Case 14-15750 Doc 23 Filed 03/10/15 Entered 03/10/15 12:15:04 Desc Main
` Document Page 1 of 7
`
`UNITED STATES BANKRUPTCY COURT
`DISTRICT OF MASSACHUSETTS
`EASTERN DIVISION
`
`Chapter 7
`Case No. 14-15750-WCH
`
`
`__________________________________
`
`IN RE:
`BRENT E. PODMOSTKA,
`
`DEBTOR.
`__________________________________
`
`
`
`I. INTRODUCTION
`
`MEMORANDUM OF DECISION
`
`
`
`
`The matter before the Court is the “Motion of the Creditor, Jonathan Suarez, for Relief
`
`from Stay” (the “Motion for Relief”) filed by Jonathan Suarez (“Suarez”) and the response
`
`thereto (the “Response”) filed by Brent E. Podmostka (the “Debtor”). Suarez seeks relief from
`
`the automatic stay to continue a civil matter now pending in the state court in order to obtain a
`
`judgment against the Debtor and seek recovery solely against his insurance carrier and employer.
`
`For the reasons set forth below, I will grant the Motion for Relief.
`
`II. BACKGROUND
`
`
`
`The Debtor filed a voluntary Chapter 7 petition on December 15, 2014. On “Schedule F
`
`– Creditors Holding Unsecured Nonpriority Claims” (“Schedule F”), the Debtor listed a debt to
`
`“Louis Haskell, Esq.” which he described as “Suarez v. Podmastka [sic]” in the amount of
`
`$588,544.23.1 On his Statement of Financial Affairs (“SOFA”), the Debtor listed a pending
`
`Middlesex Superior Court action captioned as Jonathan Suarez v. Brent Podmastka [sic] and
`
`Publishers Circulation Fulfillment, Inc. (the “State Court Action”).2
`
`
`1 Schedule F, Docket No. 1 at 15.
`
`2 SOFA, Docket No. 1 at 26.
`
`
`
`1
`
`

`
`Case 14-15750 Doc 23 Filed 03/10/15 Entered 03/10/15 12:15:04 Desc Main
` Document Page 2 of 7
`
`
`
`On December 16, 2014, John Aquino was appointed Chapter 7 trustee (the “Trustee”).
`
`The Debtor appeared at the meeting of creditors held pursuant to 11 U.S.C. § 341 (the “Meeting
`
`of Creditors”) on January 22, 2015. On the same day, immediately following the Meeting of
`
`Creditors, the Trustee filed the Chapter 7 Trustee’s Report of No Distribution, indicating that
`
`there were no nonexempt assets available for distribution to unsecured creditors. At present, a
`
`discharge has not yet entered as the deadline to object to the Debtor’s discharge or the
`
`dischargeability of certain debts is March 23, 2015.
`
`
`
`On January 6, 2015, Suarez, through Attorney Louis Haskell, filed the Motion for Relief
`
`seeking relief from the automatic stay to continue the State Court Action. In the Motion for
`
`Relief, Suarez explains that the State Court Action arises from a motor vehicle accident and
`
`names Publishers Circulation Fulfillment, Inc. (“Publishers”) as “Co-Defendant and employer at
`
`the time of the collision,” asserting that if the Debtor were found liable for Suarez’s damages,
`
`Publishers would be vicariously liable to the same extent.3 He further states that the Debtor has
`
`automobile insurance with a policy limit of $20,000.00 and that insurance company has provided
`
`the Debtor counsel in the State Court Action at no cost.4 Expressly recognizing that a judgment
`
`obtained in excess of the policy limits would be a dischargeable unsecured debt, Suarez appears
`
`to request the stay be lifted so that he may pursue a recovery against the Debtor’s insurance
`
`policy and Publishers.5
`
`
`
`On January 7, 2015, the Debtor filed the Response, objecting to the scope of the relief
`
`sought by Suarez. While the Debtor has no quarrel with Suarez seeking a recovery from his
`
`
`3 Motion for Relief, Docket No. 11 at 1.
`
`4 Id.
`
`5 Id. at 1-2.
`
`
`
`2
`
`

`
`Case 14-15750 Doc 23 Filed 03/10/15 Entered 03/10/15 12:15:04 Desc Main
` Document Page 3 of 7
`
`insurance carrier (the “Carrier”) to the extent of the policy limits or from Publishers, the Debtor
`
`opposes relief to pursue a judgment against him or otherwise seek satisfaction from his property
`
`or property of the estate.6 Moreover, the Debtor asserts that the Carrier has already offered to
`
`pay Suarez the policy limit, and queries whether this offer will impact their no cost
`
`representation in the event Suarez is permitted to proceed in the State Court Action.7 The Debtor
`
`concedes, however, that he may be called upon to act as a witness in the State Court Action
`
`“[u]pon the conclusion of these bankruptcy proceedings.”8
`
`
`
`The Motion for Relief was scheduled for hearing on January 28, 2015. On January 22,
`
`2015, Suarez moved to appear telephonically or, in the alternative, waive oral argument. Noting
`
`that “[a]t this time, the Creditor has no good faith basis for advancing a claim that the Debtor
`
`was intoxicated or that the harm to the Creditor was . . . intentional,” Suarez posited that the
`
`Response presented a single narrow issue—whether he should be permitted to obtain a
`
`dischargeable judgment against the Debtor in order to assert vicarious liability against
`
`Publishers—that did not require oral argument.9 Consistent with the relief requested, Suarez
`
`contends that obtaining a judgment against the Debtor is a prerequisite to establish liability
`
`against Publishers. On the same day, I denied leave to appear telephonically, but excused Suarez
`
`from appearing at the January 28, 2015, hearing.
`
`
`6 Response, Docket No. 12 at ¶¶ 3-4.
`
`7 Id. at ¶ 2.
`
`8 Id. at ¶ 5. It is unclear whether the Debtor simply means that the State Court Action will not come to trial before
`his bankruptcy case is closed, or whether he believes he should not be compelled to testify until that time.
`Assuming it is the latter, I note that the automatic stay does not afford him such protection.
`
`9 Motion to Appear Telephonically or in the Alternative Waive Oral Argument, Docket No. 14 at 1. In support of a
`telephonic appearance, Attorney Haskell asserted that traveling from his office in Lowell, Massachusetts to court in
`Boston is “always a personal inconvenience.” Id.
`
`
`
`3
`
`

`
`Case 14-15750 Doc 23 Filed 03/10/15 Entered 03/10/15 12:15:04 Desc Main
` Document Page 4 of 7
`
`
`
`On January 23, 2015, the Debtor filed a memorandum in support of the Response (the
`
`“Memorandum”). In the Memorandum, the Debtor complains that he should not be forced to
`
`defend the State Court Action when any judgment obtained against him will be discharged.10
`
`Relying on 11 U.S.C. § 524(e), he contends that his discharge does not affect the liability of any
`
`other entity for the debt such that a failure to obtain a judgment against him will not release
`
`either Publishers or the Carrier.11 Thus, the Debtor insists that relief must be denied with respect
`
`to him and only granted for the limited purpose of pursuing Publishers or the Carrier.12
`
`
`
`On January 28, 2015, the Debtor moved to either continue the hearing on the Motion for
`
`Relief or similarly excuse his appearance citing the narrow point of contention between the
`
`parties. On the same day, I granted the motion to excuse Debtor’s appearance and took the
`
`matter under advisement.
`
`III. DISCUSSION
`
`
`
`Section 362(a)(1) of the Bankruptcy Code provides that the filing of a bankruptcy
`
`petition stays the commencement or continuation of all non-bankruptcy judicial proceedings
`
`against the debtor.13 Nevertheless, 11 U.S.C. § 362(d)(1) expressly provides that, on the request
`
`of a party in interest, “the court shall grant relief from the stay provided under subsection (a) of
`
`this section, such as by terminating, annulling, modifying, or conditioning such stay—for
`
`
`10 Memorandum, Docket No. 17 at 2.
`
`11 Id. at 1.
`
`12 Id. at 2.
`
`13 11 U.S.C. § 362(a)(1).
`
`
`
`4
`
`

`
`Case 14-15750 Doc 23 Filed 03/10/15 Entered 03/10/15 12:15:04 Desc Main
` Document Page 5 of 7
`
`cause . . . .”14 The Bankruptcy Code does not define “cause” for purposes of 11 U.S.C. §
`
`362(d)(1), requiring courts to determine cause on a case-by-case basis.15
`
`
`
`Although that the Debtor has not yet received a discharge,16 11 U.S.C. § 524 provides
`
`that a discharge under 11 U.S.C. § 727 “operates as a permanent injunction against the
`
`commencement or continuation of an action to recover any debt discharged thereunder as a
`
`‘personal liability” of the debtor.”17 It does not, however, “affect the liability of any other entity
`
`on, or the property of any other entity for, such debt.”18 Accordingly, courts have long
`
`recognized that even post-discharge, a creditor may be appropriately permitted to maintain a civil
`
`action against a debtor nominally for the purpose of establishing liability and recovering against
`
`a third party.19 These courts reason that a debtor’s discharge is not meant to insulate third parties
`
`
`14 11 U.S.C. § 362(d)(1).
`
`15 In re Haines, 309 B.R. 668, 674 (Bankr. D. Mass. 2004).
`
`16 I briefly note that the Debtor’s discharge may not, in fact, be as imminent as he contends. As the deadline for
`filing objections to the discharge or the dischargeability of certain debts has not yet expired, a creditor, Suarez
`included, may still seek an extension. See Fed. R. Bankr. P. 4004(b). I recognize, however, that while there is no
`dispute that Suarez’s debt is for a “personal injury caused by the debtor’s operation of a motor vehicle,” there is
`presently no allegation that the Debtor was intoxicated such as to render the debt nondischargeable under 11 U.S.C.
`§ 523(a)(9).
`
`17 In re Catania, 94 B.R. 250, 251 (Bankr. D. Mass. 1989); see 11 U.S.C. § 524(a)(2).
`
`18 11 U.S.C. § 524(e).
`
`19 Houston v. Edgeworth (In re Edgeworth), 993 F.2d 51 (5th Cir. 1993)(creditors may pursue their lawsuit against
`debtor in order to collect any judgment solely from the proceeds of his malpractice liability policy); Green v. Welsh,
`956 F.2d 30, 33 (2d Cir. 1992) (creditor would be permitted to continue suit against debtors who had received a
`Chapter 7 discharge only to prove liability as prerequisite to recovery from debtors' liability insurer ); Matter of
`Shondel, 950 F.2d 1301 (7th Cir. 1991) (affirming the bankruptcy court’s modification of the discharge injunction to
`permit a determination of the debtor's liability for the purpose of seeking recovery from the debtor's insurer); Walker
`v. Wilde (In re Walker), 927 F.2d 1138 (10th Cir. 1991) (creditors were entitled to continue their action against
`discharged debtor for sole purpose of confirming their right to monies from state real estate recovery fund); Owaski
`v. Jet Florida Sys., Inc. (In re Jet Florida Sys., Inc.), 883 F.2d 970 (11th Cir. 1989) (discharge injunction did not
`preclude determination of debtor's liability to defamation claimant in order for claimant to recover from debtor's
`insurer); see also First Fidelity Bank v. McAteer, 985 F.2d 114, 118 (3d Cir. 1993) (noting in dictum that the
`discharge injunction does not affect the liability of debtors' insurers).
`
`
`
`5
`
`

`
`Case 14-15750 Doc 23 Filed 03/10/15 Entered 03/10/15 12:15:04 Desc Main
` Document Page 6 of 7
`
`from liabilities shared with the debtor.20 To balance this concern with the debtor’s “fresh start,”
`
`relief from stay to continue a civil action is appropriate when: (1) “it is necessary to join the
`
`debtor in order to establish liability against a third party;” (2) “the debtor bears none of the costs
`
`of defense;” and (3) any judgment obtained against the debtor will not be executed either against
`
`the debtor personally or against his assets.21
`
`
`
`On its face, Suarez’s request to continue the State Court Action to establish the Debtor’s
`
`liability and obtain a recovery from the Carrier satisfies these three conditions. Unlike Suarez’s
`
`claim for vicarious liability which may be brought directly against Publishers without joining the
`
`Debtor as a defendant,22 Massachusetts law prohibits a plaintiff from directly suing an insured’s
`
`carrier.23 Assuming, arguendo, that the Carrier has offered Suarez a settlement to the extent of
`
`the insurance policy limit as alleged, he nevertheless cannot be forced to accept it despite his
`
`inability to recover more by litigating the claim to judgment. If, however, Suarez accepts a
`
`
`20 In re Catania, 94 B.R. at 253.
`
`21 Id. With regard to the second element, Judge Kenner in In re Catania further suggested that the creditor must
`promise to bear any defense costs incurred by the debtor. Id. This conclusion has been criticized by the United
`States Courts of Appeal for the Second, Tenth, and Eleventh Circuits, reasoning that a debtor need not defend itself
`post-discharge. Green v. Welsh, 956 F.2d at 34; In re Walker, 927 F.2d at 1142; In re Jet Florida Sys., Inc., 883
`F.2d at 976.
`
`22 Polygram Int'l Pub., Inc. v. Nevada/TIG, Inc., 855 F. Supp. 1314, 1334 (D. Mass. 1994) (“Under theories of
`agency and respondeat superior, the defenses of the servant may be asserted by the master; the servant is not a
`necessary party to the suit.”). I further note that neither the Debtor’s prospective discharge nor the failure to pursue
`a judgment against him as a defendant constitute a “release” that would prohibit Suarez from proceeding against
`Publishers on a respondeat superior theory. See Elias v. Unisys Corp., 410 Mass. 479, 481-482 (1991) (unqualified
`release given by a plaintiff to a tortfeasor precludes any further action against the tortfeasor’s employer because the
`employer, while vicariously liable, is not a joint tortfeasor).
`
`23 See Tessier v. State Farm Mut. Ins. Co., 334 F. Supp. 807, 809 (D. Mass. 1971) aff'd, 458 F.2d 1299 (1st Cir.
`1972) (In Massachusetts . . . the appropriate procedure would be to bring a lawsuit against the decedent’s estate and
`after having established liability then bring a bill to reach and apply the insurer’s duty to indemnify the decedent’s
`estate).
`
`6
`
`
`
`
`
`

`
`Case 14-15750 Doc 23 Filed 03/10/15 Entered 03/10/15 12:15:04 Desc Main
` Document Page 7 of 7
`
`settlement payment from the Carrier, the Debtor’s nominal participation would no longer be
`
`necessary and a judgment against him would be inappropriate. Unless that occurs, relief from
`
`stay to pursue a judgment against the Debtor is warranted as a prerequisite to a recovery against
`
`the Carrier.
`
`IV. CONCLUSION
`
`In light of the foregoing, I will enter an order granting the Motion for Relief.
`
`
`
`
`
`
`
`
`
`
`____________________________
`William C. Hillman
`United States Bankruptcy Judge
`
`
`
`
`
`
`
`
`
`Counsel Appearing:
`
`
`Louis S. Haskell, Lowell, MA,
`for Suarez
`Jay P. Johnson, Peabody, MA,
`for the Debtor
`
`
`
`
`
`7
`
`
`
`
`
`
`
`
`
`
`
`Dated: March 10, 2015