Barbaro Jr et al v. Wider

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NEW YORK
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In re:
Aaron Wider, 	Case No. 09-72993-ast
Chapter 7
Debtor.
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John Barbaro, Jr., William and Robin
Fitzgerald, George Cornielle, Jay Lalor,
and Michelle DiFronzo,
Plaintiffs, 	Adv. Pro. No. 09!08313!ast
v.
Aaron Wider,
Defendant.
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MEMORANDUM OPINION ON PARTIAL ABSTENTION
Issues Before this Court
This adversary proceeding was filed on July 31, 2009. Plaintiffs herein are each
parties to one or more actions pending in the Supreme Court of the State of New York. 1
1 The State Court Actions are: (I) GMAT Mortgage, LLC v. John M. Barbaro, Jr. (Defendant and
Third Party Plaintiff) et. al. v. Aaron Wider HTFC Corporation, Joseph M. Ferrara, Jr. Thomas R.
Annunziato, John M. Mckenna, Jr., John Petiton, and Christopher M. Romano (Third Party Defendants)
(Index No. 17194/07 – Nassau County) (the “Barbaro Action”); (ii) GMAT Mortgage, LLC (Plaintiff) v.
William Fitzgerald, Robin Fitzgerald, Capital et. al. (Defendants and Third Party Plaintiffs) v. Aaron Wider,
HTFC Corporation, John Petiton Esq. Individually and as Trustee of the Saccaro Trust and as Trustee of
the Hatalovsky Trust, John Hatalovsky Jr., Joseph F. Mirando, American Appraisal Services, Inc., Randall
Jonason, Jonason Appraisal Services, Inc (Third Party Defendants) (Index No. 5091/07) (the “Fitzgerald
Action”); (iii) George Cornielle v. GMAT Mortgage, Corp., Aaron Wider, HTFC Corporation, John Petiton,
Esq. Individually and as Trustee of the Rabinowitz Trust, John Hatalovsky, Jr., Teresa Marotta, Individually
and as Trustee of the Hatalovsky Trust, Randall Jonason, Jonason Appraisal Services, Inc, and
Christopher Romano (Index No. 4165/08) (the “Cornielle Action”); (iv) GMAT Mortgage, LLC (Plaintiff) v.
Jay Lalor, et. al. (Defendant and Third Party Plaintiff) v. Aaron Wider, HTFC Corporation, John Petiton,
Individually and as Trustee of the Cournoyer Family Trust, GCF Development Corp., Teresa Marotta,
Individually and as Trustee of the Petiton Trust Joseph Mirando, American Appraisal Services, Randall
Jonason, Jonason Appraisal Services, Inc., and Christopher Romano (Third Party Defendants) (Index
No.: 7047/08) (the “Lalor Action”); and (v) DiFronzo, Michelle v. Aaron Wider, HTFC Corporation, John
Petiton, Angelina Mckenna, Individually and as Trustee of the Melendez Family Trust, Joseph Mirando,
American Appraisal Services, and HSBC Bank N.A. (Index No. 43676/08 - Suffolk County) (the “DiFronzo
Action”) (collectively, the “State Court Actions”).
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Defendant, Aaron Wider, is the Debtor in the main bankruptcy case. Plaintiffs assert
various claims under Section 523(a) of the Bankruptcy Code, objecting to
dischargeability of certain alleged debts. Plaintiffs also assert claims under Section
727, seeking to block Debtor’s discharge.
This Court addresses the issue of whether it should abstain from hearing
Plaintiffs’ Section 523 claims. For the reasons stated herein, this Court will abstain, in
part, from hearing Plaintiffs’ Section 523 claims.
Background
On July 6, 2009, Plaintiffs filed a motion for relief from stay in the main
bankruptcy case, and an amended motion on July 17, 2009, seeking authority to
proceed on their claims against Debtor in the State Court Actions. [dkt items 30, 38]
Debtor and the Chapter 7 trustee, Andrew Thaler, opposed the motion. [dkt items 33,
40] This Court conducted a hearing on July 30, 2009. Additional submissions were
filed. [dkt items 48, 58] On October 6, 2009, this Court entered an Order Granting, in
Part, Motion for Relief from Stay To Proceed with State Court Litigation, authorizing the
Plaintiffs to proceed to judgment but not collection against Debtor in the State Court
Actions. [dkt item 61]
On October 6, 2009, this Court issued an Order to Show Cause in this adversary
proceeding (the “Order”). [dkt item 4] The Order directed the parties to appear on
November 3, 2009, and show cause why this Court should not abstain from hearing this
adversary, in part, as to Plaintiffs’ claims that the debts they claim are owed to them
should survive Debtor’s discharge, pursuant to 11 U.S.C. § 523(a)(2), (a)(4), and/or
(a)(6). The Order was issued in accordance with 28 U.S.C. § 1334(c)(1) and
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Bankruptcy Rule 5011. Plaintiffs’ Section 523(a) claims are largely based upon the
claims already made the subject of the State Court Actions.
The Order further required that, on or before October 27, 2009, Plaintiffs and
Debtor were to file statements in support of, or in opposition to, this Court abstaining
from hearing this adversary, in part, as to Plaintiffs’ claims under Section 523(a)(2),
(a)(4), and/or (a)(6). The Order further specified that this Court was not considering
abstention from the Section 727 claims. Plaintiffs filed a timely statement in support of
abstention. [dkt item 8] Defendant filed an untimely opposition to abstention. [dkt item
9]
This Court conducted a hearing on November 3, 2009 (the “Hearing”), at the
conclusion of which this Court determined that it should abstain from hearing this
adversary, in part, as to Plaintiffs’ claims that the debts claimed by Plaintiffs to be owed
to them should survive Debtor’s discharge, pursuant to 11 U.S.C. § 523(a)(2), (a)(4),
and/or (a)(6). This Memorandum Opinion supplements the oral record of this Court’s
determination at the Hearing.
Analysis
Abstention is permissible and appropriate here, pursuant to Section 1334(c)(1) of
Title 28, which provides as follows:
Except with respect to a case under chapter 15 of title 11, nothing in
this section prevents a district court in the interest of justice, or in the
interest of comity with State courts or respect for State law, from
abstaining from hearing a particular proceeding arising under title 11
or arising in or related to a case under title 11.
28 U.S.C. § 1334(c)(1).
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When considering whether permissive abstention is appropriate, bankruptcy
courts have considered one or more—although not necessarily all—of twelve factors.
Wallace v. Guretzsky, No. CV-09-0071, 2009 WL 3171767 (E.D.N.Y. Sept. 29, 2009);
Cody, Inc. v. County of Orange (In re Cody, Inc.), 281 B.R. 182, 190 (S.D.N.Y. 2002),
aff’d in part, appeal dismissed in part, 338 F.3d 89 (2d Cir. 2003); Taub v. Hershkowitz,
et. al. (In re Taub), No. 09-1277, 2009 WL 3055233, *4 (Bankr. E.D.N.Y. Sept. 21,
2009). These factors are:
(1) the effect or lack thereof on the efficient administration of the
estate if a court recommends abstention; (2) the extent to which state
law issues predominate over bankruptcy issues; (3) the difficulty or
unsettled nature of the applicable state law; (4) the presence of a
related proceeding commenced in state court or other non-bankruptcy
court; (5) the jurisdictional basis, if any, other than 28 U.S.C. § 1334;
(6) the degree of relatedness or remoteness of the proceeding to the
main bankruptcy case; (7) the substance rather than the form of an
asserted ‘core’ proceeding; (8) the feasibility of severing state law
claims from core bankruptcy matters to allow judgments to be entered
in state court with enforcement left to the bankruptcy court; (9) the
burden 	of 	[the 	court’s] 	docket; 	(10) 	the 	likelihood 	that 	the
commencement of the proceeding in a bankruptcy court involves
forum shopping by one of the parties; (11) the existence of a right to
a jury trial; and (12) the presence in the proceeding of non-debtor
parties.
Wallace, 2009 WL 3171767 at *2.
Recently, this Court determined to abstain in a case also involving substantial
prepetition state court litigation between a debtor, Ms. Wallace, and a nondebtor party,
Mr. Guretzsky. The adversary proceeding commenced in that case sought to block the
dischargeability of certain debts under Section 523(a)(6). After applying the above
outlined abstention factors, this Court issued an order of partial abstention. The United
States District Court for the Eastern District of New York affirmed that decision on
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appeal. Wallace, 2009 WL 3171767, at *5-6.
Here, the abstention factors also weigh in favor of abstention. The underlying
liability issues as between Plaintiffs and Debtor in the State Court Actions are matters of
New York State substantive law. The fraud alleged against Defendant is common law
fraud, and not a creature of the Bankruptcy Code. As noted above, Plaintiffs’ Section
523(a) claims are largely based upon the claims made the subject of the State Court
Actions. Thus, in this adversary, the issues potentially giving rise to determinations of
non-dischargeability are issues of state law, with the sole exception of the conclusions
to be made under Section 523(a).
Specifically, of the twelve abstention factors, the following weigh in favor of
abstention here: (1) the lack of the effect of abstention on the efficient administration of
this estate; (2) state law issues predominate over bankruptcy issues; (4) the presence of
a related proceeding commenced in state court or other non-bankruptcy court; (5) the
jurisdictional basis, if any, other than 28 U.S.C. § 1334; (6) the degree of relatedness or
remoteness of the proceeding to the main bankruptcy case; (8) the lack of feasibility of
severing state law claims from core bankruptcy matters to allow judgments to be
entered in state court with enforcement left to the bankruptcy court; (11) the existence of
a right to a jury trial; and (12) the presence in the proceeding of non-debtor parties.
Issues 5, 8, and 12 are particularly impactive here. The State Court Actions are
each multiparty actions, including parties other than Plaintiffs and Debtor. This Court
has no core jurisdiction over the claims of the non-debtor parties in the State Court
Actions against the other non-debtor parties, including those against the Plaintiffs in this
adversary proceeding. Further, all of the parties have jury trial rights before the state
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courts; however, absent full consent, this Court could not preside over the State Court
Actions if they were removed to this Court, and the parties’ jury trial rights were properly
exercised.
Conclusion
Thus, this Court will abstain from hearing this adversary, in part, as to Plaintiffs’
claims that the debts claimed by Plaintiffs to be owed to them should survive Debtor’s
discharge, pursuant to 11 U.S.C. § 523(a)(2), (a)(4), and/or (a)(6), in favor of the state
court trying the State Court Actions to judgment; however, enforcement of any judgment
shall remain stayed. Plaintiffs and/or Debtor shall return to this Court following the final
trial of such cases and ask this Court to enter a judgment under Section 523 based on
the findings and/or jury verdict(s) of the triers of fact in the State Court Actions.
This Court does not, however, abstain from hearing the claims asserted by
Plaintiffs under Section 727. A separate order hereon and an order of severance will be
entered, such that trial may proceed on the Section 727 claims.
6
____________________________
Alan S. Trust
United States Bankruptcy Judge
Dated: November 30, 2009
Central Islip, New York
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