Smith v. Silverman (In re Smith)

Summarized by Joel Levitin , Cahill Gordon & Reindel LLP
14 years 9 months ago

Citation:

Docket Nos. 10-1565-bk (L), 10-1655-bk (con) (2nd Cir. May 20, 2011)

Tag(s):

2nd Circuit

Ruling:

Orders of the district court were affirmed. The District Court properly determined that the Bankruptcy Court (1) did not abuse its discretion in denying the appellants’ motion to reopen the Chapter 7 bankruptcy case of Richard A. Smith and (2) properly dismissed appellants’ complaint. Because of the frivolous nature of the appeal, the Court of Appeals ordered appellants and their counsel to show cause why sanctions in the form of double costs and $5,000 in damages, for which appellants and counsel would be jointly and severally liable, should not be imposed.

Procedural context:

Appeal of two orders of the United States District Court for the Eastern District of New York that affirmed orders of the United States Bankruptcy Court for the Eastern District of New York (1) denying the appellants’ motion to reopen a Chapter 7 bankruptcy case and (2) dismissing a complaint filed by the appellants against the trustee of the bankruptcy estate and the trustee’s bondholders (Liberty Mutual Insurance Company).

Facts:

Richard A. Smith (the “Debtor”) filed for relief under Chapter 13 of the Bankruptcy Court. The case was subsequently converted to a case under Chapter 7, and Kenneth P. Silverman was appointed as the trustee (the “Trustee”). The only potential sources of recovery for the Trustee were pending civil suits that the Debtor had initiated several years prior to the commencement of his bankruptcy case. During the Chapter 7 case, the Debtor sought to compel the Trustee to prosecute the civil suits. The Court denied the Debtor’s motion to compel on the basis that the Trustee had determined that the estate was administratively insolvent, and any litigation would have a significant cost, without assurance of an award to the estate. The civil matters were subsequently abandoned to the Debtor, the bankruptcy case was closed, and the Trustee was discharged. The appellants then filed a motion to reopen the bankruptcy case so that they could commence an adversary proceeding against the Trustee’s counsel for malpractice stemming from a failure to prosecute the civil suits. The Bankruptcy Court denied the motion to reopen the case. The Appellants then filed another motion to reopen the bankruptcy case to commence an adversary proceeding against the Trustee and Liberty Mutual Insurance Company (“Liberty”), which issued his surety bond. The Appellants filed the complaint on the same day that they filed the motion to reopen the case. The Bankruptcy Court again denied the appellants’ motion to reopen and subsequently granted Liberty’s motion to dismiss the complaint. On appeal, the District Court affirmed both orders and sua sponte considered sanctions.

ABI Membership is required to access the full summary. Please Sign In using your ABI Member credentials. Not a Member yet? Join ABI now - it is absolutely worth it!