In re Donald Kupperstein

Case Type:
Case Status:
20-1472 (1st Circuit, Apr 22,2021) Published
Affirming the U.S. Bankruptcy Court for the District of Massachusetts (BC), the U.S. Court of Appeals for the First Circuit (Circuit) for the first time formally extended its preexisting interrelated inquires for determining the applicability of § 362(b)(4)’s police power exception to the automatic stay to contempt proceedings. The twined tests, which collectively evaluate whether the governmental actor effectuates a “public policy” (first test) or a “pecuniary interest” (second test), had previously been so expanded by the Seventh and the Ninth Circuits.
Procedural context:
Adjudicating the motions to lift the automatic stay so as to continue prepetition state court proceedings filed by two parties—the Massachusetts Office of Health and Human Services (MassHealth) and the estate of Fred Kuhn (Kuhn), most recently managed by Irene Schall (Schall)—with a lien on and legal title, respectively, to the house of Carol Thibodeau (Thibodeau), Kuhn’s only child, located at 346 Reservoir Street in Norton, Massachusetts (the Property), the BC issued three orders. The first found good cause to lift the stay, “[i]n all other respects ... including the assessment by the courts against Kupperstein of any restitution and sanction amounts.” The nearly identical second further authorized the recommencement of proceedings that had sought to void the illegal purchase and the proscribed renting of the Property by the Thomas Sheedy (Sheedy) and Donald Kupperstein (Kupperstein, and with Sheedy, K&S). And the third order, which issued soon after the first two, denied Kupperstein’s motion to hold MassHealth in contempt for violating the automatic stay. As the BC noted, by the date of its orders, this duo’s refusal to surrender the Property and turn over their tainted proceeds had already resulted in the issuance of at least four separate contempt orders by the Massachusetts Probate Court (PC), on top of a five-year saga in which Kupperstein and Sheedy had collected thousands despite the absence of any valid legal right to the Property. The BC based all three orders on its application of the so-called “police power” exception to the automatic stay under § 362(b)(4) of the Bankruptcy Code. The U.S. District Court for the District of Massachusetts (DC) affirmed all three orders. Unlike the BC, it read the first two as being justifiably (and independently) based on a discretionary determination that relief from the automatic stay was warranted “for cause” under § 362(d)(1). Kupperstein having failed to address this issue in his briefing, he had waived it. The DC next found no abuse of discretion in how the BC had balanced the equities in favor of lifting the stay. Finally, it adopted the BC’s reasoning regarding Kupperstein’s motion for contempt. Kupperstein timely appealed.
The morass from which this opinion sprung began years ago, a twisted tale recounted by another Circuit panel in a 2019 opinion written by the same circuit judge. In 2014, Sheedy bought the Property for less than $100 and tax redemption of $3,379, promising Thibodeau to pay off purportedly unpaid taxes; at the time, the Property was purportedly worth approximately $168,000. Kupperstein, an attorney licensed in Massachusetts, notarized the deed. At the time, the Property actually belonged to the Kuhn’s estate rather than Thibodeau, a fact of which the latter was wholly unaware. More significantly, the estate itself owed a debt of $191,747 to the MassHealth, a state governmental entity; even before Kuhn’s death, MassHealth had placed a lien on the Property so as to secure this debt. Sometime before K& interfered, MassHealth has already drafted plan to have Thibodeau, who was also the estate’s personal representative, to sell the Property so as to pay off this lien. Disregarding MassHealth’s claim and after convincing the unsuspecting Thibodeau to hand over the house to Sheedy, K&S lined their pockets with rents from various tenants the former installed in the Property as months turned to years. Once Kupperstein made clear his determination to resist any plea to divest himself of the Property, a five-year gamut of cases in the Massachusetts Probate Court (PC), Suffolk Superior Court, and Massachusetts Land Court began. Minutiae aside, at least “where it mattered,” Kupperstein lost on the merits. Eventually, the PC voided the Property’s transfer and thereby negated any claims to it that K&S could make and restored the Property to the Kuhn estate and ordered its sale to pay MassHealth, on top of ordering K&S to pay to MassHealth “any and all” rents collected from the Property. Somehow, K&S took this order as further license. In its aftermath, K&S simply disregarded this order by continuing to rent out the Property for their own gains. In 2017, Sheedy sold his interest to Kupperstein, who kept collecting the tainted rent. Frustrated and appalled, the PC held K&S in contempt on August 4, 2017. Evidencing his strange view of the binding nature of judicial orders, Kupperstein again rented the Property to new tenants. The PC responded with an order forbidding Kupperstein from executing any agreements involving the Property, voiding anything he had previously executed, and banning K&S and any one of their agents from entering the Property at all. On December 22, 2017, it again found the duo in contempt and reiterated the order for each to pay the rents they had been collecting to the estate or MassHealth, ordered a surrender of keys and all documents associated with the Property, and threatened to jail K&S for thirty days if they did not pay $5,400 to MassHealth. K&S did even less than the bear minimum: they paid out $3,000 and tendered neither a key nor a lease. The PC naturally responded by scheduling a hearing for January 12, 2018, directing each man to explain why he should not be jailed for contempt. It was only one day before this hearing that the Code intruded when Kupperstein filed for Chapter 7 relief in the BC. Consistent with his earlier course of conduct, Kupperstein opted to list the Property as his own property, valuing it at $350,000. On January 12, 2018, he showed up before the PC, pointing out that the automatic stay immunized him. The PC disagreed: it put him in a holding cell for violating its orders on four different occasions and demanded the Property’s keys, which Kupperstein now claimed to lack. At his next court date, Kupperstein was saved for a thirty-day sentence only by his surrender of the keys and his production of $5,400 in cash. Then, with nary a peep, Kupperstein disappeared. He would be held in contempt twice more, missing three more court dates, even as the PC ordered K&S to turn over $50,000 in outstanding rents and over $10,000 in attorneys’ fees, warning K&S to work out a payment plan with MassHealth or face jail time. Still, Kupperstein never showed; not even an arrest warrant drew him out. With Kupperstein’ s case pending, but the man himself nowhere to be found, Schall and MassHealth sought an order lifting the automatic stay from the BC. Their goal, as the motions laid out, was simply to allow the state court proceedings to recommence. The still missing Kupperstein opposed these requests via his attorney. Kupperstein, however, went further: he asked the BC to sanction MassHealth for contempt due to its participation in the PC’s post-petition contempt proceedings.
Jeffrey R. Howard; Kermit V. Lipez; and Ojetta Rogeriee Thompson

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