his debts pursuant to § 727 of the Bankruptcy
Code (the "Code"). The Debtor seeks entry of an order declaring the state court judgment void;
holding the Defendants in contempt for violation of the Discharge Order; and awarding attorneys'
fees and punitive damages.
The Defendants assert that they had no knowledge of the Debtor's bankruptcy until they
received the Debtor's motion to dismiss the state court proceeding in 2003, and that therefore the
pre-petition debts to which the state court judgment relates are excepted from discharge pursuant
to § 523(a)(3) of the Code, and were properly found by the state court to be nondischargeable
pursuant to §§ 523(a)(2)(A) and (B) and § 523(a)(4) of the Code. The Defendants assert that the
Rooker-Feldman doctrine precludes this Court from reviewing the state court's determination that
the pre-petition debts owed to Ms. Laureda by the Debtor are non-dischargeable.
Jurisdiction
This Court has jurisdiction over this core proceeding pursuant to 11 U.S.C. §§
1334(b) and 157(b)(2)(I) and the Eastern District of New York standing order of reference dated
August 28, 1986. This opinion constitutes the Court's findings of fact and conclusions of law to
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1"Laureda Aff." refers to the Affidavit in Oppo sition, dated June 30 , 200 3, made by Rosario Laured a in
connection with the state court action, which was submitted in support of the Debtor's summary judgment motion. It
should be noted that the paragraph numbers in the Laureda Aff. are misnumbered, as there are two ¶ 5. The
allegations described in the sentence preceding this footnote were taken from the second ¶ 5. All other paragraph
references to the Laureda Aff. in this opinion are as they appear therein.
2"Do c." refers to docume nts listed on the bankruptcy court's docket, by docket number.
the extent required by Fed. R. Bankr. P. 7052.
Facts
Based upon the submissions by the parties on this motion, it appears that the following
facts are not in dispute.
Prior to filing for bankruptcy protection in 1995, the Debtor represented Ms. Laureda in
several real estate matters as her attorney. During the course of their attorney-client relationship,
Ms. Laureda made two loans to an entity controlled by the Debtor. (Laureda Aff. ¶ 5.)1 On
August 24, 1990, Ms. Laureda loaned $79,000 to Rey-San Realty Company ("Rey-San"), a real
estate partnership in which the Debtor was a general partner. Id. On October 1, 1990, Ms.
Laureda loaned an additional $20,000 to Rey-San. Id. In consideration of each of these loans,
the Debtor caused Rey-San to issue mortgages and notes to Ms. Laureda secured by a
commercial property Rey-San owned at 65-07 Woodhaven Boulevard, Rego Park, New York.
Id. On January 4, 1993, these two mortgages and notes were consolidated into a single mortgage
and note issued by Rey-San in favor of Ms. Laureda. Id. at ¶ 7.
Ms. Laureda asserts that the Debtor acted as her attorney in these loan transactions and
that he assured her he would record the mortgages. Id. at ¶ 8. However, the mortgages were
never recorded. (Doc. No. 14; Def. Mem. Opp. SMJ ¶ 3.)2 The property securing Ms. Laureda's
mortgage was already encumbered by two mortgages totaling more than $1 million. Id. The
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3"Aff. of D. W eiss" refers to the Affirmation of D avid W eiss, dated D ecem ber 2 2, 20 04, submitted in
connection with the N otice o f Mo tion for S umm ary Jud gment.
Debtor made regular payments of interest to Ms. Laureda on the loan through 1993 and thereafter
made sporadic payments through 2001. (Doc. No. 13; Def. Aff. ¶ 9.)
On June 20, 1995, the Debtor filed a voluntary petition for relief under chapter 7 of the
Code. The Debtor listed Ms. Laureda as an unsecured creditor on his petition pursuant to §
521(1) of the Code and Federal Rule of Bankruptcy Procedure 1007(a)(1). The clerk of this
Court caused all listed creditors to be notified of the date the first meeting of creditors was to be
held pursuant to § 341 of the Code and Federal Rule of Bankruptcy Procedure 2003(a). (Aff. of
D. Weiss; Exhibit B.)3 The notice set the first meeting of creditors for August 21, 1995 and the
deadline to object to discharge or determine dischargeability of debts as October 20, 1995, which
was subsequently adjourned to September 5, 1995. (Aff. D. Weiss, ¶ 11.)
Ms. Laureda claims that she never received notice of the Debtor's bankruptcy from the
clerk's office or from the Debtor. (Laureda Aff. ¶ 11.) However, in an affidavit filed in the state
court proceeding, Ms. Laureda stated that in August 1995, while in the Debtor's office, she saw a
copy of a notice to creditors of the meeting of the Debtor's creditors pursuant to § 341 of the
Code. Id. Ms. Laureda did not ask what this notice meant; however, her suspicions were
aroused and she decided to attend the meeting. Id. When she arrived, the meeting had concluded
and only the Debtor remained. Id. Ms. Laureda stated that she left the meeting without learning
of the Debtor's bankruptcy. Id.
On January 12, 1996, the Debtor was granted a discharge pursuant to § 727 of the Code.
On May 14, 2003, the Defendants commenced an action in the Supreme Court, New York
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County, seeking to recover pre-petition loans made by Ms. Laureda to the Debtor, and seeking
damages for mental distress and suffering. The Debtor moved to dismiss the case, asserting that
Ms. Laureda's claims against the Debtor had been discharged in bankruptcy.
The state court denied the Debtor's motion to dismiss, holding that "the allegations in
Laureda's Complaint establish that [the Debtor's] debt to her could qualify for exception to
discharge under section 523(a)(2)(A) . . . (B) . . . and (4)." Laureda v. Rey, et al., No. 601527/03
(N.Y. Cty Nov. 28, 2003) (order denying summary judgment). The matter proceeded to trial and
on October 20, 2004, the state court issued an opinion holding the pre-petition debts owing to
Ms. Laureda by the Debtor were non-dischargeable in bankruptcy because § 523(a) of the Code
"excepts from bankruptcy discharge, debt incurred through false misrepresentation, fraud and/or
abuse of a fiduciary relationship." Laureda v. Rey, et al., No. 601527/03 (N.Y. Cty Oct. 18,
2004).
On June 25, 2004, this case was reopened on the Debtor's motion, and this adversary
proceeding was commenced on August 4, 2004.
Standard for Summary Judgment
Summary judgment is appropriate "if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party is entitled to judgment as a matter
of law." Fed. R. Bankr. P. 7056(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548,
91 L. Ed. 2d 265 (1986). The Court's function is not to resolve disputed issues of fact, but only
to determine whether there is a genuine issue to be tried. Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 249, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). No genuine issue exists "unless there is
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sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party. If
the evidence is merely colorable, or is not significantly probative, summary judgment may be
granted." Id. at 249-50.
"If, as to the issue on which summary judgment is sought, there is any evidence in the
record from any source from which a reasonable inference could be drawn in favor of the
nonmoving party, summary judgment is improper." Chambers v. TRM Copy Ctrs. Corp., 43
F.3d 29, 37 (2d Cir. 1994) (citation omitted). If the movant meets this initial burden, the
nonmoving party must set forth specific facts that show triable issues, and cannot rely on
pleadings containing mere allegations or denials." In re: Jarrell, 251 B.R. 448, 450-451 (Bankr.
S.D.N.Y. 2000), citing Matsushita Elec. Indus, Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574,
586-587, 106 S. Ct. 1348, 89 L. Ed. 2d 265 (1986).
Discussion
The Defendants assert that the Rooker-Feldman doctrine deprives this Court of subject
matter jurisdiction to consider this case. "The Rooker-Feldman doctrine provides that 'lower
federal courts lack subject matter jurisdiction over a case if the exercise of jurisdiction over that
case would result in the reversal or modification of a state court judgment'." In re Ivani, 308 B.R.
132, 136 (Bankr. E.D.N.Y. 2004), citing Neshewat v. Salem (In re Salem), 290 B.R. 479, 482
(S.D.N.Y. 2003); Hachamovitch v. DeBuono, 159 F.3d 687, 693 (2d Cir. 1998). The doctrine
was established by two Supreme Court cases (Rooker v. Fidelity Trust Co., 263 U.S. 413, 44 S.
Ct. 149, 68 L. Ed. 362 (1923); District of Columbia Court of Appeals v. Feldman, 460 U.S. 462,
103 S. Ct. 1303, 75 L. Ed. 2d 206 (1983)), and is predicated upon 28 U.S.C. § 1257, pursuant to
which the United States Supreme Court is the only federal court which may hear appeals from
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determinations of state courts.
The Rooker-Feldman doctrine requires that its applicability be determined before a court
considers other defenses. Harris v. N.Y. State Dep't of Health, 202 F. Supp. 2d 143, 160
(S.D.N.Y. 2002), citing GASH Assocs. v. Village of Rosemont, Ill., 995 F.2d 726, 728-729 (7th
Cir. 1993) (holding the district court erred by dismissing the case on the basis of res judicata
because Rooker-Feldman applied and thus deprived the court of jurisdiction); Centres, Inc. v.
Town of Brookfield, 148 F.3d 699, 703 (7th Cir. 1998) ("If Rooker-Feldman applies, a res
judicata claim must not be reached."); Garry v. Geils, 82 F.3d 1362, 1365 (7th Cir. 1996). The
Rooker-Feldman doctrine is distinct from collateral estoppel and res judicata; however, the
Rooker-Feldman doctrine and preclusion rules produce a similar outcome: the plaintiff is barred
from bringing the case in federal court.
There is an exception to the Rooker-Feldman doctrine. Courts have held that when a
state court judgment is void, Rooker-Feldman does not apply. In re Dabrowski, 257 B.R. 394,
406 (Bankr. S.D.N.Y. 2001). Section 524(a) of the Code provides, in relevant part:
A discharge in a case under this title:
(1) voids any judgment at any time obtained, to the extent that such
judgment is a determination of the personal liability of the debtor
with respect to any debt discharged under section 727 . . . of this
title, whether or not discharge of such debt is waived;
(2) operates as an injunction against the commencement or
continuation of an action, the employment of process, or an act, to
collect, recover or offset any such debt as a personal liability of the
debtor, whether or not discharge of such debt is waived . . .
Thus, a state court judgment is void when it is entered either before or after the claim underlying
the judgment is discharged. Id., citing In re Mario Cruz and Mercedes Cruz, 254 B.R. 801, 805
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(S.D.N.Y. 2000) (Rooker-Feldman and preclusionary doctrines inapplicable if § 524 of the Code
voided a judgment that was a determination of the personal liability of the debtor with respect to
a discharged debt); In re Pavelich, 229 B.R. 777, 782-783 (B.A.P. 9th Cir. 1999) (when the state
court construes the bankruptcy discharge incorrectly, its judgment is void ab initio under §
524(a)(1) to the extent it violates the discharge order); Lawrence P. King, Collier on Bankruptcy,
524.02[1] at 524-13 (Matthew Bender, 15th Ed. 2004)("[a] bankruptcy court can find that a
postpetition state court judgment is void despite the full faith and credit normally given to state
court judgments").
"The rationale for the exception, in part, is that because a void judgment is null, vacating
such a judgment is a mere formality and does not intrude upon the notion of mutual respect in
federal-state interests." In re Dabrowski, 257 B.R. at 406, citing Pavelich, 229 B.R. at 783; In re
James, 940 F.2d 46, 52 (3d Cir 1991). "A state court that does not honor a bankruptcy discharge
is, in effect, not honoring a federal judgment." Pavelich, 229 B.R. at 783.
As the court noted in Pavelich,
With respect to the discharge itself, state courts have the power to
construe the discharge and determine whether a particular debt is
or is not within the discharge. Indeed, discharge in bankruptcy is a
recognized defense under state law.
* * *
But since 1970 the state court's power has been subject to the
unusual limitation that stems from statutory voidness which now
appears at § 524(a)(1). While the power to decide an issue
ordinarily connotes the power to decide it incorrectly, with any
erroneous result being enforceable unless corrected on appeal, §
524(a)(1) statutory voidness commands a different result.
If the state court construes the discharge correctly, its judgment
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4The D efendants point to the Supreme Co urt's decision in Grogan v. Garner, 498 U.S. 279; 111 S. Ct. 654;
112 L .Ed . 2d 7 55 (199 1), to suppo rt their contention that federal courts are bound by preclusion p rinciples with
respect to determinations made by state courts in proceedings to determine the dischargeability of debts. (Doc. No.
13; Def. Aff. ¶ 17). The Defendants assert the Supreme Court's decision in Grogan means this Co urt must adhere to
the state court's decision even tho ugh this C ourt has exclusive subject matter jurisd iction. Id. The Defendants
misread the S upreme C ourt's decision. Grogan addresses the evidentiary standard to be used by federal co urts in
will be enforced and not be vulnerable to being upset by means
outside the normal appellate channels. If, however, the state court
construes the discharge incorrectly, then its judgment may be void
to the extent it offends the discharge and subject to collateral attack
in federal court.
Id. at 783. The issue, therefore, is whether the state court judgment entered against the Debtor on
October 18, 2004 violates the discharge granted to the Debtor in 1996, or whether the state court
properly held that the pre-petition debts owing to Ms. Laureda were non-dischargeable.
The state court concluded that Ms. Laureda's claim was nondischargeable pursuant to §
523(a), which provides exceptions to dischargeability for (among other things) debts incurred
through false misrepresentation, fraud, or defalcation by a fiduciary. Laureda v. Rey, et al., No.
601527/03 (N.Y. Cty Oct. 18, 2004). Section 523(c)(1) of the Code states that determinations of
nondischargeability under § 523(a)(2), (4), (6) or (15) must be made by the bankruptcy court
prior to discharge or the debt will be discharged under § 727. 11 U.S.C. § 523; In re Berry, 190
B.R. 486, 492 (Bankr. D. Ga. 1995).
The prevailing interpretation of this provision, by courts in this and circuits, is that federal
courts have exclusive jurisdiction to determine whether an exception to dischargeability exists
pursuant to § 523(a)(2), (4), (6), or (15). Charell v. Gonzalez (In re Gonzalez), 241 B.R. 67, 72
(Bankr. S.D.N.Y. 1999); In re Massey, 228 B.R. 686, 690 (Bankr. S.D. Ind. 1998), citing Brown
v. Felsen, 442 U.S. 127, 60 L. Ed. 2d 767, 99 S. Ct. 2205 (1979); Collier on Bankruptcy, 523.03,
523-18, citing 1983 Advisory Committee Note to Fed. R. Bankr. P. 4007.4
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determining whether the elem ents of fraud under § 523 are present, and does not stand for the proposition that state
courts have jurisdiction to determine whether a debt is nondischargeable by reason of fraud.
Thus, nondischargeability complaints under § 523(a)(2), (4), (6) and (15) must be brought
in bankruptcy court within 60 days of the first date set for the meeting of creditors pursuant to §
341 of the Code, as provided in Rule 4007(c). Fed. R. Bankr. P. 4007; Berry, 190 B.R. at 492.
Here, it is not disputed Ms. Laureda did not object to the Debtor's discharge within the applicable
60 day period.
The Defendants argue that the state court had jurisdiction to determine the
dischargeability of Ms. Laureda's claim against the Debtor under the proviso in the first sentence
of § 523(c)(1), which creates an exception to the exclusive jurisdiction granted to the bankruptcy
court if § 523(a)(3)(B) is applicable. Section 523(a)(3)(B) states in pertinent part:
(a) A discharge under section 727 . . . of this title does not
discharge an individual debtor from any debt–
(3) neither listed nor scheduled under section 521(1) of this title,
with the name, if known to the debtor, of the creditor to whom
such debt is owed, in time to permit --
(B) if such debt is of a kind specified in paragraph (2), (4), or (6)
of this subsection, timely filing of a proof of claim and timely
request for a determination of dischargeability of such debt under
one of such paragraphs, unless such creditor had notice or actual
knowledge of the case in time for such timely filing and request.
The Defendants assert that § 523(a)(3)(B) is an exception to the grant of exclusive
jurisdiction to federal courts to determine dischargeability pursuant to § 523(a)(2), (4) and (6),
applicable when a creditor is unaware of a debtor's bankruptcy. (Doc. No. 13; Def. Aff. ¶ 22.)
The Defendants reason that since the state court has concluded Ms. Laureda did not have
knowledge of the Debtor's bankruptcy, it therefore had concurrent jurisdiction with this Court to
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5The D efendants assert that the state court necessarily determined Ms. Laureda d id not receive notice of the
Debtor's bankruptcy filing. H owever, the state court decision does not make any m ention of § 523(a)(3)(B) at all
and certainly did not specifically find that Ms. Laureda did not receive notice of the Debtor's bankruptcy petition. In
any event, as discussed in this opinion, determinations made by the state court are not given preclusive effect here as
the judgment of the state court is void ab initio.
determine the dischargeability of the pre-petition debts, and that this Court should not disturb
that judgment pursuant to Rooker-Feldman.5 Id. The Defendants' interpretation of § 523(a)(3) is
incorrect.
The language in § 523(a)(3) is quite clear: it applies only to debts "neither listed nor
scheduled" on the Debtor's petition pursuant to § 521(1). Ms. Laureda, together with her correct
address, was listed on the Debtor's petition; therefore, Ms. Laureda may not avail herself of the
protection offered to unlisted creditors by § 523(a)(3). In re Robinson, 228 B.R. 75, 81 (Bankr.
E.D.N.Y. 1998)("[T]he depositing into the mail system of a properly addressed and stamped
letter creates a rebuttable presumption of receipt by the party to whom the letter was
addressed."); Cablevision Systems Corp. v. Malandra (In re Malandra), 206 B.R. 667, 672-73
(Bankr. E.D.N.Y. 1997), citing Hagner v. United States, 285 U.S. 427, 430, 76 L. Ed. 861, 52 S.
Ct. 417 (1932)). "A debtor may rely on the Court's certificate of mailing to invoke the
presumption of receipt." In re Robinson, 206 B.R. at 673.
Alternatively, the Defendants argue that whether the debt owed to Ms. Laureda was
properly listed on the Debtor's petition is an issue of fact to be determined. (Doc. No. 13; Def.
Aff. ¶ 18.) The Defendants note the Debtor listed the pre-petition debts owing to Ms. Laureda on
a schedule of unsecured debts rather than a schedule of secured debts. Id. However, this was a
correct listing of her claim, because (as all parties agree) the mortgages given to her by the
Debtor were never recorded. Ms. Laureda also stated she did not receive notice from the clerk's
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6W hile the phrase "actual knowledge" is not defined in the Code, Black's Law Dictionary defines it as
"direct and clear knowledge...knowledge of such information as would lead a reasonable person to inquire further."
Ms. Laureda's admissio n she saw the no tice of the § 34 1 meeting and attended the meeting (despite the fact that it
was over when she arrived) demonstrates that she had actual knowledge of such information as would lead a
reaso nable person to inquire further of the Debtor's bankruptcy.
office of the § 341 meeting. (Laureda Aff. ¶ 6.) This unsubstantiated assertion is insufficient to
rebut the presumption of receipt that arises from the certificate of mailing, or to create any issue
of fact in this regard. In re Robinson, 206 B.R. at 667, quoting Malandra, 206 B.R. at 673 ("The
federal courts in New York...'hold quite uniformly that an affidavit of non-receipt is insufficient
to rebut the presumption of receipt'"). But even if it were sufficient, Ms. Laureda's claim must
fail because she has admitted that she had actual knowledge of the Debtor's bankruptcy case.
In GAC Enterprises v. Medaglia (In re Medaglia), the Second Circuit Court of Appeals
held a creditor's due process rights were not violated by § 523(a)(3)(B), which states a creditor
with notice or actual knowledge of a case may not claim an exception to a debtor's discharge. 52
F.3d 451, 455 (2d Cir. 1995) ("The argument that the 'actual knowledge' proviso of §
523(a)(3)(B) offends due process has been specifically rejected by at least four courts of appeals:
Grossie v. Sam (In re Sam), 894 F.2d 778, 781-82 (5th Cir. 1990); In re Green, 876 F.2d 854,
856 (10th Cir. 1989); In re Price, 871 F.2d 97, 99 (9th Cir. 1989); In re Alton, 837 F.2d at 460.
We agree with the reasoning of these cases.").
Ms. Laureda admitted in her state court affidavit that she thought the Debtor had
commenced bankruptcy proceedings in August 1995 when she saw a notice pertaining to the
Debtor's § 341 meeting and that she attended the meeting of creditors to "see what [it] was all
about." (Laureda Aff. ¶ 11.) This constitutes actual knowledge of the Debtor's bankruptcy
satisfying § 523(a)(3)(B).6 Massa v. Adonna, et al. (In re Massa), 187 F.3d 292 (2d Cir. 1999);
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GAC Enterprises, 52 F.3d at 454; In re Alton, 837 F.2d at 460 (holding that the statutory
language of § 523 "clearly contemplates that mere knowledge of a pending bankruptcy
proceeding is sufficient to bar the claim of a creditor who took no action, whether or not that
creditor received official notice from the court of various pertinent dates").
As Ms. Laureda was listed on the Debtor's schedules, and as she had actual knowledge of
the Debtor's bankruptcy case, she does not qualify as a creditor for whom § 523(a)(3)(B) applies.
Because Ms. Laureda did not object to the Debtor's discharge within the statutorily prescribed
time frame, the amounts owed by the Debtor to Ms. Laureda were discharged pursuant to the
Discharge Order. For this reason, the state court judgment is void ab initio pursuant to § 524 of
the Code.
The above analysis applies equally to the Defendant's arguments that this Court is barred
from considering a challenge to the state court's decision by reason of collateral estoppel. (Def.
Mem. of Law p. 9.) Just as a state court judgment issued in violation of the discharge is void and
not entitled to deference under Rooker-Feldman, such a judgment will not be given preclusive
effect. In re Cruz, 254 B.R. at 811; Maroney v. Bowman (In re Maroney), 195 B.R. 452, 454-
455 (Bankr. D. Ariz. 1996)(holding that a void judgment cannot be the basis for res judicata).
Damages
The Debtor requests that this Court award $9,975.00 in attorneys' fees incurred by the
Debtor, as well as award punitive damages in an amount to be determined by this Court.
Pursuant to the "American Rule," the prevailing litigant is ordinarily not entitled to
collect attorneys' fees from the loser. Watkins v. Guardian Loan Co. (In re Watkins), 240 B.R.
668, 680 (Bankr. E.D.N.Y. 1999), citing Alyeska Pipeline Service Co. v. Wilderness Society,
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421 U.S. 240, 247; 95 S. Ct. 1612, 44 L. Ed. 2d 141 (1975). An exception to the "American
Rule" applies when a statute specifically provides for the award of attorneys' fees. Id., citing
Brantley v. Weeks (In re Brantley), 116 B.R. 443, 449 (Bankr. D. Md. 1990). Section 524 of the
Code does not authorize damages for violations of a bankruptcy court's discharge order. 11
U.S.C. § 524; Watkins v. Guardian Loan Co. (In re Watkins), 240 B.R. 668, 680 (Bankr.
E.D.N.Y. 1999).
However, there are judicially created exceptions to the "American Rule." Attorneys' fees
may be awarded to a debtor "(1) when a defendant willfully disobeys a court order and (2) when
a losing party acts in bad faith, vexatiously, wantonly, or for oppressive reasons." Watkins, 240
B.R. at 678, citing In re Walker, 180 B.R. 834, 849 (Bankr. W.D. La. 1995); Brantley, 116 B.R.
443, 449 (Bankr. D. Md. 1990).
While it appears that the Defendants knew of the Discharge Order, and that their acts in
violation thereof were intentional, the facts of this case differ significantly from those presented
in cases where courts have awarded attorneys' fees for a violation of a discharge injunction. See
Watkins, 240 B.R. at 678-679 (award of attorneys' fees appropriate where a creditor induced a
debtor to execute a promissory note for $8,000, bearing 25% per annum interest, in consideration
of a $4,000 loan as a means of having the debtor reaffirm its pre-petition obligation); Walker,
180 B.R. 849 (award of attorneys' fees appropriate where creditor disobeyed the post-discharge
injunction for no other reason than to continue to vex debtors by its ongoing collection efforts
and to oppress them). The Debtor has not demonstrated that Defendants conduct rises to the
level of bad faith or wanton or oppressive action.
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It is also relevant that the costs associated with the state court action could have been
significantly reduced for all parties, and the substantial amount of time spent by the state court on
this matter could have been avoided, if the Debtor removed the state court action to this Court at
the outset, or at least commenced this proceeding promptly after being sued in state court. See
Fed. R. Bankr. P. 9020(a)(3). The Debtor was served with the summons and complaint in the
state court action on May 14, 2003, yet did not move to reopen his bankruptcy case until June 25,
2004, or commence this adversary proceeding until August 4, 2004, after the case had proceeded
to trial in state court. It is inappropriate to award attorneys' fees to a party whose choice to delay
commencing this proceeding for over one year resulted in unnecessary multiplication of costs and
waste of judicial resources of the state court.
Punitive damages are also inappropriate here. Although a bankruptcy court may, in its
discretion, punish parties for contempt for violation of a discharge order, punitive damages are
generally awarded in response to egregious credit misconduct. See Placid Ref. Co. v. Terrebonne
Fuel & Lube (In re Terrebonne Fuel & Lube), 108 F.3d 609 (5th Cir., 1997) (holding a
"bankruptcy court's decision to impose sanctions is discretionary"); Watkins, 240 B.R. at 680-
681 (court, in its discretion, granted treble damages to Debtor for violation of discharge order).
Cases in which punitive damages have been awarded generally involve a financially
sophisticated creditor seeking to take advantage of a debtor. E.g.,Watkins, 240 B.R. 668; Matter
of Arnold, 206 B.R. 560 (Bankr. N.D. Ala. 1997); In re Walker, 180 B.R. 834 (Bankr. W.D. Va.
1995). In Watkins, for example, the court awarded punitive damages to the debtors against
Guardian Loan Company ("Guardian"), a pre-petition lender, who lured the debtors into
reaffirming a portion of their pre-petition debt without court approval. 240 B.R. at 683. After
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15
the debtors had received their discharge, Guardian contacted them to see if they had any
borrowing needs. Id. at 637. The debtors entered into a new loan agreement pursuant to which
they borrowed $8,000, at 25% per annum interest, in exchange for a $4,000 advance from
Guardian. Id. at 674-675. The other $4,000 the debtor borrowed was advanced in the form of a
check payable to Guardian and was immediately deposited in Guardian's bank account. Id. The
court found that this loan violated the discharge order and that the creditor's behavior was so
egregious that it "shock[ed] the Court's conscience." Id. at 681.
The facts in this case are, if anything, the reverse: here, a sophisticated attorney, accused
of taking advantage of a client, asserts the discharge as a defense. Under the circumstances, this
Court declines to exercise its discretion to award punitive damages to the Debtor.
Conclusion
For the foregoing reasons, the Debtor's motion for summary judgment is granted; the
application for attorneys' fees and punitive damages is denied; and the Debtor is directed to settle
an order and judgment consistent with this opinion.
Dated: Brooklyn, New York
April 27, 2005
s/Carla E. Craig
CARLA E. CRAIG
United States Bankruptcy Judge
Case 1-04-01416-cec Doc 15 Filed 04/27/05 Entered 05/02/05 11:14:20

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NEW YORK
-----------------------------------------------------------x
In re: Case No. 95-15616-608
JOSE A. REY, Chapter 7
Debtor.
-----------------------------------------------------------x
JOSE A. REY, Adv. Proc. No. 04-1416-608
Plaintiff,
-against-
ROSARIO LAUREDA and
FREDERIC WALKER, ESQ.,
Defendants.
------------------------------------------------------------x
MAILING CERTIFICATE
I, Vivian Greene, hereby affirm that on April 27, 2005 a copy of an Opinion was
delivered to the parties named below by United States Postal Service first class mail,
telecommunication, facsimile or any other delivery method, as follows:
David J. Weiss, Esq.
666 Old County Road
Suite 700
Garden City, New York 11501
Frederic Walker, Esq.
220 East 76th Street
New York, New York 10021
Dated: Brooklyn, New York
April 27, 2005
s/Vivian Greene
Vivian Greene
Case 1-04-01416-cec Doc 15 Filed 04/27/05 Entered 05/02/05 11:14:20