In Re Brill
MEMORANDUM DECISION
On October 19, 2004, the Court heard oral argument on the Trustee’s Motion for an Order Reducing, Expunging and/or Modifying Claims and Creditor Peter Brill’s Opposition thereto. On November 12, 2004 and November 22, 2004, respectively, counsel for the Trustee and the creditor pro se filed responsive briefs. For the reasons set forth below, the Court finds Creditor Peter Brill’s Proof of Claim unenforceable against the estate because it is time barred pursuant New York Civil Practice Law and Rules Section 213, and thus disallows the claim pursuant to 11 U.S.C. §§ 502(b)(1) and 558.
JURISDICTION
The Court has jurisdiction over this contested matter under 28 U.S.C. Sections 1334(a) and 157(a) and the standing order of reference to bankruptcy judges dated July 10, 1984 signed by acting Chief Judge Robert J. Ward. This is a core proceeding under 28 U.S.C. Section 157(b)(2)(B). The following opinion constitutes the Court’s findings of fact and conclusions of law under Bankruptcy Rules 9014 and 7052.
BACKGROUND FACTS
On April 10, 1991 Debtor executed a Promissory Note (the “Note”) in favor of his brother, Peter Brill (the “Creditor”) in the principal amount of $100,000 bearing interest at a rate of ten percent (10%) per year. The Note provided that all payments due pursuant to its terms were to be made on or before April 9, 1992. Except for two interest payments of $10,000 each made on January 10, 1993 and January 26, 1996, Debtor has made no payments toward the Note. It is undisputed that the Creditor Peter Brill, Debtor’s brother, never took legal action to collect on the Note prior to Debtor’s bankruptcy filing.
On September 9, 2002 Debtor filed a voluntary petition pursuant to Chapter 7 of title 11 of the United States Code. Debtor listed the Creditor on his petition as holding an unsecured claim in the sum of $192,000. On November 15, 2002, the Creditor filed a Proof of Claim, Claim No. 3, asserting an unsecured claim in the original principal amount of $100,000, plus interest of $131,731.15, for a total claim of $231,731.15. Although both brothers state that a copy of the Note was attached to the filed Proof of Claim, no such Note is found on this Court’s electronic docket. A hard copy of the Note was submitted to the Court by the attorney for the Trustee. On July 26, 2004 the Trustee filed a Motion Seeking an Order Reducing, Expunging and/or Modifying Claims, (the “Motion”), ECF Docket No. 126, seeking,
inter alia,
to expunge the Creditor’s claim as not being supported by sufficient documentary evidence. Debtor objected to the Motion on the grounds that the Trustee was in possession of the signed promissory note, that the debt had been listed in the Debtor’s bankruptcy petition,
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that Credi
SUMMARY OF THE ARGUMENTS
In the Trustee’s Supplemental Affidavit and Memorandum of Law in Further Support of the Motion, the Trustee argues that Creditor’s claim is barred on statute of limitation grounds, as the Note was due in full on April 9, 1992, and no action to collect on the loan was ever taken within the six-year limitation period. Additionally, no payment on the loan had been made since January 26, 1996, and thus, the statute of limitation expired at the latest on January 26, 2002,
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approximately nine months before Debtor’s bankruptcy filing. As the Creditor’s claim would have been unenforceable against the debtor under applicable New York State Law, i.e. New York Civil Practice Law and Rules (“C.P.L.R.”) § 213, the Trustee advances that the claim should be disallowed pursuant to 11 U.S.C. § 502(b)(1). Although the statute of limitation could have been ex
DISCUSSION
A challenged claim will not be allowed by the bankruptcy court if the claim is barred by the applicable statute of limitations. Pursuant to 11 U.S.C. § 502, a claim, proof of which has been filed, is deemed allowed unless objected to and, after notice and a hearing, the court disallows the claim in whole or in part. Section 502(b)(1) requires a claim to be disallowed if “such claim is unenforceable against the debtor and property of the debtor, under any agreement or applicable law for a reason other than because such claim is contingent or unmatured.” Further support for disallowing a time barred claim is found in 11 U.S.C. § 558 which provides that “[t]he estate shall have the benefit of any defense available to the debtor as against any entity other than the estate, including statutes of limitation ... A waiver of any such defense by the debtor after the commencement of the case does not bind the estate.” The Southern District of New York recognizes the authority of the Bankruptcy Court to apply a statute of limitation or other dispositive defense in the disallowance of claims.
See In re U.S. Lines, Inc. v. U.S. Lines Reorganization Trust,
New York C.P.L.R. § 213 provides that an action to collect sums due under a note must be commenced within six years. The statute of limitation applicable to an action on a note accrues on the date final payment became due on the subject debt.
See Young v. Woodcrest Club,
The only issue in dispute is whether G.O.L. Section 17-101 extended the six year limitation period in the instant case. G.O.L. Section 17-101 states in pertinent part that “[a]n acknowledgment or promise contained in a writing signed by the party to be charged thereby is the only competent evidence of a new or continuing contract whereby to take an action out of the operation of the provisions of limitations of time for commencing actions under the civil practice law and rules ...” In order to revive the statute of limitations, “the writing ... to constitute an acknowledgment, must recognize an existing debt and must contain nothing inconsistent with an intention on the part of the debtor to pay it.”
See Lew Morris Demolition Co. v. Bd. Of Educ. of City of New York,
The Letters
The Creditor provided the Trustee and the Court with several communications
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which he advances acknowledge the
Letter dated September 24,1996:
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The Debtor’s statement, “I will still no matter what happens give your money back,” was made in connection with a request for additional funds. The Debtor continuously references his dire financial straits and conditions payment to the Creditor on the success of his various business ventures and a future ability to pay. At no point does Debtor propose a payment plan, or make any concrete unconditional proposal to repay the money owed to the Creditor. Instead, he states that he will be unable to pay anything unless the “Culligan deal” is consummated, the Colorado Land Sales are successful, or “Gail” [Debtor’s former spouse] is able to somehow repay the loan. The Creditor has not shown any of these conditions have been satisfied, i.e. that the Culligan deal occurred.
See Flynn v. Flynn,
Letter dated April 16, 1998:
Acknowledgment of Debt: “In that troubled year you were good enough to loan us $125,000 7 ... Iam taking responsibility for your loan ... I _figured we owe you $150,000.”_
Statements Inconsistent with Intention to “We have gotten ourselves into a financial Pay or Conditions on Payment: straightjacket. Some of these problems our own doing, but the big reasons why you ... haven’t been paid has to do with market conditions and events beyond our control like my $87,000 hospital bill ... all together we owe over $4,000,000 ... So as the saying goes you can’t take money out of a stone — and that’s where we are. If we had it or could get more of it you are the first in line for some more payments ... I have stated this before — if I knew that you would need those funds I wouldn’t have approached you and if we knew how our world was going to unfold I wouldn’t have made that fateful request of you in 1991.... We have no funds to pay you at this time ... However, if the stock market was making me richer by the week and I didn’t need the money right away I’d probably cast this loan as a safe treasury bond that might take a while to redeem or mature but will prove to be a satisfactory investment in the long run ... Another idea is for you to put some money into the River’s Edge Colorado Project to get it going and give yourself a new project to work on. This will get you a return on your new money and there is enough profit to return what I owe you as well. The same would be true about the Deer Hollow Project in Cold Spring ... I’m not sure where the $8,275.49 comes from but I am glad to pay it if it is due.”
Again, Debtor emphasizes his financial difficulties, states that the Creditor “can’t
Letter dated June 8,1998:
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Again, the Debtor declines to make payment, and even refuses to pass title of a property to the Creditor to satisfy the underlying loan. Debtor states in his letter that all mortgages must be satisfied to transfer such title and that payment to the Creditor was not possible at the time; instead, Debtor again attempts to induce the Creditor to lend him more money. Repayment to the Creditor is always conditioned upon some future fortuitous event dependent upon additional sums being lent by the Creditor. At no point does the Debtor offer unconditional payment at a specific point in time.
Interestingly enough, the Creditor himself apparently did not believe that the Debtor’s many promises were consistent with an intention to repay him. In an email to the Creditor dated August 13, 2001 Debtor mentions the “big loan” and asks for a loan of additional sums. Once again, Debtor refers to the debt as a bond that the Creditor cannot access until it is mature. The Creditor replies by ridiculing the Debtor’s characterization of the loan as a bond, which he refers to as a “Brill Bond.” The Creditor refused to lend additional money to Debtor because he did not believe that Debtor would repay any funds, stating that there was “no guarantee [of payment] and poor history.” The Creditor points out that Debtor has never even offered a payment plan on the loan, despite Creditor’s numerous requests that he do so. The Creditor goes on to underscore that Debtor’s only offers of repayment have been conditioned on participation in Debtor’s “investments,” which the Creditor placed in single quotation marks, indicating to the Court that he does not himself believe that Debtor’s offers provide a realistic opportunity for return or evidence an intention to repay the money owing. The email at issue was sent pre-petition and reflects the Creditor’s understandable frustration as well as his obvious belief that Debtor had no intention whatsoever of repaying the funds owed. The Creditor further indicates, in an email entitled “Cornered,” and dated August 12, 2001 8 that “A Bank or another Creditor would have foreclosed by now. Should I have sent you weekly bills & (sic) made daily threatening demand calls? It seems you have a weak sense of obligation and no intention of repaying me, but prefer to expend whatever spare change you might have at the moment on person-allfamily gratiñcation/obligation rather than make any payments (however slight) on the loan ...”
Like the Creditor, the Court now reaches the inescapable conclusion that Debtor never intended to repay the debt owed to Creditor, the letters forwarded to the Creditor which acknowledge the loan were in fact thinly veiled attempts to borrow additional funds and contained conditions upon repayment that were never fulfilled as well as statements inconsistent with an intention to repay. Furthermore, it is also clear that the Creditor refrained from pursuing legal remedies based upon a sense of familial obligation.
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While understandable, this forbearance is not a legally sufficient reason to prejudice Debtor’s other creditors, who have acted to preserve their
“Statutes of limitation are designed, in part, to protect potential defendants from the burden of litigating stale claims by putting defendants on notice of claims against them within specified periods, so they can prepare their defenses adequately while the evidence is still fresh. They are designed to prevent fraudulent and stale claims from being asserted, to the surprise of the parties or their representatives, when the evidence has been lost, or the facts have become obscure from the lapse of time or the defective memory, death, or removal of witnesses.” See 51 Am.Jur.2d Limitation of Actions § 15 (2004).
It is true that application of a statute of limitation can have rigid and sometimes harsh results. The need for finality necessitates this rigidity. Legislatures have set deadlines upon the ability to seek recourse from the courts to prevent defendants from being held liable in perpetuity for past actions when memories have faded, evidence has been lost or has degraded, and witnesses are no longer available to testify. The claim being asserted in this case is stale. The defendant is no longer the Debtor personally, but his bankruptcy estate. The estate now has the burden of challenging the legitimacy of debt that is more than a decade old. Other creditors in this action might be surprised to learn that Debtor owes his brother close to a quarter of a million dollars, as there is no suggestion that the promissory note was ever recorded in any public record, or any legal action ever instituted against Debtor.
The Net Worth Statement
The Creditor’s argument that that statute of limitation was revived by Debtor’s inclusion of his debt on Debtor’s February 16, 1999 Net Worth Statement (the “Net Worth Statement”) need not occupy the Court for very long. Case law states that an acknowledgment of a debt to a third party will be effective to revive the limitation period if it appears that the debtor’s intention was to communicate the acknowledgment to the creditor.
See, e.g. Clarkson Co. v. Shaheen,
There are other difficulties with the Net Worth Statement’s alleged acknowledgment of the debt — it provides 1990 as the year the debt was incurred, when in fact the subject Note was signed in 1991. The Net Worth Statement also lumps together the two separate loans made pursuant to two separate instruments — the $100,000 and $25,000 — as if borrowed pursuant to the same instrument, under the section entitled “Notes [plural] Payable.” Ostensibly, these should have been listed as separate obligations, and indeed, the $25,000 note should not have been mentioned at all, as the smaller loan was purportedly repaid almost immediately, see Letter to Peter Brill, dated April 16, 1998 (“A minor point, but simultaneously with this loan was a loan for $25,000 and you did receive that principal plus interest back ... ”.). These minor discrepancies would not be so troubling if the Net Worth Statement did not contain a legend above Debtor’s notarized signature which states “The foregoing statements ... have been carefully read by the undersigned who states that they are true and correct.” As Debtor affirmed that he had carefully read the Net Worth Statement for inaccuracies, the Court must assume that the 1990 date was accurate and that Debtor may be referring to a different debt owed to the Creditor altogether. In any case, the debt is not identified with sufficient precision in the Net Worth Statement to absolutely constitute an acknowledgment of the claim at issue herein, as there are discrepancies as to date and amount.
The Court is not persuaded on the current record that this Net Worth Statement was communicated to the Creditor as Debtor’s intention to repay him; rather, it is just as likely the debt was included for consideration by the state court in the equitable distribution analysis. There is no indication in the June 1999 letter that Debtor intended to repay the Creditor after the matrimonial proceeding was complete, if a property award was made on that basis. Indeed, why should he? There was never a threat of any legal
CONCLUSION
The Creditor’s claim is disallowed as barred by the applicable statute of limitation. The Trustee is directed to submit an order consistent with this opinion.
Notes
. The listing of a debt on a bankruptcy petition does not constitute written acknowledgment of the debt with the intent to pay so as to remove the Statute of Limitations as a bar
. The Debtor has submitted to the Court a letter, dated November 22, 2004, with regard to the Trustee's Second Supplemental Memorandum. The letter at issue primarily discusses the matrimonial court’s distribution of marital property, which was recently upheld by the First Department in an opinion authored by Judge George Marlow. The Debtor has expressed his intention to appeal the Appellate Division's affirmance of the property award; in any event, the outcome of that appeal will have no bearing on the disposition of this contested matter.
. The Court assumes without deciding that partial payment made on January 26, 1996 extended the statute of limitation. In order to revive a statute of limitations, partial payment must be made “under circumstances from which a promise to honor the obligation may be inferred ... [to] ... make the time limited for bringing an action start anew from the time of such payment ..."
See Roth v. Michelson,
. The creditor refers to settlement discussions with the Trustee in his Response to the Trustee's Second Supplemental Memorandum of Law to the Trustee’s Motion. The creditor states that settlement negotiations are an "obvious admission that there is merit to the Claim.” Federal Rule of Evidence 408, Compromise and Offers to Compromise, states that "Evidence of (1) furnishing or offering or promising to furnish, or (2) accepting or offering or promising to accept, a valuable consideration in compromising or attempting to compromise a claim which was disputed as to either validity or amount, is not admissible to prove liability for or invalidity of the claim or its amount. Evidence of conduct or statements made in compromise negotiations is likewise not admissible.” Therefore, the Court has disregarded the creditor's reference to settlement negotiations in rendering this opinion.
. The creditor submitted the first page of one letter, dated November 17, 1998, which acknowledges the debt and references allocation of responsibility for the debt to either Debtor
. Pro se litigants are afforded considerable leniency in meeting formal pleading requirements. Nonetheless, pro se litigants are not relieved of their duty to plead and prove their entitlement to the relief they seek.
See DeBuono v. Fanelli (In re Fanelli),
. Note that Debtor states that he paid back a separate $25,000 loan, plus interest, in his 4/16/1998 letter. The $25,000 loan is not at issue in the bankruptcy as it has been satisfied.
. The date is handwritten in the email header.
. No such filial sensibility prevented the Creditor from charging his brother a handsome interest rate of 10% per annum.