United States District Court, E.D. Pennsylvania
In the Matter of: FRANK G. SCHAFFER
F. KENNEY, J.
case has a life of its own and every case must be viewed from
the point of view of its specific facts before assessment can
be made as to where it fits into the spectrum of protections
and remedies provided by the law. Most cases fall somewhere
within this spectrum requiring a complete development of a
record and a painstaking analysis of the record and
application of the law. There are a few cases, and this is
one, that fall outside the spectrum of protections and
remedies because a litigant, here the Debtor, uses those
protections not as a protection but as a weapon to avoid, to
mask, to delay, to deflect, and to disassemble.
Honorable Ashely M. Chan of the United States Bankruptcy
Court found, among other things, that the Debtor failed to
fully disclose his assets and liabilities in both of his two
bankruptcy filings, flagrantly disregarded the Chapter 13
trustee's warning not to spend funds which constituted
property of the bankruptcy estate unless the Debtor could
repay such funds to his creditors, filed pleadings containing
multiple inconsistencies, and lacked the ability to obtain
confirmation of a bankruptcy reorganization plan. ECF No.
12-17 at p. 20.
and as a result of the Debtor's bad faith, the Bankruptcy
Court granted relief from the automatic stay to allow:
Rashiddudin Mohammadi ("Rashid") to pursue his
state law rights against certain proceeds that the Debtor is
entitled to receive as an inheritance; Kichkin General
Trading, LLC ("Kichkin") to pursue its state law
rights to recover certain gems that it owns that are in the
possession of the Debtor; and Kichkin and Rashid
(collectively, the "Creditors") to resume state
court litigation against the Debtor. Id. The order
made clear that the automatic stay would otherwise remain in
full force and effect as to remaining estate property and
that the Creditors were prohibited from executing on any
other property of the estate without receiving further leave
from the court. Id. at p. 47.
Debtor argues on appeal to this Court that the Bankruptcy
Court did not have a just basis for granting relief from the
automatic stay. ECF No. 11 at p. 12. The Court wholly
Standard of Review
Court has appellate jurisdiction over this matter pursuant to
28 U.S.C. § 158(a)(1). Where a district court reviews a
decision of the bankruptcy court on questions of fact, the
court applies a clearly erroneous standard of review.
Woodardv. City of Philadelphia, 558 B.R. 711, 716-17
(E.D. Pa. 2016) (citing Pennhurst State Sch. & Hosp.
v. Halderman, 465 U.S. 89 (1984)). Under this clearly
erroneous standard of review, the bankruptcy court's
findings of fact must stand unless "the court is left
with the definite and firm conviction that a mistake has been
committed." Id. (quoting Brager v.
Blum, 49 B.R. 626, 629 (E.D. Pa. 1985)).
"the 'clearly erroneous standard' does not apply
to questions of law. Thus, where the appellate question
presented is solely one of law, no presumption of correctness
applies. The bankruptcy judge's legal conclusions may not
be approved without [the district court's] independent
determination of the legal questions." Id.
(quoting In re Gilchrist Co., 410 F.Supp. 1070, 1074
(E.D. Pa. 1976) (citations omitted)); see also Universal
Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d 98,
101-03 (3d Cir. 1981). Therefore, a bankruptcy court's
conclusions of law are subject to plenary review. See
Will v. Michigan Dept. of State Police, 491 U.S. 58
(1989); Kimmelman v. Port Authority, 344 F.3d 311,
316 (3d Cir. 2003). Here, Debtor's appeal is primarily
based on the Bankruptcy Court's conclusions of law and,
therefore, his arguments are subject to plenary
Court Litigation Between the Debtor and Creditors On
December 26, 2013, the Debtor entered into a partnership
agreement with Kichkin, through its representative Rashid,
under which the Debtor agreed to clean, cut, polish, develop,
and sell gems supplied by Kichkin. A619-24. The parties
agreed to split any net profits from sale of the gems.
Id. The agreement stated that the Debtor did not
obtain ownership of the gems and they were to be returned to
Kichkin upon his request. A619-22. On February 2, 2015,
Rashid and the Debtor entered in to a declaration of
commitment under which the Debtor promised to sell the gems
for the parties' mutual benefit and pay the total amount
of money to Rashid personally. A642 (stating that the total
cost of both gems was $561, 176.60). Despite that agreement,
the Creditors never received any money from the Debtor.
A673. On July 25, 2016, the Creditors filed a
lawsuit against the Debtor in the Philadelphia County Court
of Common Pleas alleging breach of contract, fraud,
promissory estoppel, and unjust enrichment. A29-30. On
February 21, 2018, after the Debtor failed to respond to the
Creditors' motion for partial summary judgment, the state
court entered a liability judgment on Kichkin's breach of
contract claim, directed that an assessment of damages
hearing take place within 30 days of the order, and granted
partial summary judgment in favor of Rashid on his breach of
contract claim for both liability and damages in the amount
of $561, 176.60 exclusive of interest and costs. A353,
A487-97. The Debtor did not file an appeal of the judgments.
A673. On March 5, 2018, Rashid filed an application for costs
on the judgment. A30, ¶ 4.
Debtor's Late Mother's Estate
the state court action was proceeding, the Debtor's
mother passed away. A234-39. At the time of his mother's
passing, the Debtor was appointed as executor of the
mother's estate. Id. On October 4, 2017, the
estate, in an interesting and unique maneuver, paid the
Debtor, through his attorney, $50, 000 to induce the Debtor
to relinquish his position as the executor of the estate.
A238-39; A547-48. The Debtor's attorney was paid $10, 000
for his services and the remaining $40, 000 was paid to the
Debtor. Id. On the face of it, this fee seems to be
exorbitant but for our immediate purposes here it is
irrelevant other than the fee seems significant enough to
highlight given that we have two creditors who have received
Debtor's Chapter 13 Bankruptcy Petition
March 23, 2018, approximately one month after the state court
judgments were entered, the Debtor filed a voluntary petition
under Chapter 13 of the Bankruptcy Code. A626. Subsequently,
on April 5, 2018, the Debtor filed his schedules, statement
of financial affairs, and Chapter 13 plan, which were full of
discrepancies. A674. Notably, the Debtor did not disclose his
interest in his mother's estate or that he had received
money from his mother's estate. Id. The Debtor
also identified the Creditors as secured creditors holding a
single joint claim related to the state court judgment, which
the Debtor portrayed as only secured to the Debtor's
estimated value of the gems, which he asserted was only $5,
000, despite previously having agreed that the gems cost
significantly more than that amount.
the Debtor also stated in his statement of financial affairs
that his gross income from January 1, 2018, to March 23,
2018, was $7, 500 and that his gross income during each of
the past two years was $30, 000 per year. Id.
However, the Debtor's March 2018 and April 2018 operating
reports reflected total gross income of $21, 388.50 for those
two months alone. Id. Despite this sum, the
Debtor's operating statements showed losses of $10,
357.30 and $14, 360.49 respectively, which also conflicted
with the Debtor's alleged net income. Al 16-17; A675.
24, 2018, the Section 641 meeting of creditors was held.
A629. At that meeting, when asked by the trustee if he had
any interest in property due to him from someone who had
died, the Debtor disclosed his interest in his mother's
estate for the first time, but represented that he did not
know whether he would receive any distribution or whether the
mother's estate had any funds despite the fact that by
this time, the Debtor had already received $50, 000 in
exchange for relinquishing his executorship. A235-36;
following day, the Debtor received a $100, 000 distribution
from the estate. A243; A360. Shortly after receipt, the
Debtor's counsel emailed the Chapter 13 trustee to advise
that the Debtor had received a substantial payment from the
estate. A360; A637-38. In response, the Chapter 13 trustee
sent a letter to the Debtor's counsel stating that
"it is clear under 11 U.S.C. Section 541(a)(5), that any
interest in property received by 'bequest, devise, or