Summary
affirming bankruptcy court's decision to "decline to award attorneys' fees and costs incurred in connection with the prosecution of a willful stay violation where the only damages incurred by the injured party are the legal fees and costs incurred in bringing the motion"
Summary of this case from Froman v. Fein (In re Froman)Opinion
Case No.: 12-13689 (SMB)
2013-12-16
In re: Ampal-American Israel Corp., Debtor.
Kasowitz, Benson, Torres & Friedman LLP, 1633 Broadway New York, New York 10019, David M. Friedman, Esq., Daniel A. Fliman, Esq., Nii–Amar Amamoo, Esq., Of Counsel, Counsel for Movant Yosef A. Maiman. Clarick Gueron Reisbaum LLP, 40 West 25th Street, 12th Floor, New York, New York 10010, Nicole Gueron, Esq., Isaac B. Zaur, Esq., Of Counsel, Counsel for Movants Revital Degani, Daniel Vaknin and Menachem Morag.
Kasowitz, Benson, Torres & Friedman LLP, 1633 Broadway New York, New York 10019, David M. Friedman, Esq., Daniel A. Fliman, Esq., Nii–Amar Amamoo, Esq., Of Counsel, Counsel for Movant Yosef A. Maiman. Clarick Gueron Reisbaum LLP, 40 West 25th Street, 12th Floor, New York, New York 10010, Nicole Gueron, Esq., Isaac B. Zaur, Esq., Of Counsel, Counsel for Movants Revital Degani, Daniel Vaknin and Menachem Morag.
Akin Gump Hauer & Feld LLP, One Bryant Park, Bank of America Tower, New York, New York 10036, Arik Preis, Esq,. Of Counsel, Counsel for Series A Bondholders.
Cole, Schotz, Meisel, Forman & Leonard, P.A., 900 Third Avenue, 16th Floor, New York, New York 10022, Michael D. Sirota, Esq., Steven L. Klepper, Esq., Of Counsel, Counsel for Movants Irit Eluz, Yoram Firon, Amit Mantsur, Erez Meltzer, Leo Malamud and Sabih Saylan.
Tarter Krinksy & Drogin LLP, 1350 Broadway, 11th Floor New York, New York 10018, Scott S. Markowitz, Esq., Rocco A. Cavaliere, Esq., Of Counsel, Counsel for Mishmeret-Trust Company Services Ltd and Shapira & Co.
Nachamie Spizz Cohen & Serchuk, P.C., 425 Park Avenue, New York, New York 10022, Alex Spizz, Esq.,Janice B. Grubin, Esq., Arthur Goldstein, Esq., Jill Makower, Esq., Of Counsel, Counsel for Alex Spizz, Chapter 7 Trustee.
Chapter 7
MEMORANDUM DECISION DENYING MOTION FOR RELIEF BASED ON VIOLATION OF THE AUTOMATIC STAY
STUART M. BERNSTEIN, United States Bankruptcy Judge:
The Movants Irit Eluz, Yoram Firon, Amit Mantsur, Erez Meltzer, Leo Malamud, Sabih Saylan, Revital Degani, Daniel Vaknin, and Menachem Morag are former officers and directors of the debtor Ampal–American Israel Corporation (“Ampal”). In addition, the Movant Yosef A. Maiman is the principal shareholder and was or is the Chairman of the Board and President and Chief Executive Officer of Ampal. Their motion seeks damages based on a violation of the automatic stay relating to a demand for payment made upon them by Ofer Shapira, an attorney for certain bondholders of Ampal. They also ask the Court to enforce the automatic stay, grant them standing to the extent necessary to enforce the automatic stay on behalf of the estate, and direct the chapter 7 trustee to discharge Shapira as attorney for Ampal's non-debtor subsidiaries.
The Movants' request for prospective relief to enforce the automatic stay has been rendered moot by subsequent events. As explained below, the Movants have failed to demonstrate that they have standing to seek damages, and even if they have standing, they have failed to show that they are entitled to any damages. Finally, their request that the trustee discharge Shapira is premature. Accordingly, their motion is denied.
FACTS
Ampal is a New York corporation that was primarily engaged in the acquisition of interests in businesses located in the State of Israel or that were Israel-related. In re Ampal–American Israel Corp., No. 12–13689, 2013 WL 1400346, at *1 (Bankr.S.D.N.Y. Apr. 5, 2013). Its assets consist mainly of its interests in non-debtor, foreign subsidiaries. Ampal filed a chapter 11 petition in this Court on August 29, 2012, and at all relevant times, its principal non-affiliate debt consisted of three series of debentures, A, B and C, in the approximate aggregate sum of $234 million. The following chart is taken directly from the information listed in the schedules and identifies the trustees of each series of debentures and the amount that Ampal claimed it owed with respect to each series:
The schedules state that each of the debts is contingent and unliquidated.
| Series | Trustee | Amount ($) |
| A | Hermetic Trust (1975) Ltd. | 53,679,212 |
| B | Reznik Paz Nevo R.P.N. Trusts 2007 Ltd. (“Reznik”) | 136,288,554 |
| C | Mishmeret–Trust Company Ltd. (“Mishmeret”) | 43,994,397 |
According to Schedule H, there are no co-debtors liable with Ampal for the debenture obligations. ( See Schedule H—Codebtors, dated Oct. 12, 2012 (ECF Doc. # 37).)
On September 25, 2012, the United States Trustee appointed an Official Committee of Unsecured Creditors (the “Committee”) consisting of Hermetic, Reznik and Mishmeret. ( Appointment of Official Committee of Unsecured Creditors, dated Sept. 25, 2012 (ECF Doc. # 27).) The chapter 11 case was marked by strife between the Committee on the one hand and Ampal's officers and directors, including Maiman, on the other. See Ampal, 2013 WL 1400346, at *1–4. This discord led to the appointment of a chapter 11 trustee. Id. at *7. After a brief stewardship, the chapter 11 trustee moved to convert the case to chapter 7, and the motion was granted. ( Order Converting Chapter 11 Case to Chapter 7 and for Related Relief, dated May 2, 2013 (ECF Doc. # 258).) The members of the creditors committee duly elected Alex Spizz to act as chapter 7 trustee. ( See United States Trustees' Report of Undisputed Election of Chapter 7 Trustee, dated May 29, 2013, at 3–4 (ECF Doc. # 275).) Shapira, an Israeli attorney who represented Hermetic and Mishmeret at the election, voted his clients' proxies in favor of Spizz. ( Id. at 3.)
Spizz thereafter sought authority to retain Shapira & Co. Advocates, Shapira's law firm, as special counsel to represent the estate's interests in Israel nunc pro tunc to the date of his election. ( See Chapter 7 Trustee's Application for Retention of Shapira & Co. Advocates as Special Counsel to Trustee Pursuant to 11 U.S.C. § 327(e), Effective as of May 20, 2013, dated June 24, 2013 (ECF Doc. # 291).) Maiman and the controlling shareholders objected, arguing, inter alia, that Shapira's concurrent representation of Hermetic and Mishmeret, two of the estate's largest creditors, was adverse to the estate. ( See Objection of Yosef A. Maiman and the Controlling Shareholders to Chapter 7 Trustee's Application to Retain Shapira & Co. Advocates as Special Counsel to Trustee Pursuant to 11 U.S.C. § 327(e), dated July 1, 2013, at ¶¶ 6–9 (ECF Doc. # 303).) At the July 11, 2013 hearing, and following a colloquy with the Court, Spizz withdrew his application with a view toward exercising Ampal's rights as shareholder to cause the non-debtor subsidiaries to hire Shapira.
A. The October 4 Letter
On October 4, 2013, Shapira wrote a letter (the “October 4 Letter”) to the Movants in his capacity as attorney for Hermetic and Mishmeret that caused the current dispute. ( Motion of Yosef A. Maiman, Irit Eluz, Yoram Firon, Amit Mantsur, Erez Meltzer, Leo Malamud, Sabih Saylan, Revital Degani, Daniel Vaknin, and Menachem Morag (I) to Enforce the Automatic Stay and, if Necessary, Confer Standing on the Movants Relating Thereto and (II) to Award Damages for Willful Stay Violations by the Debenture Parties and Shapira & Co. Advocates, dated Oct. 22, 2013 (the “ Motion ”), at Ex. B–2 (ECF Doc. # 352).) The letter charged that the Movants had breached their fiduciary duties, committed waste and mismanaged Ampal and its subsidiaries by, among other things, approving loans to Maiman and his affiliates that damaged the “Company,” disposing of assets, using their positions to obtain personal benefits to the detriment of the Company and its creditors, negligently supervising and mismanaging the Companies' tax matters, filing chapter 11 without any settlement plan or reasonable purpose, presenting unreasonable arguments in chapter 11, deepening the Company's insolvency and improperly distributing funds. The letter concluded with a demand for payment or security for payment:
The context of the letter indicates that “Company” referred to Ampal, and “Companies” referred to Ampal, Ampal Israel Ltd. and Merhav–Ampal Group Ltd.
You are hereby required to pay our clients, immediately, the entire debts of the Company towards our clients or, alternatively, to immediately provide us with proper securities in order to guarantee full coverage of any sum that the Company does not pay our clients as part of the Company's liquidation proceedings.
( Id.)
The October 4 Letter provoked a response. An attorney representing several of the Movants sent an email to Spizz that protested the October 4, 2013 Letter, and confirmed a discussion in which his clients demanded that Spizz (1) notify Shapira that his letter violated the automatic stay, (2) insist that Shapira withdraw the letter and cease efforts to assert the claims identified in his letter and (3) terminate Shapira's retention as attorney for the Ampal subsidiaries. ( Motion, Ex. C (email dated Oct. 14, 2013 1:22 PM).) Spizz responded that Shapira wrote the letter to preserve claims under Ampal's D & O policies, he had not taken any action other than writing the letter and had not violated the automatic stay and Spizz had no intention of allowing the bondholders or others to prosecute claims that belonged to the estate. ( Id., Ex. C (email dated Oct. 14, 2013 1:38 PM).)
The email referred to the author's October 11, 2013 letter which was not provided to the Court.
B. This Motion
Not satisfied with Spizz's response, the Movants filed this motion . Hermetic and the Movants subsequently entered into a stipulation pursuant to which Hermetic withdrew the October 4 Letter as to Hermetic and acknowledged that the causes of action set forth in the letter were property of Ampal's estate. ( Stipulation and Agreed Order, dated Nov. 18, 2013, at ¶ 1 (ECF Doc. # 375).) The stipulation resolved all of the issues raised by the motion as between the Movants and Hermetic. ( Id. at ¶ 3.)
Spizz, Mishmeret and Shapira filed oppositions, and argued that the Movants lack standing to seek to enforce the automatic stay or recover damages under 11 U.S.C. § 362(k). ( Chapter 7 Trustee's Opposition to Motion of Yosef A. Maiman, Irit Eluz, Yoram Firon, Amit Mantsur, Erez Meltzer, Leo Malamud, Sabih Saylan, Revital Degani, Daniel Vaknin, and Menachem Morag (I) to Enforce the Automatic Stay and, if Necessary, Confer Standing on the Movants Relating Thereto and (II) to Award Damages for Willful Stay Violations by the Debenture Parties and Shapira & Co. Advocates, Nov. 7, 2013 (“ Spizz Opposition ”), at ¶¶ 5–14, 20–22) (ECF Doc. # 362); Objection of Mishmeret–Trust Company Services Ltd and Shapira & Co. to Motion to (I) Enforce the Automatic Stay and, if Necessary, Confer Standing on the Movants Relating Thereto and (II) to Award Damages for Willful Stay Violations, dated Nov. 8, 2013 (“ Mishmeret Opposition ”), ¶¶ 12–14 (ECF Doc. # 364). Spizz also maintained that the October 4 Letter did not seek to exercise control over property of the estate, and did not, therefore, violate automatic stay, ( Spizz Opposition at ¶¶ 17–18), the Movants had failed to prove damages under Bankruptcy Code § 362(k), ( id. at ¶¶ 23–30), and since the nondebtor subsidiaries rather than the estate employed Shapira, there was no basis for the Court to direct Spizz to terminate Shapira. ( Id. at ¶¶ 32.)
Mishmeret and Shapira also contended that the October 4 Letter was not intended to assert estate claims as opposed to claims personal to Mishmeret, and even if the demand touched upon estate claims, it did not cause any injury to the estate. ( Mishmeret Objection at ¶¶ 6–10.) Finally, like Spizz, Mishmeret argued that the Court should not compel Spizz to terminate Shapira because Shapira was retained by the non-debtor affiliates, ( id. at ¶ 15), and moreover, disqualification is a harsh remedy and the Movants had failed to show a basis for disqualifying Shapira. ( Id. at ¶¶ 16–17.)
The Court conducted a hearing on the motion on November 14, 2013. Counsel for Mishmeret and Shapira reiterated during oral argument that Mishmeret did not intend to assert claims that belonged to the estate, (Transcript of hearing, held Nov. 14, 2013, at 21, 23 (“Tr.”) (ECF Doc. # 374)), and agreed not to pursue those claims. ( Id. at 25.) I deem Mishmeret's and Shapira's concession to constitute a withdrawal of the October 4 Letter to the extent it demanded payment or security for a claims that belong to the estate. In addition, at the end of the hearing, the Court directed Mishmeret and Shapira not to interfere with property of the estate or assert estate claims. ( Id. at 33–34.)
The request for prospective relief to enforce the automatic stay has been rendered moot by Mishmeret's and Shapira's concession and the Court's direction. This leaves for consideration the Movants' request for damages and a direction that Spizz discharge Shapira.
The Movants' request for standing to the extent necessary to enforce the automatic stay is similarly moot. The Court can confer standing on an estate representative (usually the unsecured creditors' committee in a chapter 11 case) where the debtor in possession unjustifiably fails to bring the action or assert the right. Unsecured Creditors Comm. of Debtor STN Enters., Inc. v. Noyes ( In re STN Enters.), 779 F.2d 901, 904 (2d Cir.1985). The Court may also confer standing with the consent of the trustee provided the delegation of standing is in the best interest of the estate and necessary and beneficial. Commodore Int'l Ltd. v. Gould ( In re Commodore Int'l Ltd.), 262 F.3d 96, 98 (2d Cir.2001). Since there is no further need for prospective relief, the request for standing to procure that relief is also unnecessary.
DISCUSSION
A. Standing
The party invoking federal jurisdiction bears the burden of establishing its standing. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). “[T]he question of standing is whether the litigant is entitled to have the court decide the merits of the dispute or of particular issues. This inquiryinvolves both constitutional limitations on federal-court jurisdiction and prudential limitations on its exercise.” Warth v. Seldin, 422 U.S. 490, 498, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975). Constitutional, or Article III standing, imports justiciability: whether the plaintiff has made out a case or controversy between himself and the defendant within the meaning of Art. III. Id. To qualify for standing under Article III, “a claimant must present an injury that is concrete, particularized, and actual or imminent; fairly traceable to the defendant's challenged behavior; and likely to be redressed by a favorable ruling.” Davis v. Fed. Election Comm'n, 554 U.S. 724, 733, 128 S.Ct. 2759, 171 L.Ed.2d 737 (2008).
In addition, the litigant must demonstrate prudential standing. “[P]rudential standing encompasses ‘the general prohibition on a litigant's raising another person's legal rights, the rule barring adjudication of generalized grievances more appropriately addressed in the representative branches, and the requirement that a plaintiff's complaint fall within the zone of interests protected by the law invoked.’ ” Elk Grove Unified Sch. Dist. v. Newdow, 542 U.S. 1, 12, 124 S.Ct. 2301, 159 L.Ed.2d 98 (2004) (quoting Allen v. Wright, 468 U.S. 737, 751, 104 S.Ct. 3315, 82 L.Ed.2d 556 (1984)); accord. Devlin v. Scardelletti, 536 U.S. 1, 7, 122 S.Ct. 2005, 153 L.Ed.2d 27 (2002). Prudential limitations on standing are especially important in bankruptcy proceedings which often involve numerous parties who may seek to assert the rights of third parties for their own benefit. Kane v. Johns–Manville Corp. ( In re Johns–Manville Corp.), 843 F.2d 636, 644 (2d Cir.1988) ( “The prudential concerns limiting third-party standing are particularly relevant in the bankruptcy context. Bankruptcy proceedings regularly involve numerous parties, each of whom might find it personally expedient to assert the rights of another party even though that other party is present in the proceedings and is capable of representing himself.”)
The Movants have demonstrated Article III standing. “All they need show in order to demonstrate an Article III case or controversy is ... some probability of a tangible benefit from winning the suit.” Tucker v. United States Dep't of Commerce, 958 F.2d 1411, 1415 (7th Cir.1992). The Movants claim they suffered actual injury because they were forced to incur legal fees and expenses in response to the October 4 Letter, including the prosecution of this motion. Their injury is directly traceable to Mishmeret's and Shapira's actions and their injury will be redressed by a favorable ruling if the Court awards damages.
Prudential standing is a tougher question because the Movants must show that their claim falls within the zone of interests protected by the automatic stay and they are asserting their own rights. The automatic stay is plainly intended to protect the debtor and property of the estate, see H.R. Rep. No. 95–595, at 340 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6297, but it also protects creditors against the acts of a creditor who attempts to jump the line and seize property of the estate to satisfy its claim:
The parties' dispute does not implicate the rule that bars the adjudication of generalized grievances more appropriately left to the representative branches.
The automatic stay also provides creditor protection. Without it, certain creditors would be able to pursue their own remedies against the debtor's property. Those who acted first would obtain payment of the claims in preference to and to the detriment of other creditors. Bankruptcy is designed to provide an orderly liquidation procedure under which all creditors are treated equally. A race of diligence by creditors for the debtor's assets prevents that.
Id.;S. Rep. No. 95–989, at 49 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5835; see Ostano Commerzanstalt v. Telewide Sys., Inc., 790 F.2d 206, 207 (2d Cir.1986) (“Since the purpose of the stay is to protect creditors as well as the debtor, the debtor may not waive the automatic stay.”) Thus, any violation of the automatic stay that impairs a creditors distribution falls within the zone of interests protected by the automatic stay.
In addition, Bankruptcy Code § 362(k)(1) (formerly § 362(h)) confers a private right to sue for damages on behalf of an individual injured by a willful violation of the automatic stay. The opposition maintains that § 362(k) only applies to individual debtors, but the plain language of the provision also applies to individual creditors. St. Paul Fire & Marine Ins. Co. v. Labuzan, 579 F.3d 533, 543 (5th Cir.2009) (“Accordingly, based on § 362(k)'s plain language, the above-discussed congressional purpose of § 362(k) to provide both debtor and creditor protection, and the weight of authority finding creditor-standing, we hold debtors and creditors are entities whose grievances fall ‘within the zone of interests' protected by § 362(k).”); Homer Nat'l Bank v. Namie, 96 B.R. 652, 655 (W.D.La.1989) (“If Congress intended to limit the remedies in § 362(h) to debtors it could have done so by the simple expedient of replacing the term ‘individual’ with ‘debtor.’ Congress chose not to do so, and this court is unwilling to impose limitations not supported by the statutory language, jurisprudence, or legislative history.”); In re Int'l Forex of Cal., Inc., 247 B.R. 284, 291 (Bankr.S.D.Cal.2000) (“Based on the weight of authority on this issue, this Court finds that the Creditors have standing under § 362(h) to seek damages for alleged stay violations.”); In re Prairie Trunk Ry., 112 B.R. 924, 929 (Bankr.N.D.Ill.1990) (“The weight of persuasive case authority is that only a debtor or creditor may attack any acts in violation of the automatic stay.” (internal quotation marks omitted)); cf. Maritime Asbestosis Legal Clinic v. LTV Steel Co. ( In re Chateaugay Corp.), 920 F.2d 183, 186–87 (2d Cir.1990) (concluding that Bankruptcy Code § 362(h) cannot be invoked by a corporate debtor and is limited to debtors who are natural persons). Non-individuals and those individuals who seek non-monetary relief still have recourse under the bankruptcy court's civil contempt power, Barnett Bank of Se. Ga., N.A. v. Trust Co. Bank of Se. Ga., N.A. ( In re Ring ), 178 B.R. 570, 576 (Bankr.S.D.Ga.1995), although § 362(k) does not require a finding of maliciousness or bad faith and is less stringent than the standard for holding a person in civil contempt. In re Chateaugay Corp., 920 F.2d at 186; Crysen/Montenay Energy Co. v. Essen Assocs., Inc. ( In re Crysen/Montenay Energy Co.), 902 F.2d 1098, 1104–05 (2d Cir.1990).
.Section 362(k)(1) states:
Except as provided in paragraph (2), an individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys' fees, and, in appropriate circumstances, may recover punitive damages.
Originally designated as § 362(h), the section was redesignated as § 362(k)(1) under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub.L. No. 109–8, § 305, 119 Stat. 23 (2005).
The Movants have not invoked the Court's contempt power.
The Movants are individuals, they allege damages resulting from a violation of the automatic stay, and § 362(k)(1) appears to grant them standing. Nevertheless,§ 362(k)(1) is subject to two limitations. First, the creditor seeking relief must allege an injury in his capacity as a creditor of the estate rather than in some other capacity. Eakin v. Goffe, Inc. ( In re 110 Beaver St. P'ship ), 355 Fed.Appx. 432, 439 n. 9 (1st Cir.2009) (To have standing under § 362(k), “the creditor must be able to allege an injury as a creditor from the violation of the automatic stay.”); Labuzan, 579 F.3d at 545 (“[W]e hold: pursuant to § 362(k), the Labuzans, as pre-petition creditors of CTL, have standing to assert a claim against St. Paul. Accordingly, to the extent the Labuzans' claims are based on their status as owners/equity holders of CTL, § 362(k) cannot be invoked.” (emphasis in original)); cf. Siskin v. Complete Aircraft Servs., Inc. ( In re Siskin ), 231 B.R. 514, 519 (Bankr.E.D.N.Y.1999) (debtor's spouse, who was not a creditor of the estate and was forced to satisfy a claim asserted in violation of the automatic stay, had no standing under Bankruptcy Code § 362(h) to seek damages from violator); Metro. Life Ins. Co. v. Alside Supply Ctr. ( In re Clemmer ), 178 B.R. 160, 165 (Bankr.E.D.Tenn.1995) (concluding that non-creditor garnishee lacked standing to seek relief under Bankruptcy Code § 362(h)); In re Prairie Trunk Ry., 112 B.R. at 927 (purchaser of debtor's assets lacked standing under Bankruptcy Code § 362(h) to claim that secured creditor's seizure of collateral in violation of the automatic stay was void). In other words, the fact that someone is a pre-petition creditor is not a foot in the door that allows the creditor to recover damages for injuries suffered to its non-creditor interests.
.In Meoli v. Huntington Nat'l Bank ( In re Teleservices Group, Inc.), 463 B.R. 28 (Bankr.W.D.Mich.2012), the court concluded that a defendant facing double liability based on an avoidance action brought by the trustee and an unfair enrichment action brought by a creditor in violation of the automatic stay had standing to enjoin the creditor's suit because it “clearly risks additional loss if both lawsuits proceed unabated.” Id. at 32. The court did not discuss the standing of a non-creditor to invoke the automatic stay.
Second, the creditor must assert a claim for his own direct injury and not a claim that belongs to the estate. See Labuzan, 579 F.3d at 545. “If a claim is a general one, with no particularized injury arising from it, and if that claim could be brought by any creditor of the debtor, the trustee is the proper person to assert the claim.” See St. Paul Fire & Marine Ins. Co. v. PepsiCo., Inc., 884 F.2d 688, 701 (2d Cir.1989).
The typical example of a claim that satisfies these prudential limitations involves a violation of the stay that impairs a pre-petition secured creditor's interest in specific property of the estate. A recent decision by Chief Judge Morris, In re Killmer, 501 B.R. 208 (Bankr.S.D.N.Y.2013), is instructive. There, Beneficial Home Service Corporation (“Beneficial”) held a security interest in the debtor's property. While the bankruptcy case was open, the debtor's property was sold at a tax sale conducted in violation of the automatic stay and title was transferred to the purchaser. The tax sale cut off Beneficial's lien. Beneficial subsequently commenced a foreclosure action and moved to re-open the now-closed bankruptcy case to assert that the tax sale violated the automatic stay, and was void.
This is not necessarily the only situation in which a creditor can assert a claim based upon the violation of the automatic stay. See Labuzan, 579 F.3d at 545 (declining to hold the only secured creditors have standing under Bankruptcy Code § 362(k) to challenge automatic stay violations).
Chief Judge Morris granted the motion over the objection of the tax sale purchaser.After observing that the automatic stay “ensures that ... all creditors will be ‘treated in an organized and equitable fashion,’ ” 501 B.R. at 212 (quoting Barclays Bank of N.Y. v. Saypol ( In re Saypol ), 31 B.R. 796, 799 (Bankr.S.D.N.Y.1983)), the Court addressed the question of Beneficial's standing:
The situation that is alleged to have occurred here is the type of scenario that Congress intended to prevent. Since the automatic stay is meant to prevent creditors from racing to the courthouse to the detriment of other creditors, the Court sees no reason why a creditor who has been harmed by a stay violation should not be able to seek redress for its injury.
501 B.R. at 212, 2013 WL 6038838, at *3; see also United States v. Miller, No. Civ.A.5:02–CV–0168–C, 2003 WL 23109906, at *6 (N.D.Tex. Dec. 22, 2003) (the United States, a secured creditor, had standing to challenge the validity of a post-petition tax sale made in violation of the automatic stay); Litton Loan Servi ci ng, L.P. v. Rockdale Cnty., Ga., Am. Lien Fund, L.P. ( In re Howard ), 391 B.R. 511, 515 (Bankr.N.D.Ga.2008) (assignee of debt secured by debtors' residence had standing to invoke automatic stay, and to seek determination that tax sale was void); In re Ring, 178 B.R. at 577, 581 (junior secured creditor whose lien was impaired by foreclosure sale conducted by senior secured creditor in violation of the stay had standing to seek compensation for its damages as a civil contempt and for a declaration that the foreclosure sale was void); Namie, 96 B.R. at 655 (affirming an award of damages under § 362(h) in favor of a secured creditor whose collateral was seized and sold in violation of the automatic stay).
The creditor's standing to challenge the validity of a post-petition lien or transfer that impairs its collateral may face a separate hurdle. Under 11 U.S.C. § 549(a), the trustee is granted the exclusive authority to avoid an unauthorized post-petition transfer. See City of Farmers Branch v. Pointer ( In re Pointer ), 952 F.2d 82, 87–88 (5th Cir.1992). This power is subject to a statute of repose, 11 U.S.C. § 549(d), and § 549(c) protects certain good faith transferees that pay value. Yet an act in violation of the automatic stay is void, 48th St. Steakhouse, Inc. v. Rockefeller Group, Inc. ( In re 48th St. Steakhouse, Inc.), 835 F.2d 427, 431 (2d Cir.1987), cert. denied, 485 U.S. 1035, 108 S.Ct. 1596, 99 L.Ed.2d 910 (1988), and it is unnecessary to avoid the transfer. See In re Killmer, 501 B.R. at 212 (“[A]n act entered in violation of the stay is void whether or not a party makes a motion to declare it so.”). For this reason, one bankruptcy court has concluded that even non-creditor third parties have standing to seek a declaration that an action in violation of the stay is void. Rehabilitated Inner City Hous., LLC v. Mayor and City Council of Balt. City ( In re Lesick ), Adv. Proc. 05–10075, 2006 WL 2083655, at *5 (Bankr.D.D.C. July 19, 2006) (“transferee of estate property had standing to seek a declaration that a tax sale made in violation of the automatic stay that impaired its title was void.”) As the Movants are not challenging a post-petition transfer and are seeking damages rather than avoidance, it is unnecessary to consider this question.
Here, the Movants have failed to demonstrate their standing to assert a claim under 11 U.S.C. § 362(k)(1). First, although the Court speculated that they might have indemnification claims under New York law, they did not offer evidence to show that they hold claims against the estate. In fact, they did not allege much less show that they are creditors.
Second, they have failed to show that the injuries they allege fall within the zone of interests protected by the automatic stay. Clearly, the successful assertion of an estate claim by Mishmeret would cause a generalized injury to the estate and an indirect injury to all creditors by possibly reducing the pool of assets available for distribution. Every creditor could assert the same claim. Hence, only the trustee has authority to assert the claim, and this rule no doubt caused the Movants to ask for standing to the extent necessary to enforce the estate's rights. This, however, is not the injury that the Movants allege.
In this regard, the Court asked Maiman's counsel what damages had been caused by the October 4 Letter. He responded:
Well, Your Honor, I think that the damages that we have—the truth is that we don't know what the damages will be if this letter is not withdrawn. And the reason is that we can't let the letter with a hundred-million-dollar demand, or I guess now with series A withdrawing it's [ sic ] forty-million-dollar demand, just stay out there. We're going to have to respond. We're going to have to take action. Right.
(Tr. at 14:18–25.) In short, the Movants have or will be damaged not because they will receive a smaller distribution on their claims but because they must defend against the demand for payment. As noted, the automatic stay was designed to protect pre-petition creditors' from a grabbing creditor whose acts adversely affected their distribution; it was not designed to protect potential defendants who also happen to be creditors of the estate. Cf. In re Sturman, No. 10 Civ. 6725(RJS), 2011 WL 4472412, at *4 (S.D.N.Y. Sept. 27, 2011) (reputational injury allegedly suffered by the trustee as a result of acts in violation of the automatic stay “are too far removed from the types of harm that usually fall upon debtors and property as a result of interference with bankruptcy estates and proceedings.”) Moreover, if any of the Movants are not creditors, they will still suffer precisely the same injury as the Movants that are creditors, a sure sign that the injury is unrelated to any Movant's status as a creditor. Nor have the Movants cited any authority to support their underlying contention that an individual sued by a third party in violation of the automatic stay is entitled to recover his attorneys' fees under 11 U.S.C. § 362(k)(1), a contention which, if accepted, would significantly alter the American Rule that each litigant must bear its own legal fees and expenses.
Accordingly, the Court concludes that the Movants have failed to demonstrate standing to recover their legal fees and expenses under 11 U.S.C. § 362(k)(1).
B. The Merits of the Claim
Assuming that the Movants have demonstrated standing, they must prove that Mishmeret and Shapira willfully violated the automatic stay and the violation proximately caused their damages. See Bace v. Babitt, No. 11 Civ. 6065(PAC)(HBP), 2012 WL 2574750, at *3 (S.D.N.Y. July 3, 2012); Sturman, 2011 WL 4472412, at *2. “Willful” in this context means “any deliberate act taken in violation of the stay, which the violator knows to be in existence.” Crysen/Montenay Energy Co., 902 F.2d at 1105; accord Sturman, 2011 WL 4472412, at *2. A “specific intent to violate the stay is not required; instead, ‘general intent in taking actions which have the effect of violating the automatic stay’ is sufficient to warrant damages.” Sturman, 2011 WL 4472412, at *2 (quoting In re Dominguez, 312 B.R. 499, 508 (Bankr.S.D.N.Y.2004)).
The Movants have demonstrated that Mishmeret and Shapira violated the stay by demanding payment on account of an estate claim. If a cause of action is property of the estate, any “act” by a creditor to assert that claim for its personal benefit violates 11 U.S.C. § 362(a)(3). McHale v. Alvarez ( In re 1031 Tax Group, LLC ), 397 B.R. 670, 682 (Bankr.S.D.N.Y.2003). State law determines whether claims belong to creditors or to the debtor prior to bankruptcy and to the estate after bankruptcy ensues. See Sobchack v. Am. Nat'l Bank & Trust Co. ( In re Ionosphere Clubs, Inc.), 17 F.3d 600, 604 (2d Cir.1994); St. Paul Fire & Marine Ins. Co. v. PepsiCo., Inc., 884 F.2d at 700; Goldin v. Primavera Familienstiftung Tag Assocs. ( In re Granite Partners, L.P.), 194 B.R. 318, 324–25 (Bankr.S.D.N.Y.1996). Under New York law, claims for waste, mismanagement and breach of fiduciary duty belong to the corporation, Amfesco Indus., Inc. v. Greenblatt, 172 A.D.2d 261, 568 N.Y.S.2d 593, 596–97 (1991), and once bankruptcy ensues, become property of the estate that the trustee alone has standing to assert. Mediators, Inc. v. Manney ( In re Mediators, Inc.), 105 F.3d 822, 826–27 (2d Cir.1997) (“We agree that a bankruptcy trustee, suing on behalf of the debtor under New York law, may pursue an action for breach of fiduciary duty against the debtor's fiduciaries.”); Keene Corp. v. Coleman ( In re Keene Corp.), 164 B.R. 844, 853 (Bankr.S.D.N.Y.1994) ( “ Section 720 of New York's Business Corporation law expressly authorizes a corporation or bankruptcy trustee to sue the corporations officers and directors for breach of fiduciary duty, including misappropriation or diversion of assets.”).
The trustee's standing may devolve upon others if the trustee abandons the claim, Pub. Sch. Teachers' Pension & Ret. Fund v. Ambac Fin. Group, Inc. ( In re Ambac Fin. Group, Inc.), 487 Fed.Appx. 663, 665 (2d Cir.2012), or the Court authorizes an estate representative to prosecute the claim. See STN Enters., 779 F.2d at 904. Neither has occurred in this case.
Here, Shapira deliberately sent the October 4 Letter on behalf of Mishmeret at a time when they knew of the pendency of Ampal's bankruptcy case. Mishmeret had served on the Committee during the chapter 11 and Shapira's vote was instrumental in electing Spizz as trustee. The letter demanded immediate payment or security as compensation for claims sounding in breach of fiduciary duty, waste and mismanagement, claims that belonged to the estate. Accordingly, the Movants made a prima facie showing that Mishmeret and Shapira violated the automatic stay.
Mishmeret argues that the October 4 Letter was not intended to assert estate claims, but intent to violate the stay is immaterial. Furthermore, while it is possible that the October 4 Letter also asserted direct claims, it nonetheless violated the automatic stay to the extent it also asserted estate claims. It would have been simple enough to put a disclaimer in the letter that it was not asserting estate claims and/or particularize the direct claims that it was asserting. Mishmeret, in this regard, has not identified the source of those claims under Israeli law aside from a passing reference to Israeli law in a footnote.
The Movants have failed, however, to identify any damages proximately caused by the stay violation other than their attorneys' fees and legal expenses incurred in responding to the October 4 Letter and prosecuting this motion. ( Motion at ¶ 34.) While § 362(k) is designed to discourage willful violations of the automatic stay, it does not permit recovery of unnecessary litigation costs. In re Prusan, 495 B.R. 203, 208 (Bankr.E.D.N.Y.2010) (quoting In re Robinson, 228 B.R. 75, 85 (Bankr.E.D.N.Y.1998) (internal quotation marks omitted)). “[A]n ‘excessively litigious approach’ to violations of the automatic stay that do not cause damages in an[d] of themselves must be guarded against.” Yarinsky v. Saratoga Springs Plastic Surgery, PC ( In re Saratoga Springs Plastic Surgery, PC ), No. 1:03CV896, 2005 WL 357207, at *5 n.4 (N.D.N.Y. Feb. 11, 2005), aff'd,172 Fed.Appx. 339 (2d Cir.2006); accord Sturman, 2011 WL 4472412, at *3, Prusan, 495 B.R. at 208; In re Beebe, 435 B.R. 95, 101 (Bankr.N.D.N.Y.2010) Accordingly, the Court may properly decline to award attorneys'fees and costs incurred in connection with the prosecution of a willful stay violation where the only damages incurred by the injured party are the legal fees and costs incurred in bringing the motion. Sturman, 2011 WL 4472412, at *4; Beebe, 435 B.R. at 101.
The motion was an overreaction to the October 4 Letter, motivated by Movants' concern about being sued, and not about the size of the estate or their share of it. Before they brought the motion, Spizz advised counsel for some of the Movants that he believed that Shapira sent the October 4 Letter to preserve D & O insurance coverage, Shapira's clients had not taken any other action and Spizz would not allow the bondholders to prosecute claims that belonged to Ampal's estate. In fact, Mishmeret did not take any action against the Movants or otherwise affect their rights, and the letter did not harm the estate. The legal fees and expenses that the Movants incurred in first demanding that Spizz take action and then taking action themselves were unnecessary, and in the absence of any other actual damages, do not merit an award.
The Movants are also not entitled to recover punitive damages. To recover punitive damages, a movant must show that he suffered actual damages, Prusan, 495 B.R. at 207, and the violator acted maliciously or in bad faith. Crysen/Montenay Energy Co., 902 F.2d at 1105. As just stated, the Movants did not suffer any actual damages and their motion does not support a suggestion much less a finding of malice or bad faith.
C. Discharging Shapira
Finally, the Movants ask the Court to direct Spizz to terminate Shapira's representation of the non-debtor subsidiaries. Spizz retained Shapira to represent Ampal's non-debtor subsidiaries in his capacity as trustee of Ampal, their sole shareholder. Spizz followed this route after he applied to retain Shapira as special counsel to the estate, met with vigorous opposition and withdrew the application at the Court's suggestion. In addition, the retention by the subsidiaries instead of Ampal made sense. The subsidiaries rather than Ampal needed the representation, they rather than Ampal were going to pay Shapira's bills and Spizz could get the benefit of Shapira's representation without the cost by speaking to him at any time. Nevertheless, the October 4 Letter resurrected the concerns of conflict that triggered Maiman's earlier objection to Shapira's retention.
At oral argument, the Court also expressed a concern that Shapira faced a conflict. The estate and Mishmeret each have an interest in the D & O insurance proceeds, a finite fund. Shapira might seek to recover those proceeds for Mishmeret at the expense of the estate. Furthermore, as discussed earlier, Shapira cast the votes that elected Shapira, Spizz immediately sought to retain Shapira nunc pro tunc to the date of his election, and this might have created the impression that Spizz had already taken sides in the disputes between Mishmeret/Shapira and the Movants. In same vein, the Spizz Opposition opposed the Movants' claim for damages, an issue that concerned Mishmeret and Shapira but not the estate.
Thus far, Shapira has not taken any steps to collect the D & O insurance proceeds on Mishmeret's behalf, and any conflict is potential and hypothetical. The Court can reconsider this conclusion should the situation change and an actual conflict arise.
In conclusion, the Movants' motion is denied. Settle order on notice.