556 B.R. 546
Bankr. W.D.N.Y.2016Background
- Gary and Robert Palumbo filed mirror-image emergency motions to reopen their Chapter 7 no-asset cases (filed/closed ~1999) to resolve an unscheduled guaranty debt asserted by Patti Billard.
- Billard sued the Palumbos in Monroe County Supreme Court in 2006; in 2009 the Palumbos were granted leave to amend their answer to assert bankruptcy discharge as an affirmative defense.
- The Palumbos sought reopening in August 2016 just before a state-court trial scheduled for September 12, 2016, requesting a declaratory ruling that any guaranty debt was discharged or, alternately, to amend their bankruptcy schedules.
- Billard opposed reopening, arguing prejudice and that the state court — where the discharge was already pled as an affirmative defense — should decide dischargeability.
- The bankruptcy court found the cases had been closed 18 years, the state court has concurrent jurisdiction and had assumed the issue, and reopening would prejudice Billard and constitute forum-shopping.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether debtors showed "cause" to reopen long-closed Chapter 7 cases under 11 U.S.C. § 350(b) to determine dischargeability of an unscheduled debt | Palumbos: Court should reopen to decide dischargeability and provide guidance (and potentially revisit In re Tucker) | Billard: State court already has jurisdiction; reopening prejudices her and is unwarranted after years of state litigation | Denied — no cause shown to reopen under § 350(b) |
| Whether state court or bankruptcy court should decide dischargeability of an unscheduled debt | Palumbos: bankruptcy court should address issue now | Billard: State court has concurrent jurisdiction and already assumed the issue as an affirmative defense | State court has concurrent jurisdiction and had assumed the issue; bankruptcy court declines to intervene |
| Whether permissive abstention under 28 U.S.C. § 1334(c)(1) is appropriate | Palumbos: urged federal guidance | Billard: urged comity and abstention | Court exercised permissive abstention in favor of state-court adjudication |
| Whether temporary stay of state-court proceedings should remain | Palumbos: sought federal resolution before trial | Billard: opposed further delay | Temporary stay terminated; state-court trial may proceed |
Key Cases Cited
- In re Tucker, 143 B.R. 330 (Bankr. W.D.N.Y. 1992) (bankruptcy discharge issues and prior bankruptcy court treatment cited by parties)
- In re Candidus, 327 B.R. 112 (Bankr. E.D.N.Y. 2005) (discusses concurrent jurisdiction and post-discharge avenues to determine dischargeability)
- In re Massa, 217 B.R. 412 (Bankr. W.D.N.Y. 1998) (addresses state and bankruptcy court concurrent jurisdiction over dischargeability)
- State v. Wilkes, 41 N.Y.2d 655 (N.Y. 1977) (New York Court of Appeals: state courts have power to determine effect of bankruptcy discharge)
- Chevron Oil Co. v. Dobie, 40 N.Y.2d 712 (N.Y. 1976) (state courts’ obligation to interpret and apply federal statutes; concurrent jurisdiction principle)