Michael Rodger Brown

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF NEW YORK

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In re: : Chapter 7

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Michael Rodger Brown, : Case No. 18-10617 (JLG)

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Debtor. :

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MEMORANDUM DECISION AND ORDER DENYING MOTION

FOR STAY OF ORDER EXPUNGING CLAIM PENDING

APPEAL PURSUANT TO FED. R. BANK. P. 8007

APPEARANCES:

LAW OFFICES OF KENNETH L. BAUM LLC

167 Main Street

Hackensack, New Jersey 07601

By: Kenneth L. Baum, Esq.

Counsel to Michael Rodger Brown, Chapter 7 Debtor

FISCHER PORTER & THOMAS, P.C.

560 Sylvan Avenue, Suite 3061

Englewood Cliffs, NJ 07632

By: Arthur L. Porter, Jr., Esq.

Aaron E. Albert, Esq.

Counsel to Jennifer Brown

AKERMAN LLP

666 Fifth Avenue

20th Floor

New York, NY 10022

By: John P. Campo, Esq.

Counsel to John S. Pereira, as Chapter 7 Trustee

for the Estate of Michael Rodger Brown

HONORABLE JAMES L. GARRITY, JR.

UNITED STATES BANKRUPTCY JUDGE:

Introduction

Michael Brown (the “Debtor”) commenced his voluntary chapter 7 case in this Court in

2018. At that time, he was being sued for divorce (the “Matrimonial Action”) in the Supreme

Court of the State of New York, County of New York, Matrimonial Term (the “State Court”) by

Jennifer Brown (“Jennifer”), now his ex-wife. In that action, Jennifer contended that the Debtor

fraudulently concealed in excess of $12,000,000 in marital assets (the “Unaccounted for Marital

Assets”). She timely filed a contingent, unsecured claim in this case in the sum of $6,375,000,

representing her claim to equitable distribution of the marital assets, including to her share of the

Unaccounted For Marital Assets (the “Equitable Distribution Claim”).1 This Court granted

Jennifer relief from the automatic stay to permit her to prosecute the Matrimonial Action

(including the liquidation of the Equitable Distribution Claim) in the State Court. With the

assistance of the State Court-appointed Special Referee, and the consent of the chapter 7 trustee

appointed herein (the “Trustee”), the parties executed a “So Ordered Term Sheet” (the “Term

Sheet”) that was incorporated, but not merged, into the Judgement of Divorce entered by the

State Court. Briefly, in the Term Sheet, the Debtor agreed to pay Jennifer $2,500,000, out of his

post-petition funds and over the course of four years, for her share of the marital assets (the

“Equitable Distribution Payment”). In exchange, the Debtor and his bankruptcy estate retained

ownership of the marital assets, and Jennifer agreed to turn over marital assets in her possession

to the Trustee. To date, she has been paid $500,000, in accordance with the Term Sheet.

1 On the Debtor’s claims docket, the Equitable Distribution Claim is designated as “Claim No. 6.”

On or about November 26, 2019, the Debtor, with the Trustee’s support, filed a Motion to

Approve Title to and Distribution of Marital Property Pursuant to Term Sheet in Matrimonial

Action and Expunge Claim No. 6 of Jennifer Brown Pursuant to 11 U.S.C. § 502(a) and Fed. R.

Bankr. P. 3007 [ECF 85] (the “Motion to Expunge Claim”) in this chapter 7 case. After hearing

argument on that motion, the Court issued its Memorandum Decision on Debtor’s Motion to

Approve Title to and Distribution of Marital Property Pursuant to Term Sheet in Matrimonial

Action and Expunge Claim No. 6 of Jennifer Brown Pursuant to 11 U.S.C. § 502(a) and Fed. R.

Bankr. P. 3007. See In re Brown, No. 18-10617, 2020 WL 1237935 (Bankr. S.D.N.Y. March 13,

2020) (the “Opinion”). As relevant, and in substance, in the Opinion, the Court held that in the

Matrimonial Action, Jennifer liquidated and fixed the Equitable Distribution Claim at

$2,500,000, agreed to accept the Equitable Distribution Payment from the Debtor in satisfaction

of that claim, and was barred from obtaining additional recoveries on account of the Equitable

Distribution Claim in this case. Thereafter, the Court entered an order expunging the claim (the

“Claim Order”).2 The matter before the Court is Jennifer’s motion for a stay of the Claim Order

pending her appeal of that order (the “Stay Motion”).3 The Debtor objects to the Stay Motion.4

Jennifer filed a reply to the objection and in support of the Stay Motion (the “Reply”).5 For the

reasons set forth herein, the Court denies the Stay Motion.

2 See Order Regarding Debtor’s Motion to Approve Title to and Distribute Marital Property Pursuant to Term

Sheet in Matrimonial Action and Expunge Claim No. 6 of Jennifer Brown Pursuant to 11 U.S.C. § 502(a) and Fed.

R. Bankr. P. 3007 [ECF No. 120].

3 See Motion For Stay of Order Expunging Claim Pending Appeal Pursuant to Fed. R. Bankr. P. 8007 [ECF No.

135].

4 See Debtor’s Objection to Jennifer Brown’s Motion for Stay of Order Expunging Claim Pending Appeal

Pursuant to Fed. R. Bankr. P. 8007 [ECF No. 137].

5 See Jennifer Brown’s Reply in Motion for Stay of Order Expunging Claim No. 6 Pending Appeal Pursuant to

Fed. R. Bankr. P. 8007 [ECF No. 138].

Background

On March 26, 2013, Jennifer commenced the Matrimonial Action in the State Court

against the Debtor. Opinion at *2. The State Court appointed the firm of Bollam Sheedy Torani

& Co., LLP CPA (“BST”) to serve as an independent expert in the case. In part, BST’s mandate

was to trace the source, use and application of marital funds acquired and spent by the Debtor.

Id. The BST Report identified the Unaccounted for Marital Assets. Id. After BST produced its

report, Jennifer retained Financial Research Associates (“FRA”), to serve as her own expert and

to review the findings set forth in the BST Report. FRA produced a report (the “FRA Report”)

that essentially confirmed BST’s findings. Id. The Debtor commenced this case on March 5,

2018 (the “Petition Date”). The Matrimonial Action was automatically stayed upon the

commencement of this case. Among the open issues in the Matrimonial Action as of the Petition

Date, was the extent of Jennifer’s share of the marital assets. Jennifer timely filed her Equitable

Distribution Claim, which she based on the information contained in the BST and FRA Reports.

Id. at *4.

On March 12, 2018, Jennifer filed a motion seeking, alternatively, to dismiss the case or

to obtain stay relief to permit her to proceed with the Matrimonial Action. Id. at *2. On April 4,

2018, the Court entered an order denying Jennifer’s request to dismiss the case, but granting stay

relief to permit the Matrimonial Action to proceed in all respects. Id. at *4. The Court held that

litigation in the Matrimonial Action could proceed in all respects including a determination of (i)

the nature and extent of the Debtor’s and Jennifer’s marital property, (ii) the nature and extent of

Jennifer’s interest in such property, and (iii) the equitable distribution of such property.

However, the Court directed that any determination regarding the distribution of property of the

bankruptcy estate and any determination of title to assets of the bankruptcy estate, whether for

collection of support, equitable distribution or otherwise, would be subject to the Court’s review

and approval. Opinion at *4.

In February of 2019, the State Court directed that a Special Referee be appointed in the

Matrimonial Action to conduct a hearing or trial in order to hear and report on all of the open

financial issues in this matrimonial action. The open financial issues included the liquidation of

the Equitable Distribution Claim. Id. The Special Referee conducted pre-trial conferences on

April 15, 2019 and June 26, 2019 and scheduled twenty-two days of trial commencing on July

18, 2019. Id. The Special Referee commenced the trial on July 18, 2019. Id. After four days of

trial and upon conclusion of the trial testimony on July 29, 2019, the Debtor and Jennifer,

through their respective counsel, reached a settlement of the Matrimonial Action, including all

open financial issues between the parties. Id. at *5. That agreement was embodied in the Term

Sheet. Id. at *1. At a hearing on July 30, 2019, the Special Referee marked the Term Sheet as

an exhibit to the record of the hearing and thereafter separately questioned Jennifer and the

Debtor to determine whether each of them wished for the Term Sheet to be the agreement that

resolves the financial issues in the divorce action. Id. at *6. At the conclusion of Jennifer and

the Debtor’s allocutions, the Special Referee accepted the Term Sheet as the basis for the parties’

judgment of divorce. Id.

The Debtor and Jennifer each submitted Proposed Judgments of Divorce. In part, and in

substance, the Debtor’s proposed judgment provided that in accordance with the Term Sheet, the

Debtor shall pay to Jennifer a total amount of $2,500,000 as her share of equitable distribution.

Id. Jennifer objected to the entry of the Debtor’s Proposed Judgment of Divorce. Among other

things, she contended that (i) in negotiating the Term Sheet she did not agree to withdraw the

Equitable Distribution Claim, and (ii) she agreed to accept $2,500,000 in payments from the

Debtor as possibly a credit against the Equitable Distribution Claim, but not in satisfaction of

that claim. Id. In another filing, she advised the State Court that:

[W]hen the Trustee establishes that the Defendant has hidden $12,000,000.00, the

Term Sheet will be vacated on the basis of Defendant's fraud. At such time, my

rights to equitable distribution, as recognized by Judge Garrity, will be recognized

and subject to enforcement. Clearly, the Defendant mistakenly believed that he had

escaped the microscope that the U.S. Trustee will now put him under to explain

where the missing funds are, as reported by BST.

Opinion at *7.

On November 8, 2019, the State Court entered the Judgment of Divorce. Id. at *8. In so

ruling, the State Court did not adopt Jennifer’s distinction between her right to an equitable

distribution of the marital assets and her contingent claim to those assets embodied in the

Equitable Distribution Claim, and it did not modify, in any way, the Debtor’s Proposed

Judgment of Divorce. Id.

In part, the Judgment of Divorce orders that pursuant to the “Term Sheet, [the

Debtor] shall pay to [Jennifer] or on behalf of [Jennifer] a total amount of

$2,500,000 as her share of equitable distribution.” Judgment of Divorce at 6. It also

provides that the Term Sheet “shall be incorporated herein by reference, [and] shall

survive and shall not be merged into [Judgment of Divorce.]” Id. at 9.

Id. Thereafter, the Debtor filed the Motion to Expunge Claim. As relevant, in that motion, the

Debtor sought to expunge the Equitable Distribution Claim pursuant to § 502(a) of the

Bankruptcy Code and Bankruptcy Rule 3007(a) on the grounds that (i) the Judgment of Divorce

directs that the Debtor pay Jennifer $2,500,000 as her share of equitable distribution, (ii) nothing

in that judgment affords Jennifer any further right to equitable distribution, and (iii) the Debtor,

not his estate, is obligated to pay Jennifer her share of equitable distribution. The Trustee

supported the Motion to Expunge Claim. Id. at *8. Jennifer opposed it.

Under § 502(b), if a party in interest objects to a claim, the court:

[A]fter notice and a hearing, shall determine the amount of such claim in lawful

currency of the United States as of the date of the filing of the petition, and shall

allow such claim in such amount, except to the extent that—

(1) such claim is unenforceable against the debtor and property of

the debtor, under any agreement or applicable law for a reason other

than because such claim is contingent or unmatured[.]

11 U.S.C. § 502(b)(1). The Court sustained the objection to the Equitable Distribution Claim.

Briefly, in doing so, the Court first reviewed New York State law governing the Matrimonial

Action. The Court considered that Jennifer sought a divorce pursuant to § 170(7) of the New

York Domestic Relations Law (the “DRL”). That section states that an action for divorce may

be maintained by a husband or wife to procure a judgment divorcing the parties and dissolving

the marriage on the grounds that:

The relationship between husband and wife has broken down irretrievably for a

period of at least six months, provided that one party has so stated under oath. No

judgment of divorce shall be granted under this subdivision unless and until the

economic issues of equitable distribution of marital property, the payment or waiver

of spousal support, the payment of child support, the payment of counsel and

experts' fees and expenses as well as the custody and visitation with the infant

children of the marriage have been resolved by the parties, or determined by the

court and incorporated into the judgment of divorce.

DRL § 170(7). The Court found that under the plain language of the statute, a court cannot grant

a judgment of divorce under § 170(7) unless it determines that the relationship between husband

and wife has broken down irretrievably for a period of at least six months, and the economic

issue of the equitable distribution of marital property, among others, is determined by the court

and incorporated into the judgment of divorce. Opinion at *10. The Court found that the

Judgment of Divorce met those standards, and specifically that the State Court determined

(i) that there were grounds for dissolving the marriage between Jennifer and the

Debtor because their relationship has broken down irretrievably for a period of at

least six months; and

(ii) the Parties settled the financial and custody issues by the So-Ordered Term

Sheet dated July 30, 2019, and that in accordance with Paragraph 2 on pages 1

through 2 of the Term Sheet, the Debtor shall pay to Jennifer or on behalf of

Jennifer a total amount of $2,500,000 as her share of equitable distribution.

See id. The Court then considered application of the doctrine of res judicata to the Judgment of

Divorce, and specifically whether it barred Jennifer from litigating the Equitable Distribution

Claim in this Court. In part, the Court held:

The nature and extent of Jennifer’s share in the marital assets was an issue before

the State Court in the Matrimonial Action. In the Term Sheet, Jennifer accepted the

Equitable Distribution Payment as her share of equitable distribution. The Term

Sheet is incorporated into the Judgement of Divorce, and the State Court had

jurisdiction to issue the judgment. The Judgment of Divorce is a final judgment on

the merits that resolves all matters that were or could have been raised in the

Matrimonial Action, including all those related to equitable distribution of the

marital assets. Jennifer relied on the BST Report and FRA Report in pursuing her

equitable distribution claim in the Matrimonial Action. All matters relating to the

equitable distribution of the marital property, including Jennifer’s right to a share

of the Unaccounted For Marital Property, necessarily were resolved in the

Judgement of Divorce. See Boronow v. Boronow, 71 N.Y.2d 284, 290, 525

N.Y.S.2d 179, 183 (1983) (“In a matrimonial action, where the essential objective

is to dissolve the marriage relationship, questions pertaining to important ancillary

issues like title to marital property are certainly intertwined and constitute issues

which generally can be fairly and efficiency resolved with the core issue. The courts

and the parties should ordinarily be able to plan for the resolution of all issues

relating to the marriage relationship in the single action.”). See also Harrison v.

Harrison, 134 A.D.2d 567, 568, 521 N.Y.S.2d 466, 468 (2d Dep't 1987)

(“Inasmuch as the matrimonial action was the appropriate forum within which to

properly adjudicate the marital property and financial issues that are raised herein,

the parties had the right to expect that any matters of that sort not considered in the

matrimonial action would not be litigated elsewhere.”) Jennifer incorporated the

BST Report and FRA Report in her Equitable Distribution Claim. In substance, in

that claim she is asserting the same claim against the Debtor that she settled in the

Matrimonial Action. She is barred from doing so by application of the principle of

res judicata.

Id. at *12. Based on those findings, the Court held that the Debtor rebutted the presumption of

the prima facie validity of the Equitable Distribution Claim and demonstrated that Jennifer is

entitled to no more than the Equitable Distribution Payment in full satisfaction of her Equitable

Distribution Claim. Accordingly, the Court found that the Debtor demonstrated grounds for

expunging the claim. Id.6 In reaching this conclusion, the Court considered and rejected all of

Jennifer’s arguments to the contrary. See Opinion at *12-16.

Analysis

Jennifer identifies the following issues to be presented on appeal:

1. Whether the Bankruptcy Court erred in finding that a settlement term sheet that

was incorporated into, but not merged with, a judgment of divorce bars reopening

of the settlement and judgment on discovering that the settlement and judgment

were procured through the Debtor’s fraudulent concealment of pre-petition assets;

2. Whether the Bankruptcy Court erred in finding that a settlement term sheet that

was incorporated into, but not merged with, a judgment of divorce bars reopening

of the settlement and judgment based on the doctrine of res judicata when the

question of whether the settlement was procured by fraud was not litigated and no

findings of fact were made by any court in connection with the settlement;

3. Whether the Bankruptcy Court erred in expunging a contingent claim of the

Debtor’s ex-spouse that would have value only if the Debtor were found to have

fraudulently concealed pre-petition assets that constituted marital property to which

the claimant had a meritorious claim, despite the fact that a settlement incorporated

into, but not merged with, a judgment of divorce provided that the claimant gave

up the right to retain only certain specifically enumerated marital property, and the

settlement contained no language sufficient under New York law to waive or

release claims to any other marital property including fraudulently concealed

assets[.]

See Statement of the Issues to Be Presented on Appeal [ECF No. 131].

6 The Court held, as follows:

Accordingly, the Debtor has demonstrated grounds for expunging the claim. Travelers Cas. & Sur.

Cor. Of America v. Pac. Gas & Elec. Co., 549 U.S. 443, 127 S. Ct. 1199, 1204 (2007) (11 U.S.C. §

502(b)(1) “is most naturally understood to provide that, with limited exceptions, any defense to a

claim that is available outside of the bankruptcy context is available in bankruptcy.”); see also In re

LightSquared Inc., 504 B.R. 321, 336 (Bankr. S.D.N.Y. 2013) (the “language could not be plainer

– if a claimant would be estopped under non-bankruptcy law from having a valid claim against the

debtor, a party may seek disallowance of the claim under section 502(b)(1).”); In re Ernst, 382 B.R.

194, 197 (S.D.N.Y. 2008) (“[T]here is nothing in [section 502] that requires a court to ignore that

the claim is no longer valid under state law.”).

Opinion at *12.

Bankruptcy Rule 8007 governs an application for a stay pending appeal from a decision

of a bankruptcy court. As relevant, it states, in substance, that ordinarily, a party seeking a stay

of a judgment, order, or decree of the bankruptcy court pending appeal must first move for such

relief in the bankruptcy court. See Bankruptcy Rule 8007(a)(1)(A). The decision as to whether

or not to grant a stay of an order pending appeal lies within the sound discretion of the court.

See, e.g., In re Gen. Motors Corp., 409 B.R. 24, 30 (Bankr. S.D.N.Y. 2009); New York Skyline,

Inc. v. Empire State Building Co. L.L.C. (In re New York Skyline, Inc.), 520 B.R. 1, 5 (S.D.N.Y.

2014). In exercising this discretion, the Court will consider the following four factors: (1)

whether the movant will suffer irreparable injury absent a stay, (2) whether a party will suffer

substantial injury if a stay is issued, (3) whether the movant has demonstrated a substantial

possibility, although less than a likelihood, of success on appeal, and (4) the public interest that

may be affected. See ACC Bondholder Grp. v. Adelphia Commc’ns Corp. (In re Adelphia

Commc’ns Corp.), 361 B.R. 337, 346 (S.D.N.Y. 2007) (“Adelphia”) (footnote omitted) (citations

and internal quotation omitted). See also In re Sabine Oil & Gas Corp., 548 B.R. 674, 681

(Bankr. S.D.N.Y. 2016).

The burden on the movant seeking the extraordinary relief of a stay is a “heavy” one. See

In re Gen. Motors Corp., 409 B.R. at 30. Indeed, “[s]tays pending appeal are the exception, not

the rule, and are granted only in limited circumstances.” In re Taub, No. 08-44210, 2010 WL

3911360, at *2 (Bankr. E.D.N.Y. Oct. 1, 2010) (first citing In re Paolo Gucci, 105 F.3d 837, 840

(2d Cir. 1997); then citing In re Aston Baker, No. CV05-3487(CPS), 2005 WL 2105802, at *3

(E.D.N.Y. Aug. 31, 2005)). While some courts have held that, to prevail, the moving party must

show “‘satisfactory’ evidence on all four criteria,” (see, e.g., Turner v. Citizens Nat'l Bank (In re

Turner), 207 B.R. 373, 375 (B.A.P. 2d Cir. 1997) (quoting Bijan-Sara Corp. v. Fed. Deposit Ins.

Corp. (In re Bijan-Sara Corp.), 203 B.R. 358, 360 (B.A.P. 2d Cir. 1996))), other courts have

held that the inquiry involves a balancing of the four factors and the lack of any one factor is not

dispositive to the success of the motion. See In re Gen. Motors Corp., 409 B.R. at 30; Adelphia,

361 B.R. at 347. The Court declines to determine whether Jennifer is required to satisfy all four

factors of the four-part test in order to succeed on her Stay Motion. Instead, the Court will

employ the balancing approach utilized in General Motors and in other cases. The Court finds

that it would reach the same conclusion—that Debtor’s Stay Motion must be denied—under both

tests. The Court discusses each of the factors in turn below.

Irreparable Injury

A showing of probable irreparable injury is the “principal prerequisite” for the issuance

of a stay pursuant to Bankruptcy Rule 8007, and such harm “must be ‘neither remote nor

speculative, but actual and imminent.’” In re Sabine Oil & Gas Corp., 548 B.R. at 681 (citations

omitted). “[T]he moving party must demonstrate that such injury is likely before the other

requirements will be considered.” Fox v. Mandiri (In re Perry H. Koplik & Sons, Inc.), No. 02–

B–40648, 2007 WL 781905, at *1 (Bankr. S.D.N.Y. Mar. 13, 2007) (citation omitted). See also

Adelphia, 361 B.R. at 347 (“A showing of probable irreparable harm is the principal prerequisite

for the issuance of a [Rule 8007] stay.” (citation omitted)); Stern v. Bambu Sales, Inc., 201 B.R.

44, 46 (E.D.N.Y. 1996) (denying stay pending appeal where movant failed to show irreparable

harm). To establish irreparable harm, plaintiffs must demonstrate “an injury that is neither

remote nor speculative, but actual and imminent.” Consolidated Brands, Inc. v. Mondi, 638 F.

Supp. 152, 155 (E.D.N.Y. 1986); accord Kaplan v. Board of Educ. of the City School Dist., 759

F.2d 256, 259 (2d Cir. 1985); Salant Acquisition Corp. v. Manhattan Indus., 682 F. Supp. 199,

202 (S.D.N.Y. 1988).

Jennifer contends that she will be irreparably harmed if the Court does not stay the Claim

Order because she has a contingent claim to share in the Unaccounted for Marital Assets, should

the Trustee discover such assets (see Reply ¶ 1; see also id. ¶ 4 (asserting that in staying the

Claim Order, “the only thing being stayed is the expungement of a contingent claim to assets that

have not yet been identified and located”)), and there is a chance that while her appeal is

pending, the Trustee will conclude the administration of the Debtor’s case and make a final

distribution to creditors. See Stay Motion ¶ 15 (“If a stay is not granted and [Jennifer’s]

contingent claim is expunged, [Jennifer] faces the likelihood that any wrongfully concealed

assets discovered by the Trustee will be distributed to other creditors and she will lose her only

chance to assert her right to a proportionate share.”). Under § 704(a)(1) of the Bankruptcy Code,

a trustee must “collect and reduce to money the property of the estate for which such trustee

serves, and close such estate as expeditiously as is compatible with the best interests of parties in

interest.” 11 U.S.C. § 704(a)(1). See also In re Riverside–Linden Inv. Co., 85 B.R. 107, 111

(S.D. Cal. 1988) (“It is well recognized that the trustee's duties under § 704 are not co-equal. The

duty to close the estate as quickly and expeditiously as is compatible with the best interests of the

parties in interest has been called the trustee's ‘main duty.’”), aff'd 99 B.R. 439 (B.A.P. 9th Cir.

1989). As a general rule, chapter 7 trustees make no distributions to creditors until they have

liquidated the estate assets and filed a final account. See In re Quid Me Broad., Inc., 181 B.R.

715, 717-20 (Bankr. W.D.N.Y. 1995) (agreeing that since the chapter 7 trustee is constrained

under § 726(a) to make a pro-rata distribution to creditors holding similar claims “he must be

afforded the luxury of waiting until case closing and final distribution to make certain that there

are sufficient funds to cover all expenses of administration” and finding that the chapter 7 trustee

was under no duty, absent a court order, to remit IRS administrative expense taxes before such

final administration of the estate); see also In re GPLA, Inc., No. 2:16-bk-13416-RK, 2016 WL

4440376, at *1 (Bankr. C.D. Cal. Aug. 22, 2016) (observing that “distributions to creditors in a

Chapter 7 bankruptcy case generally coincides with filing of trustee's final account, but the court

has power to authorize interim distributions upon assurance of sufficient remaining funds to pay

all administrative expense claims” (citations omitted)). Section 350(a) of the Bankruptcy Code

authorizes the closing of bankruptcy cases only “[a]fter an estate has been fully administered and

the court has discharged the trustee[.]” 11 U.S.C. § 350(a). At a minimum, the “full

administration” of a chapter 7 proceeding requires a final report by the trustee indicating the

distribution of proceeds from liquidated assets. See Matter of Wade, 991 F.2d 402, 407 (7th Cir.

1993) (“Chapter 7 cases come to an end in a final report indicating the distribution of proceeds

from liquidated assets.”); see also LBR 5009-1(b) (“Unless the Court orders otherwise, in a

chapter 7 asset case, the trustee must file and serve upon the United States Trustee, together with

an affidavit of final distribution, a closing report . . .”). “A final report should be just that: a

report evidencing facts from which the court can make a determination of finality based upon a

finding that there are no administrative tasks remaining to be completed.” In re Kliegl Bros.

Universal Elec. Stage Lighting Co., Inc., 238 B.R. 531, 542 (Bankr. E.D.N.Y 1999).

Jennifer has submitted no evidence to substantiate her contention that there is a risk that

the Trustee will fully administer the Debtor’s case and make distributions to creditors before the

district court can resolve the appeal. Moreover, in arguing that the issuance of a stay of the

Claim Order will not harm other parties, she takes the opposite position and contends that “the

Trustee has only just begun to search for concealed assets and has initiated an adversary

proceeding against the Debtor and related parties to recover such assets that is still in its

infancy.” Stay Motion ¶ 15. She has not met her burden of demonstrating that she will be

irreparably harmed if this Court does not stay the Claim Order pending her appeal of that order.

See In re Taub, No. 08–44210, 2010 WL 3911360, at *4 (Bankr. E.D.N.Y. Oct. 1, 2010) (finding

that the debtor had not established that the chapter 11 estate would suffer irreparable harm if

retention orders of estate professionals are not stayed because the “substantial fees” by the

trustee’s retained professionals are speculative, subject to approval by the bankruptcy court, and

the Debtor would have an opportunity to object at the time the professionals make their fee

applications); In re Milford Conn. Assocs., L.P., No. 04–30511(ASD), 2008 WL 2003118, at *1

(Bankr. D. Conn. May 7, 2008) (finding no irreparable harm to justify staying all bankruptcy

proceedings, including United States Trustee’s motion to convert or appoint a chapter 11 trustee

during pendency of appeal of bankruptcy court’s order denying confirmation because “any

alleged injury after the hearing of [the United States Trustee’s] Motion is purely speculative

since no one knows, or could know, at this time what, if any, relief this Court may enter in

connection with the Conversion/Trustee Motion.”), appeal denied, Case No. 08-107, 2008 WL

2079126 (D. Conn. May 16, 2008); Koper v. Koper (In re Koper), 560 B.R. 68, 75 (Bankr.

E.D.N.Y. 2016) (finding that the possibility that the implementation and enforcement of

sanctions order and judgment on consent will impact attorney-defendant’s license to practice is

too speculative to show irreparable harm).

Potential Harm to Other Parties

To establish this factor, Jennifer must demonstrate that “the balance of harms tips in

favor of granting the stay.” Adelphia, 361 B.R. at 349 (citations omitted). She contends that the

balance of equities tips decidedly in her favor because if the stay is not issued, she may lose her

contingent claim to the assets described in the BST and FRA Reports that she asserts were

fraudulently concealed by the Debtor from the State Court and this Court, while other creditors

stand to gain an undeserved windfall if she is prevented from having the merits of her contingent

claim to a share of those assets determined by the appropriate court if and when such assets are

located by the Trustee. Reply ¶ 7. However, as noted above, Jennifer has not demonstrated that

there is any risk of harm to her if the Court does not stay the Claim Order. She has failed to

establish that this factor weighs in favor of granting the extraordinary relief she is seeking herein.

Substantial Possibility of Success on Appeal

“The ‘substantial possibility of success’ test is considered an intermediate level between

‘possible’ and ‘probable’ and is ‘intended to eliminate frivolous appeals.’” In re Sabine Oil &

Gas Corp., 548 B.R. at 683-84 (citing In re 473 West End Realty Corp., 507 B.R. 496, 501

(Bankr. S.D.N.Y. 2014)). In support of her contention that she is likely to succeed on the merits

of the appeal, Jennifer asserts that in seeking to expunge her contingent Equitable Distribution

Claim, the Debtor argued that Jennifer had waived and released any right to marital assets,

wrongly concealed or otherwise, by entering into the Term Sheet. See Stay Motion at ¶ 5.

Jennifer says that she rejected that contention and argued that the Term Sheet contained no such

waiver or release, and that if the Debtor were found to have misrepresented and concealed his

assets in the Matrimonial Action or in this proceeding, she would have the right to reopen the

Term Sheet and seek to modify or vacate the Judgment of Divorce based on the Debtor’s fraud.

Id. She asserts that in the Opinion, the Court adopted the Debtor’s rationale, finding among

other things that the Term Sheet and the Judgment of Divorce barred any such application by the

doctrine of res judicata.

Jennifer makes two arguments in support of the Stay Motion. First, she says that the

Court’s decision is contrary to applicable law, and as support cites to Van Wie v. Van Wie, 124

A.D. 2d 353, 355, 507 N.Y.S.2d 486, 488 (N.Y. App. Div. 1986) (“Van Wie”) and Arizona v.

California, 530 U.S. 392, 414 (2000). Stay Motion ¶ 7. Second, she says that it would be

inequitable for her to be deprived of the right to a share of any assets wrongfully concealed by

the Debtor that may be discovered by the Trustee because she relied on the Debtor’s fraudulent

disclosures in agreeing to settle the financial issues in the Matrimonial Action. Id. The Court

finds no merit to either contention. There is no basis for the contention that she relied on the

Debtor’s fraudulent disclosures in agreeing to settle the financial issues in the Matrimonial

Action. In support of the Stay Motion, Jennifer contends:

[T]he question on appeal is not of any factual findings by the Court, but rather a

question of law involving the construction of a settlement agreement and judgment

of divorce, and Ms. Brown’s Motion sets forth what she believes is a compelling

legal argument for a construction that differs from that in the Order and Decision

on appeal.

See Reply at ¶ 6. In the Opinion, the Court specifically rejected Jennifer’s contention that she

relied on the Debtor’s alleged fraudulent disclosures in agreeing to settle the financial issues in

the Matrimonial Action:

There is no merit to Jennifer’s contention that she relied on false information in

agreeing to the Term Sheet. She was fully aware of the contents of the BST Report

and retained her own expert that produced the FRA Report. In agreeing to the Term

Sheet, she advised the Special Referee that (i) she had sufficient information about

the Debtor’s finances to be able to enter into the Term Sheet and (ii) she understood

each part of the Term Sheet and believed the Term Sheet to embody a fair and

reasonable settlement of the economic issues in the Matrimonial Action. July 30

H’rg Tr. 4:20-22; 5:6-9; 8:10-13. Jennifer could have tried the open economic

issues to conclusion before the Special Referee. Upon advice of counsel, she elected

to settle those matters on the terms set forth in the Term Sheet. Any doubt that

Jennifer was uncertain of the path she was taking in agreeing to the Term Sheet is

dispelled by her allocution to the Special Referee, also with the guidance of her

counsel.

Opinion at *15. To that end, the Court found that with the assistance of her counsel, Jennifer

allocuted to the facts that (i) she read the entire Term Sheet, (ii) initialed each page, (iii)

reviewed the Term Sheet with her attorney before executing it, (iv) believed that she had

sufficient information about the Debtor’s finances to be able to enter into the Term Sheet, and (v)

understood each part of the Term Sheet and believed the Term Sheet to embody a fair and

reasonable settlement of the economic issues in the Matrimonial Action. Id. at * 6. Jennifer

does not challenge any of the Court’s factual findings in the Opinion and, as such, it is not

plausible that on appeal she can demonstrate that she relied on the Debtor’s fraudulent

disclosures in agreeing to settle the financial issues in the Matrimonial Action. Moreover, in the

Opinion, the Court found that although Jennifer contested the form of the Judgment of Divorce

submitted by the Debtor to the State Court, and specifically argued in her Affidavit In Support of

Counter Judgment of Divorce that “[s]imply put, on July 30, 2019, I resolved financial issues

against Mr. Brown in the matrimonial matter, except I did not and never intended to resolve my

claims against the bankruptcy estate nor my rights to assert and enforce my equitable distribution

rights in bankruptcy court or subsequently in this court” (id. at *7), and submitted her own form

of Judgment:

Jennifer did not appeal or otherwise challenge the entry of the Judgment of Divorce.

To the contrary, Jennifer has embraced the Judgement as there is no dispute that

she has accepted payments under the Judgement from the Debtor totaling $500,000.

In that way, Jennifer has ratified the agreement in the Term Sheet that is

incorporated in the Judgment of Divorce. See Phillips S. Beach LLC v. ZC Specialty

Ins. Co., 867 N.Y.S. 2d 386, 387 (N.Y. Sup. Ct. 2008) (A ratification occurs when

a party accepts the benefits of a contract and fails to act promptly to repudiate it.);

see also Panaggio v. Panaggio, 684 N.Y.S. 2d 732, 733 (N.Y. App. Div. 1998)

(Wife could not obtain rescission of separation agreement on grounds of fraud and

duress because wife was represented by counsel during protracted settlement

negotiations and agreed to stipulation in open court, and wife ratified agreement by

continuing to accept benefits under the agreement for years).

Opinion at * 13. Jennifer does not challenge that determination on appeal.

Jennifer cites Van Wie, 507 N.Y.S.2d 486 as support for the proposition that the Term

Sheet, which is incorporated, but not merged, into the Judgment of Divorce survives the

judgment and the judgment does not bar a subsequent challenge to the validity of the Term Sheet

based on fraud. See Stay Motion ¶¶ 6, 19. In that case, the plaintiff (wife) and defendant

(husband) were married in 1966. In June 1984, they entered into a separation agreement which

provided, among other things, that plaintiff had no claim to the marital residence – which

apparently was the primary asset of the marriage – and that she waived any right to maintenance.

507 N.Y.S. 2d at 487. Plaintiff was granted a judgment of divorce against defendant in

September 1984, and the June 1984 separation agreement was incorporated, but not merged, into

the divorce decree. Id. In March 1985, plaintiff sued to have certain provisions of the separation

agreement declared void and to impose a constructive trust on the marital residence. Plaintiff

contended that the terms of the separation agreement were procured by defendant's fraud, duress

and misrepresentation. Id. at 487-88. Defendant moved to dismiss the action on the grounds of

documentary evidence, res judicata and failure to state a cause of action. Id. at 488. Special

Term credited the res judicata defense and dismissed the complaint. On appeal, the Appellate

Term reversed. Id. It found that a separation agreement which is incorporated, but not merged,

into a divorce decree survives the decree and the decree does not bar a subsequent challenge to

the validity of the separation agreement based on fraud. Id. It reasoned that the doctrine of res

judicata did not bar the lawsuit because the merits of plaintiff's contention that the separation

agreement was procured through fraud had not been previously litigated. Id. This case is

different from Van Wie. Here, before the State Court approved the Term Sheet and issued the

Judgment of Divorce, Jennifer, with the advice of counsel, allocuted to the provisions of the

Term Sheet and confirmed to the Special Referee, among other things, that (i) she had sufficient

information about the Debtor’s finances to be able to enter into the Term Sheet and (ii) she

understood each part of the Term Sheet and believed the Term Sheet to embody a fair and

reasonable settlement of the economic issues in the Matrimonial Action. Opinion at *15. The

Debtor’s alleged fraud in concealing marital assets was among the economic issues to be

resolved in the Matrimonial Action. Jennifer agreed to accept the Equitable Distribution

Payment in satisfaction of the Equitable Distribution Claim at a time that she was plainly aware

of the Debtor’s alleged fraud as set forth in the BST Report, her own FRA Report and her

Equitable Distribution Claim. Moreover in entering the Judgment of Divorce, the State Court

rejected Jennifer’s assertion that while she “resolved financial issues against [the Debtor] in the

matrimonial matter,” she “did not and never intended to resolve [her] claims against the

bankruptcy estate nor [her] rights to assert and enforce [her] equitable distribution rights in

bankruptcy court or subsequently in [State Court].” Opinion at *7. Van Wie is distinguishable

and inapplicable in this case. In citing Arizona v. California, 530 U.S. 392 (2000) in support of

her Stay Motion, Jennifer is rehashing an argument she made in opposition to the Motion to

Expunge Claim. The Court found no merit to Jennifer’s reliance on Arizona and distinguished

that case, and others that she cited, on the facts of those cases. See Opinion at *15.

The case law is clear that the probability of success that must be demonstrated in

applying this factor is inversely proportional to the amount of irreparable injury that the plaintiff

will suffer absent the stay; in other words, “more of one excuses less of the other.” In re Sabine

Oil & Gas Corp., 548 B.R. at 684 (quoting 473 West End Realty Corp., 507 B.R. at 502).

Jennifer failed to demonstrate that there is any likelihood that she will be irreparably injured if

the Court does not stay the Claim Order. She has also failed to establish, in that light, that there

is a substantial likelihood that she will prevail in her appeal of the Claim Order.

Public Interest

The public interest favors compliance with court orders and timely resolution of

litigation. See, e.g., In re Swartout, 554 B.R. 474, 480 (Bankr. E.D. Cal. 2016) (“In short, the

public interest favors compliance - not disobedience - with court orders.” (citing U.S. v.

Sumitomo Marine & Fire Ins. Co., 617 F.2d 1365, 1371 (9th Cir. 1980))); Borowski v. BNC

Mortg., Inc., No. C12-5867, 2013 WL 5770378, at *4 (W.D. Wash. Oct. 24, 2013) (“Finally,

there is a strong public interest in favor of timely compliance with orders of the court. There is

also a public interest in resolution of litigation.”); Chevron Corp. v. Donziger, Case No. 12-mc-

80237, 2013 WL 5718532, at *2 (N.D. Cal. Oct. 21, 2013) (“Further, there is a strong public

interest in favor of timely compliance with orders of the court.”). Jennifer says that the public

interest will be served by the Court’s issuance of a stay pending appeal because the public

interest in “expedient administration of bankruptcy proceedings” is outweighed by the right of

parties to appellate review. Stay Motion ¶ 20. She contends that the public interest is served

ensuring that debtors make “truthful” statements about their financial condition. Id. ¶ 21. All

that may be true, but Jennifer has not demonstrated that the public interest will be undermined if

the Court does not stay the Claim Order. She has failed to demonstrate that there is any

likelihood that her appeal will be mooted if the stay is not granted.

Conclusion

Based on the foregoing, the Court finds that Jennifer has not met her heavy burden of

establishing grounds for the Court to stay the Claim Order pending her appeal of that order.

Accordingly, the Court denies the Stay Motion.

IT IS SO ORDERED.

Date: June 10, 2020

New York, New York /s/ James L. Garrity, Jr.

Hon. James L. Garrity, Jr.

United States Bankruptcy Judge