Geltzer v. Brizinova (In re Brizinova)
554 B.R. 64
Bankr. E.D.N.Y.2016Background
- Debtors Estella Brizinova and Edward Soshkin filed a joint Chapter 7 petition on April 24, 2012; Brizinova listed 100% ownership of ENSI Consulting, Inc. on Schedule B (value listed as $0). Trustee Robert L. Geltzer was appointed.
- Trustee alleges post-petition ENSI continued to operate via websites and generated sale proceeds (estimated ≥ $250,000) that are estate property which defendants failed to turn over.
- Trustee sued (June 23, 2015) asserting: (1) turnover under 11 U.S.C. § 542(a); (2) automatic-stay violations under 11 U.S.C. § 362(a) (with damages under § 362(k)); and (3) conversion under New York common law. Defendants moved to dismiss under Rule 12(b)(6) and asserted laches and pleading-deficiency arguments.
- Key factual disputes: whether ENSI operated post-petition, whether sale proceeds existed/are identifiable, and whether defendants retained or transferred estate property.
- Court held at pleading stage: turnover claim (§ 542) and stay-violation claim (§ 362) withstand dismissal; conversion claim survives as to the ENSI ownership interest but is dismissed as to unidentified sale proceeds with leave to replead the latter.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether § 542 turnover claim is pleaded | Trustee: sale proceeds from post-petition ENSI operations are estate property and are in defendants' possession/control; turnover demanded | Defendants: § 542 targets third parties, not debtors; they lack possession/control and proceeds may not exist | Denied dismissal — Trustee adequately pleaded possession/control, that proceeds are estate property usable under § 363, and value (> inconsequential) given filed claims vs. alleged $250K |
| Whether laches bars § 542 claim | Trustee: delay reasonable; laches rare on pleadings stage | Defendants: 3-year delay is unreasonable; trustee negligent under § 704 duties | Dismissal on laches denied at pleadings stage — defendants did not meet burden to establish laches now |
| Whether § 362 automatic-stay violation is pleaded | Trustee: defendants continued to operate/transfer ENSI interest and proceeds after petition; stay was in effect; trustee may seek remedies in estate's interest | Defendants: ENSI ceased pre-petition and had no assets; thus no stayable estate property and no violation | Denied dismissal — trustee adequately alleged (1) stay in effect, (2) property of the estate, and (3) stay-violative conduct; trustee has standing to seek relief in estate's interest |
| Whether conversion claim adequately pleaded | Trustee: estate owned ENSI interest and post-petition proceeds; defendants exercised dominion and caused $250K+ damage | Defendants: no estate property existed with them; funds not specifically identifiable; pleading is conclusory | Mixed: Conversion claim survives re: the specifically identified ENSI ownership interest. Conversion claim fails re: sale proceeds because funds are not pleaded as a specific, identifiable fund; dismissal with leave to replead as to proceeds |
Key Cases Cited
- Stern v. Marshall, 564 U.S. 462 (2011) (distinguishing core bankruptcy matters and constitutional authority to enter final judgment)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility pleading standard for Rule 8)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (two-step plausibility analysis; disregard bare legal conclusions)
- Rexnord Holdings, Inc. v. Bidermann, 21 F.3d 522 (2d Cir. 1994) (actions in violation of the automatic stay are void ab initio)
- Ackerman v. Schultz (In re Schultz), 250 B.R. 22 (Bankr. E.D.N.Y. 2000) (trustee may seek turnover from debtor who has possession/control of estate property)
- In re Chateaugay Corp., 156 B.R. 891 (S.D.N.Y. 1993) (conversion claim may lie for intangible rights merged with identifiable documents or specific money)