566 B.R. 641
S.D.N.Y.2017Background
- Froman was sued in state court over a sculpture called "Survival," settled with Fein for $115,000, but Froman defaulted and a later money judgment of $137,181.25 entered. The sheriff seized the sculpture and scheduled a sale.
- Froman filed Chapter 13 bankruptcy on April 5, 2016. Her schedules listed ~ $18.9 million in assets (including Survival at over $1M) and only about $800,000 in liabilities; her proposed plan paid $300/month.
- The parties exchanged correspondence and agreed for a time that Survival would remain in the sheriff’s possession while transfer, storage, insurance, and sale arrangements were made. Negotiations later broke down.
- Fein moved in bankruptcy court for relief from the automatic stay (or dismissal) on May 6, 2016; the court enjoined removal of Survival pending the motion, but Silvernail retrieved the sculpture before the injunction was effective.
- The bankruptcy court found Froman filed in bad faith, converted the case to Chapter 7, lifted the automatic stay to let Fein enforce rights in Survival, and denied Froman’s motion for sanctions for an alleged stay violation. The district court affirmed.
Issues
| Issue | Plaintiff's Argument (Froman) | Defendant's Argument (Fein) | Held |
|---|---|---|---|
| Whether the Chapter 13 case should be converted to Chapter 7 for cause (bad faith) | Filing was legitimate; Chapter 13 filings are commonly used to address secured creditors and she intended to sell artwork to pay creditors | Froman filed to evade state-court sale and delay enforcement; factors (few unsecured creditors, timing on eve of sale/foreclosure, minimal plan payments, asset/liability disparity, two‑party dispute) show bad faith | Affirmed: bankruptcy court considered the totality of circumstances and did not abuse discretion in finding bad faith and converting to Chapter 7 |
| Whether Froman had adequate notice or was entitled to an evidentiary hearing before conversion | Court failed to give notice it would convert and should have held an evidentiary hearing | Froman had notice of the hearing on Fein’s motion, rested on written submissions, did not request an evidentiary hearing | Affirmed: notice and opportunity to be heard were adequate; no abuse of discretion in declining a full evidentiary hearing |
| Whether Fein was entitled to relief from the automatic stay under §362(d)(1) | Relief was improper; stay protected the estate and property of the estate | Froman filed in bad faith, same bad-faith factors support lifting the stay for cause | Affirmed: lifting the stay for cause was not an abuse of discretion given the bad-faith finding |
| Whether Fein willfully violated the automatic stay and whether Froman is entitled to damages/fees | Fein violated the stay by not turning over Survival and should pay damages/fees (willful violation) | Parties had an agreement to leave Survival with the sheriff while arrangements proceeded; sheriff—not Fein—had possession; Froman offered no proof of actual damages beyond litigation costs | Affirmed: no stay violation by Fein (status‑quo agreement); no compensable damages shown and punitive damages unwarranted |
Key Cases Cited
- In re C-TC 9th Ave. P’ship, 113 F.3d 1304 (2d Cir. 1997) (bad-faith standard re: probability of reorganization)
- Crysen/Montenay Energy Co. v. Esselen Assocs., Inc. (In re Crysen/Montenay Energy Co.), 902 F.2d 1098 (2d Cir. 1990) (willful stay violations and damages)
- Weber v. SEFCU (In re Weber), 719 F.3d 72 (2d Cir. 2013) (creditor’s retention of debtor’s property can constitute willful stay violation)
- In re Great Atl. & Pac. Tea Co., 467 B.R. 44 (S.D.N.Y. 2012) (scope of automatic stay and appellate review of bankruptcy orders)
- Blaise v. Wolinsky (In re Blaise), 219 B.R. 946 (2d Cir. BAP 1998) (conversion/dismissal standards and discretion on evidentiary hearings)