Benzaquen & Classic Restoration Enterprises, Inc. v. Rabinowitz (In re Rabinowitz)

Citation: 508 B.R. 874Docket: Case No. 12-24040 (RDD); Adversary Proceeding No. 13-08207 (SHL)

Court: United States Bankruptcy Court, S.D. New York; May 12, 2014; Us Bankruptcy; United States Bankruptcy Court

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Plaintiffs Melvin Benzaquen and Classic Restoration Enterprises, Inc. filed a renewed motion for summary judgment, which was unopposed by the Defendants. The Plaintiffs claimed that the debt owed by Defendants was due to willful and malicious acts, warranting an exception from bankruptcy discharge under Section 523(a)(6) of the Bankruptcy Code. The background involves settlement agreements between the Plaintiffs and Debtor Bruce Rabinowitz arising from litigation in the New York Supreme Court from 2010 to 2012. 

In a May 2010 settlement, Rabinowitz agreed not to discuss any alleged wrongdoing regarding work performed by the Plaintiffs on his vehicle. Following a breach of this settlement, a separate action led to another settlement in October 2010, which was incorporated into a formal order in January 2011. The Plaintiffs later sought to hold Rabinowitz in contempt for violating this order, which the court upheld, finding the violations depriving the Plaintiffs of their rights and damaging their business reputation. 

Subsequently, the court ordered a damages settlement requiring the Defendants to pay the Plaintiffs $10,000 in monthly installments, secured by a $40,000 confession of judgment. Additionally, Renee Rabinowitz was required to personally guarantee all payments under the settlement. The court granted the Plaintiffs' renewed motion for summary judgment based on these findings.

In November 2012, the Debtors filed for bankruptcy to discharge their debts, including a settlement agreement from October 11, 2012. The Plaintiffs initiated an adversary proceeding to determine that their debt is non-dischargeable under Section 523(a)(6) of the Bankruptcy Code. The Plaintiffs' initial summary judgment motion was denied by the Court on January 17, 2014, due to insufficient evidence showing that the Debtors' conduct was "willful and malicious." The Court allowed the Plaintiffs to submit additional evidence, which they did on January 20, 2014, including an Orange County Court Order from April 23, 2012. The Debtors did not oppose this submission. Subsequently, the Court recognized the Plaintiffs' letter as a renewed summary judgment motion, setting a response deadline for the Debtors, who failed to respond. The legal standard for summary judgment under Federal Rule of Civil Procedure 56(c) applies here, requiring the movant to show no genuine dispute of material fact. The burden then shifts to the non-moving party to demonstrate such a dispute through evidence beyond the pleadings. A court must grant summary judgment if the complete record does not allow a rational jury to find for the non-moving party.

Unopposed summary judgment motions necessitate a court's evaluation of the merits of the moving party's request. Merely failing to oppose such a motion does not warrant automatic approval; the court must determine if the moving party has demonstrated the absence of genuine material facts and is entitled to judgment as a matter of law. Undisputed facts in the Rule 56 statement, supported by admissible evidence, are accepted as true, but the court must verify that the claims in the Rule 56.1 statement are substantiated and show no genuine issue for trial.

Under 11 U.S.C. § 523(a)(6), a creditor can object to the discharge of debts due to "willful and malicious injury" caused by the debtor. To establish "willfulness," the creditor must prove the debtor intended a specific injury, not merely the act causing it. Malice is defined as wrongful conduct without justification, regardless of personal animosity. Typical breach of contract damages do not generally qualify under this section, but a debtor's persistent violation of court orders can lead to non-dischargeable contempt damages. The burden of proof lies with the creditor seeking the exception, which must be demonstrated by a preponderance of evidence. Any uncertainties regarding the debt's status under § 523(a)(6) should be interpreted in favor of the debtor, recognizing the severe consequences of non-discharge. Courts typically apply a narrow interpretation of discharge exceptions, favoring the debtor, while still being able to grant summary judgment on non-dischargeability claims.

In Indo-Med Commodities, Inc. v. Wisell, the court granted summary judgment on a Section 523(a)(6) non-dischargeability claim, utilizing a pre-petition New York state court judgment. The debtor’s failure to object to the creditor’s motion allowed the court to accept the state court's findings as undisputed. However, the court emphasized that collateral estoppel required independent verification of whether those findings warranted the relief sought under Section 523(a). Judge Grossman identified the debtor's actions, described as "knowingly and intentionally misleading and deceiving customers," as willful behavior under Section 523(a)(6).

The court ruled that a per se finding of malice was not necessary; instead, the debtor's behavior implied malice under the circumstances. The plaintiffs successfully demonstrated by a preponderance of the evidence that the debt should be excepted from discharge, supported by the undisputed factual background outlined in the April 23, 2012 Order. This order revealed that the debtor, Rabinowitz, willfully violated a lawful court order by making statements contrary to a settlement agreement, despite explicit prohibitions against such actions. The court found that Rabinowitz's defiance of court orders constituted sufficient aggravating circumstances to satisfy the malice requirement of Section 523(a)(6).

The Court determines that the entire debt adjudicated by the Orange County Court is non-dischargeable under 11 U.S.C. § 523(a)(2)(A), referencing precedent that supports this conclusion, including Cohen v. de la Cruz and In re Hambley. The Court declines to reassess the Orange County Court's settlement order, applying the principle of collateral estoppel as established in Rahman v. Seung Min Park. Consequently, the Plaintiffs’ Renewed Motion is granted, and a judgment of non-dischargeability will be entered under Section 523(a)(6) of the Bankruptcy Code. The Plaintiffs are instructed to submit a proposed order within five days. Additionally, the Court addresses concerns regarding Plaintiff's counsel, H. Scott Ziemelis, who has expressed frustration over the delay in decision-making. Despite his agitation, Ziemelis failed to provide the necessary evidence to substantiate his initial motion for summary judgment. After a voicemail complaint about the delay, the Court attempted to schedule a telephone conference, which was later canceled when Ziemelis deemed it unnecessary. In light of his behavior, the Court mandates that all future communications from Ziemelis to chambers be conducted in writing unless otherwise ordered.