In re Bagbag

595 B.R. 164
CourtUnited States Bankruptcy Court, S.D. New York
DecidedNovember 15, 2018
DocketCase No. 08-12667 (MEW)
StatusPublished
Cited by1 cases

This text of 595 B.R. 164 (In re Bagbag) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, S.D. New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Bagbag, 595 B.R. 164 (N.Y. 2018).

Opinion

MICHAEL E. WILES, UNITED STATES BANKRUPTCY JUDGE

Boaz Bagbag (the "Debtor ") is the debtor in a chapter 7 case that has been reopened for the limited purpose of considering the motion that is the subject of this decision. The Debtor contends that the discharge injunction that he received in this chapter 7 case renders void ab initio a judgment entered against the Debtor in a New York State court proceeding brought by Asher Alcobi. For the reasons set forth below, the Court will enter an Order that declares the state court judgment void and of no effect, but that permits further proceedings in the state court to decide certain issues that Alcobi has raised before this Court.

Background

The Debtor once owned an interest in an auto parts company named Pace Product Solutions, Inc. ("Pace "). In 2007, Asher Alcobi purchased shares representing a one-third interest in Pace. However, after a dispute the Debtor agreed to repurchase the Pace shares from Alcobi. On June 24, 2008, the Debtor and Mr. Alcobi entered into an amended agreement concerning the terms of the repurchase.

On July 10, 2008 (only a few weeks after the execution of the amended agreement to repurchase the Pace stock), the Debtor filed a voluntary petition under chapter 7 *166of the Bankruptcy Code. Pace filed a chapter 11 bankruptcy petition that same day; its case was later converted to a case under chapter 7.

On July 22, 2008, a proof of claim was filed in the Debtor's bankruptcy case in behalf of Asher Alcobi in the amount of $1,000,000, indicating that the basis for the claim was a stock purchase agreement. Alcobi alleged that he had been fraudulently induced to advance funds to Pace and/or the Debtor in the amount of approximately $177,000 to acquire stock. The attachment to the proof of claim also asserted that the claim was excepted from discharge by reason of fraud and/or false pretenses. However, under the Bankruptcy Code the alleged exception to discharge could only be established through the timely filing of an adversary proceeding and a determination by the Bankruptcy Court, in such an adversary proceeding, that the debt was not discharged. See 11 U.S.C. § 523(c) ; Fed. R. Bankr. P. 4007(a). Alcobi never filed such an adversary proceeding and the deadline for the filing of such a proceeding expired on December 16, 2008. See Stipulation Extending Time to Object to Debtor's Discharge, Dischargeability of Debts and Any Claimed Exemptions and for Dismissal [Dkt. No. 25].

On December 1, 2008, the Debtor filed schedules listing his assets and liabilities. Schedule F listed Asher Alcobi as a creditor holding an unsecured nonpriority claim in the amount of $100,000. The Debtor indicated he was a co-debtor on the alleged claim, which was described as contingent and disputed. The claim was further described as having been incurred on various dates and based on the "purchase of interest in business."

On February 9, 2009, while the bankruptcy case was pending, the Debtor and Alcobi entered into a Payment, Settlement Agreement (the "Settlement Agreement "). The Settlement Agreement provided for the payment by the Debtor to Mr. Alcobi of $190,000 in two installments of $95,000 each, with the first installment due on September 10, 2009 and the second on September 20, 2010. The Settlement Agreement did not specifically describe what issues were being settled. Instead it was vaguely worded and provided that "[i]ssues have arisen between Bagbag and Alcobi and such parties wish to settle such issues." The Debtor also agreed to refer certain real estate transactions to a realty firm with which Alcobi was associated.

In the Settlement Agreement, the Debtor represented that "although he is filed for bankruptcy, he is allowed to sign this agreement and it is not in conflict with his status." No notice of the Settlement Agreement was filed with the Bankruptcy Court, and no motions were made seeking approval of the Settlement Agreement.

The day after the Settlement Agreement, on February 10, 2009, the Debtor's ex-wife and the mother of his daughter entered into a transfer agreement with Alcobi (the "Transfer Agreement "), wherein the ex-wife, as guardian of the minor daughter's interest, purportedly transferred the minor's one-third interest in an entity, 122 Street Slash, LLC ("Street Slash "), to Alcobi.1 The Transfer *167Agreement referenced the Settlement Agreement and provided that if the payments required under the Settlement Agreement were timely made, the guardian for the benefit of the minor daughter had "the right to re-purchase for the sum of $10 and other good and valuable consideration from Alcobi, the interest in [Slash Street that had been] assigned to Alcobi [under the Transfer Agreement]." The Transfer Agreement also provided that until September 10, 2010, the guardian would retain for the benefit of the minor the right to one-third of the cash flow that arose from the ordinary course of business and obligations of Street Slash.

Three years later, the Debtor received a discharge in his bankruptcy case by order dated February 14, 2012. The chapter 7 case was formally closed by an Order dated February 1, 2013.

Prior State Court Actions between the Debtor and Alcobi

In October 7, 2010 (prior to the discharge order and prior to the closure of the chapter 7 case), the Debtor commenced a lawsuit in New York State court against Alcobi, Street Slash (incorrectly named in the complaint as 122 School Street LLC) and other defendants. In that action the Debtor sought to enforce certain obligations under the Settlement Agreement. The complaint alleged that Alcobi had entered into an agreement, dated February 9, 2009, in which he promised to pay certain commissions and other monies to the Debtor. The complaint sought $720,000 from all of the defendants. The state court judge determined that the Debtor did not have standing to pursue the 2010 action because of the pending bankruptcy case, and by order entered on December 17, 2010, the case was dismissed without prejudice to the right of the chapter 7 trustee to restore it if the trustee determined that the matter should be pursued. It does not appear that the chapter 7 trustee pursued the 2010 action.

On September 12, 2012 (after the discharge order but before the closure of the chapter 7 case), the Debtor commenced another action in a New York State court against several defendants, including Alcobi and Street Slash. The complaint alleged, among other things, breach of contract and breach of fiduciary duties, and sought monetary damages, removal of Alcobi as manager of Street Slash, and an accounting. The Debtor brought the 2012 action in three capacities: individually, purporting to be the minor daughter's guardian, and purporting to have authority to bring it derivatively on behalf of the Street Slash entity. Ultimately the state court granted the defendant's motion to dismiss the complaint, finding that the minor daughter could not maintain the action because she did not have an interest in Street Slash.

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Bluebook (online)
595 B.R. 164, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-bagbag-nysb-2018.