592 B.R. 442
Bankr. E.D.N.Y.2018Background
- Debtors Robert Geltzer (trustee) sued Estella Brizinova and Edward Soshkin seeking turnover, stay-violation damages, and conversion for approximately $250,000 in post-petition sale proceeds generated by ENSI Consulting, Inc., a corporation Brizinova owned 100% of the shares of at petition date.
- Debtors filed Chapter 7 on April 24, 2012; trustee appointed and debtor received discharge in July 2012. ENSI operated post-petition websites that produced sale proceeds the trustee alleges belong to the estate as proceeds of the debtor's 100% share interest.
- This is a second dispositive motion after the court previously denied a motion to dismiss (Brizinova I) but dismissed conversion as to specifically identifiable funds and granted leave to replead; trustee did not replead and also sued a third party (daughter‑in‑law) in a separate adversary.
- Defendants moved under Rule 12(c) and 12(h)(3) arguing (inter alia) ENSI’s corporate assets and proceeds are ENSI’s property (a non‑debtor) not estate property, denying subject‑matter jurisdiction and entitlement to relief; they also invoked judicial estoppel based on the trustee’s separate suit.
- The court held hearings and supplemental briefing; it treated the pleadings under the Rule 12(c)/12(b)(6) standard and declined to convert the filing into a summary judgment motion.
- Holding: the court granted judgment on the pleadings for defendants as to all three claims (turnover under §542, stay violation under §362, and conversion) because the trustee failed to plausibly allege that the ENSI sale proceeds were property of the bankruptcy estate.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether court has jurisdiction / trustee standing | Trustee: court has core bankruptcy jurisdiction; trustee has statutory standing under §704 to pursue estate assets | Defendants: ENSI is non‑debtor; proceeds are ENSI’s property so no estate asset and no Article III dispute | Court: jurisdiction exists as core matter and trustee has standing, but jurisdictional challenge does not save deficient claims on the merits |
| Turnover under §542(a) — are proceeds estate property usable under §363? | Trustee: post‑petition proceeds from operation of ENSI are proceeds of debtor’s 100% share and thus estate property subject to turnover | Defendants: corporate assets/proceeds belong to ENSI (separate legal entity); ownership of shares ≠ ownership of corporate assets | Court: trustee alleged possession and value but failed to plausibly allege proceeds are "proceeds of or from property of the estate"; turnover claim dismissed |
| Automatic stay violation (§362) — were transferred items property of the estate? | Trustee: defendants transferred interest/proceeds post‑petition in violation of stay; alleged stay was in effect and transfers occurred after petition | Defendants: transfers involved ENSI property (non‑debtor), so §362 does not apply; no stay as to ENSI assets | Court: trustee pleaded the stay was in effect but failed to allege property was estate property; stay‑violation claim dismissed |
| Conversion (New York law) — specifically identifiable estate funds and right to possession? | Trustee: asserted conversion of estate’s 100% interest in ENSI and Post‑Petition Sale Proceeds (est. $250k) | Defendants: proceeds are ENSI’s, not estate property; conversion requires specific identifiable funds and a right to possession by plaintiff | Court: trustee failed to plead title/right to possess and that the proceeds were specifically identifiable estate funds; conversion claim dismissed |
Key Cases Cited
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (plausibility standard for pleadings)
- Ashcroft v. Iqbal, 556 U.S. 662 (application of plausibility and two‑step pleading analysis)
- Stern v. Marshall, 564 U.S. 462 (bankruptcy core‑proceeding authority)
- Musacchio v. United States, 136 S. Ct. 709 (law‑of‑the‑case / courts' discretion to revisit prior rulings)
- Colvin v. Keen, 900 F.3d 63 (law‑of‑the‑case is discretionary)
- Zdanok v. Glidden Co., 327 F.2d 944 (discussion of law of the case doctrine)
- Chartschlaa v. Nationwide Mut. Ins. Co., 538 F.3d 116 (broad interpretation of property of the estate)