In Re: Martin
ORDER. The Bankruptcy Court's judgment is affirmed. The Clerk is instructed to enter judgment in favor of the appellee, Bradford J. Martin, and to close the case. Signed by Judge Stefan R. Underhill on 04/27/2021. (Rosenberg, J.)
UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
IN RE BRADFORD J. MARTIN,
No. 3:20-cv-939 (SRU)
PAT LABBADIA III,
BRADFORD J. MARTIN,
In October 2018, Bradford J. Martin filed a voluntary Chapter 7 bankruptcy petition. In
January 2019, Pat Labbadia, 1 who is Martin’s principal creditor, filed an adversary proceeding
objecting to the discharge of certain of Martin’s debts. During that adversary proceeding, Judge
Ann M. Nevins of the United States Bankruptcy Court for the District of Connecticut granted (in
large part) Martin’s motion to dismiss Labbadia’s complaint. After holding a bench trial on the
few remaining claims, the Bankruptcy Court issued a memorandum of decision that resolved the
outstanding issues in Martin’s favor and entered judgment for Martin. Labbadia appeals from
that judgment, but his only complaint is that the Bankruptcy Court erred in its motion to dismiss
ruling. In my view, the Bankruptcy Court did not err, and so I affirm the Bankruptcy Court’s
Although Labbadia is proceeding pro se, he is a lawyer and so is not entitled to the special solicitude that
courts normally accord to pro se parties. See Tracy v. Freshwater, 623 F.3d 90, 102 (2d Cir. 2010) (“[A] lawyer
representing himself ordinarily receives no such solicitude at all.”); Chevron Corp. v. Donziger, 990 F.3d 191, 203
(2d Cir. 2021) (“[T]his Court does not give special solicitude to pro se litigants who are themselves attorneys.”).
Standard of Review
A federal district court has jurisdiction to hear appeals from “final judgments, orders, and
decrees” of the bankruptcy court in the same district. See 28 U.S.C. § 158(a). When reviewing
bankruptcy appeals, the district court reviews conclusions of law de novo and applies the clearly
erroneous standard to findings of fact. See In re Ionosphere Clubs, Inc., 922 F.2d 984, 988 (2d
Cir. 1990). The district court may “affirm, modify, or reverse a bankruptcy court’s judgment,
order, or decree, or remand with instructions for further proceedings.” In re White, 2017 WL
5501487, at *1 (D. Conn. Nov. 16, 2017) (citing former Fed. R. Bankr. P. 8013) (cleaned up).
In 2013 and 2014, Labbadia served as counsel for Martin in divorce proceedings. Martin
refused to pay the full amount of Labbadia’s claimed attorneys’ fees, so in June 2014 Labbadia
sued Martin in state court to recover the balance due. That state court litigation was pending at
the time Martin filed his Chapter 7 petition. At oral argument in this matter, the parties informed
me that the state court case was dismissed in 2020 because it had been dormant for so long.
In October 2013, Martin moved out of his marital residence and into a property owned by
his friend, Thomas Holthausen. That property was located in Westbrook, Connecticut, and so I
will refer to it as the “Westbrook Property.” Martin paid $500 per month in rent and was living
there at all times relevant to this case. On September 18, 2018, Martin transferred $60,000 to
Holthausen for a one-quarter interest in the Westbrook Property. I will refer to that transaction
as the “Westbrook Property Transfer.”
Labbadia admittedly does not challenge any of the Bankruptcy Court’s factual findings. See, e.g.,
Labbadia’s Br., Doc. No. 22, at 8 (“The standard of appellate review with respect to each of these issues is de novo
review since they are issues of law, and not issues of fact.”). My independent review of the record confirms that the
Bankruptcy Court made no clearly erroneous factual findings. Thus, unless otherwise noted, I take the facts as the
Bankruptcy Court found them in its motion to dismiss ruling and post-trial memorandum of decision. See In re
Martin, 2019 WL 3543778 (Bankr. D. Conn. Aug. 2, 2019) (motion to dismiss); In re Martin, 2020 WL 2787681
(Bankr. D. Conn. May 28, 2020) (post-trial).
On October 1, 2018, which was just 13 days after the Westbrook Property Transfer,
Martin filed a voluntary petition for bankruptcy pursuant to Chapter 7 of the Bankruptcy Code.
See Case No. 3:18-bk-31636 (AMN). (I will refer to that docket as “BR-ECF.”) Along with his
petition, Martin submitted Bankruptcy Schedules. On Bankruptcy Schedule A/B (Property),
Martin identified a $58,750 interest he held in the Westbrook Property. BR-ECF, Doc. No. 1, at
10. Martin also identified a $3,194 interest in a 2005 Honda Accord and a $13,147 interest in a
2014 Honda Accord. Id. at 11. Martin listed several other interests that are not at issue in this
appeal. On Bankruptcy Schedule C (Property Claimed as Exempt), Martin claimed as exempt
pursuant to state law the entire values of the Westbrook Property 3 and the 2005 Honda Accord. 4
Id. at 16. On Bankruptcy Schedule E/F (Creditors Who Have Unsecured Claims), Martin
reported that Labbadia had a $43,134.38 disputed, unsecured claim against him. See id. at 20.
On October 4, notice of Martin’s Chapter 7 filing was sent to Labbadia by first class mail.
See BR-ECF, Doc. No. 5. That notice explained that the meeting of creditors, see 11 U.S.C. §
341, would take place on November 6. Id. The notice also explained that “[t]he law permits
debtors to keep certain property as exempt,” and if a creditor “believe[s] that the law does not
authorize an exemption claimed, you may file an objection.” Id. Finally, the notice explained
that the filing deadline for objecting to Martin’s claimed exemptions was “30 days after the
conclusion of the meeting of creditors.” Id.
See Conn. Gen. Stat. § 52-352b(t) (allowing for homestead exemption up to $75,000 so long as that value is
“the fair market value of the real property less the amount of any statutory or consensual lien which encumbers it”).
The Bankruptcy Court found that “[t]here is no dispute that” the Westbrook Property Transfer “represented the fair
market value of the interest purchased.” In re Martin, 2019 WL 3543778, at *2 (Bankr. D. Conn. Aug. 2, 2019).
Labbadia does not challenge that conclusion on appeal. Labbadia also does not claim that any lien encumbered
Martin’s interest in the Westbrook Property.
See Conn. Gen. Stat. § 52-352b(j) (allowing for motor vehicle exemption up to $3,500 so long as that value
is “the fair market value of the motor vehicle less the amount of all liens and security interests which encumber it”).
Again, Labbadia does not claim that the exemption that Martin claimed for the 2005 Honda Accord did not represent
the fair market value of the vehicle or that any lien encumbered Martin’s interest in the car. In contrast, Martin
claimed only a $1 exemption for the 2014 Honda Accord pursuant to Conn. Gen. Stat. § 52-352b(r), because an
automobile loan encumbered the title.
The meeting of creditors commenced and concluded on November 6. Labbadia appeared
at the meeting and questioned Martin about certain aspects of the Westbrook Property Transfer.
However, in the following 30 days, Labbadia did not lodge any objections to the exemptions that
Martin claimed, which included the entire value of Martin’s interest in the Westbrook Property.
On March 8, 2019, the Chapter 7 trustee filed a report of no distribution, meaning that Martin
had no assets in his bankruptcy estate to distribute to any creditors. See BR-ECF, Doc. No. 20.
In that report, the trustee explained that she had made a “diligent inquiry” into Martin’s
“financial affairs.” Id.
Instead of filing an objection to Martin’s claimed exemptions, on January 8, 2019,
Labbadia filed an adverse proceeding against Martin and Holthausen. See Case No. 3:19-ap3001 (AMN). (I will refer to that docket as “AP-ECF.”) In February, Martin moved to dismiss
the complaint. AP-ECF, Doc. No. 6. In April, Labbadia filed a motion to amend his complaint.
AP-ECF, Doc. No. 31. In August, the Bankruptcy Court granted Labbadia’s motion to amend
and granted in substantial part Martin’s motion to dismiss. See In re Martin, 2019 WL 3543778
(Bankr. D. Conn. Aug. 2, 2019) (“In re Martin (MTD)”).
In its Motion to Dismiss Ruling, the Bankruptcy Court carefully parsed and considered
the 12 counts in Labbadia’s second amended complaint. According to the Bankruptcy Court, the
essence of Labbadia’s complaint appeared in count nine, where Labbadia claimed that Martin’s
asserted exemptions in the Westbrook Property and the Honda Accords were tainted with fraud,
in violation of 11 U.S.C. § 522(o). 5 But, the Bankruptcy Court explained, those issues were off
the table because Labbadia had failed to timely object. The Bankruptcy Court wrote:
Section 522(o) reads, in relevant part: “For purposes of subsection (b)(3)(A) [which regards the homestead
exemption] . . . , the value of an interest in . . . real or personal property that the debtor . . . claims as a homestead . . .
shall be reduced to the extent that such value is attributable to any portion of any property that the debtor disposed of
Turning next to the Westbrook Property, although the core of Labbadia’s
complaint is that Martin should not be permitted to transform non-exempt
property into exempt property on the eve of bankruptcy, his time to make such an
argument has passed. Labbadia did not file an objection to Martin’s claimed
exemptions. Instead he filed this adversary proceeding after the exemption
The deadline to file objections to Martin’s claimed exemptions expired on
December 6, 2018, and Labbadia had notice of the deadline but did not file his
complaint with these objections until January 8, 2019. . . . When no objections
were filed regarding Martin’s claimed exemptions to the Westbrook Property and
the Honda Accords, the property was “withdrawn from the estate (and hence from
the creditors) for the benefit of the debtor.”
In re Martin (MTD), 2019 WL 3543778, at *6–7 (quoting Owen v. Owen, 500 U.S. 305, 308
Relatedly, the Bankruptcy Court dismissed Labbadia’s complaint to the extent that it
asserted state-law fraudulent conveyance claims based on the Westbrook Property Transfer. As
the Bankruptcy Court explained: “In a Chapter 7 bankruptcy case, only the trustee is authorized
to bring an action to avoid an allegedly fraudulent transfer.” Id. at *13. Because Labbadia was
not the trustee and did not satisfy the only narrow exception to that rule (derivative standing for a
creditor, discussed further below), the Bankruptcy Court held that Labbadia “lacks standing to
bring fraudulent conveyance claims.” Id. at *14.
With respect to the property that was included in Martin’s bankruptcy estate, the
Bankruptcy Court dismissed Labbadia’s complaint insofar as it raised an objection to discharge
for fraudulent prepetition transfer pursuant to 11 U.S.C. § 727(a)(2)(A). 6 Although Labbadia did
not specify “which specific transfer of property he relies on when he references § 727(a)(2),”
in the 10-year period ending on the date of the filing of the petition with the intent to hinder, delay, or defraud a
creditor . . . .”
Section 727(a)(2)(A) reads, in relevant part: “(a) The court shall grant the debtor a discharge, unless . . . (2)
the debtor, with intent to hinder, delay, or defraud a creditor . . . , has transferred, removed, destroyed, mutilated, or
concealed . . . (A) property of the debtor, within one year before the date of the filing of the petition.”
none of the transfers that Labbadia mentioned—particularly, Martin’s allegedly having accrued
over $70,000 in debt from his daughter’s time in college—was sufficient to deny discharge
because Labbadia had not “allege[d] that any of these prepetition payments occurred within one
year before the Petition Date.” Id. at *7. Additionally, Labbadia’s failure to identify the date of
any allegedly fraudulent transfer was fatal because “§ 727(a)(2)(A) is subject to the Rule 9(b)
particularity requirements.” Id.
In December 2019, the Bankruptcy Court held a two-day bench trial regarding
Labbadia’s few remaining claims against Martin. In a May 28, 2020 post-trial memorandum of
decision, the Bankruptcy Court resolved all remaining issues in favor of Martin and entered
judgment that day. In re Martin, 2020 WL 2787681 (Bankr. D. Conn. May 28, 2020). After
post-trial motion practice, Labbadia filed a notice of appeal on July 7, 2020. The notice of
appeal was transferred to me on July 8, 2020. See Notice of Appeal, Doc. No. 1. Martin made a
motion to dismiss the appeal for lack of subject matter jurisdiction based on Labbadia’s allegedly
late filing. See Mot. to Dismiss, Doc. No. 6. In September 2020, I denied Martin’s motion to
dismiss. See Order, Doc. No. 11; see also In re Martin, 2020 WL 5300932, at *3 (D. Conn.
Sept. 4, 2020). 7 On April 16, 2021, I held a hearing regarding the merits of Labbadia’s appeal.
See Min. Entry, Doc. No. 26.
A. The Parties’ Arguments
The gravamen of Labbadia’s argument is that the Bankruptcy Court erred in ruling that
Labbadia could not object to the Westbrook Property Transfer. See Labbadia’s Br., Doc. No. 22,
As I explained, the issues were “(1) whether July 6, 2020 was a ‘legal holiday’ within the meaning of the
Federal Rules of Bankruptcy Procedure, and, if not, (2) whether, on July 6, 2020, the Bankruptcy Court’s clerk’s
office was ‘inaccessible’ within the meaning of Federal Rule of Bankruptcy Procedure 9006(a)(3).” In re Martin,
2020 WL 5300932, at *3. I held that “July 6, 2020 was not a legal holiday, but the clerk’s office was ‘inaccessible’
on that day, and so Labbadia’s motion was timely filed on July 7, 2020.” Id.
at 8 (articulating three issues presented on appeal—all of which regard the Westbrook Property
Transfer—and claiming that the issues “are actually different ways of saying the same thing”).
Labbadia repeatedly claims that the Westbrook Property Transfer was “not an arm’s length
transaction.” Id. at 11, 20–22. Citing secondary sources and out-of-jurisdiction cases, Labbadia
claims that the Bankruptcy Court’s refusal to examine the merits of the Westbrook Property
Transfer was “counterintuitive” and “incorrect” because Congress and the courts have recently
become more skeptical of debtors’ eve-of-bankruptcy conversions of nonexempt property into
exempt property. See, e.g., id. at 16–18, 22. Finally, Labbadia claims that, although he did not
file a timely objection, that should be overlooked because enforcing any relevant time bar
“would put form over substance” and “[p]rocedure over justice.” See id. at 23.
In opposition, Martin argues that the Bankruptcy Court properly concluded that Labbadia
could not challenge the Westbrook Property Transfer through an objection to discharge because
the Westbrook Property was not part of Martin’s bankruptcy estate. See Martin’s Br., Doc. No.
23, at 17–21. Further, although Labbadia does not raise the challenge, Martin claims that the
Bankruptcy Court’s ruling with respect to Labbadia’s section 727(a)(2) objection to discharge on
the merits was also correct because Labbadia’s complaint “falls far short of the requirements set
forth in Federal Rules of Civil Procedure 8 and 9(b).” Id. at 21–27.
Labbadia argues on appeal that Martin should not have been able to shield certain
nonexempt property from discharge by consummating the Westbrook Property Transfer. But he
cannot sustain that argument. Thus, I affirm the Bankruptcy Court’s judgment, which was the
product of careful and thorough rulings.
1. The Westbrook Property was not a part of Martin’s bankruptcy estate.
By simple operation of the Bankruptcy Code, 11 U.S.C. §§ 101, et seq., and the Federal
Rules of Bankruptcy Procedure, Martin’s interest in the Westbrook Property was not included in
Martin’s bankruptcy estate. Therefore, the Bankruptcy Court properly dismissed Labbadia’s
complaint to the extent that it objected to a discharge of Martin’s debt related to the Westbrook
When Martin filed a voluntary Chapter 7 petition, that created a bankruptcy estate that
was comprised of “all legal or equitable interests of the debtor in property as of the
commencement of the case,” subject to certain exceptions. 11 U.S.C. § 541(a). However, the
Bankruptcy Code allows debtors to exempt numerous types of property from their bankruptcy
estates. See id. § 522(b). When a debtor claims an exemption pursuant to section 522(b),
“[u]nless a party in interest objects, the property claimed as exempt . . . is exempt.” Id. § 522(l).
“The effect of exemption is to immunize the exempt property from seizure or attachment for
satisfaction of debts incurred prior to the bankruptcy proceeding.” In re Scarpino, 113 F.3d 338,
340 (2d Cir. 1997).
Federal Rule of Bankruptcy Procedure 4003 prescribes the procedure for objecting to a
debtor’s claimed exemption:
Except as provided in paragraphs (2) and (3), a party in interest may file an
objection to the list of property claimed as exempt within 30 days after the
meeting of creditors held under § 341(a) is concluded or within 30 days after any
amendment to the list or supplemental schedules is filed, whichever is later. The
court may, for cause, extend the time for filing objections if, before the time to
object expires, a party in interest files a request for an extension.
Fed. R. Bankr. P. 4003(b)(1). Rule 4003(b)(1)’s 30-day deadline is rigid and strictly enforced.
The Supreme Court has held that Rule 4003(b)(1) “indicates that creditors may not object after
30 days” from the initial creditors’ meeting “unless, within such period, further time is granted
by the court.” Taylor v. Freeland & Kronz, 503 U.S. 638, 643 (1992) (cleaned up); see also Law
v. Siegel, 571 U.S. 415, 424 (2014) (“[A] trustee’s failure to make a timely objection prevents
him from challenging an exemption.”) (citing Taylor); 9 Collier on Bankruptcy ¶ 4003.03[a]
(explaining that the 30-day period “may be extended only by the court and only if the extension
is requested within the original time period”). If a party in interest fails to timely object to a
debtor’s claimed exemption, courts will not void the exemption. See Taylor, 503 U.S. at 639
(refusing to allow trustee to make late objection to debtor’s claimed exemption even though
debtor “had no colorable basis for claiming the exemption”); see also In re Bell, 225 F.3d 203,
209–10 (2d Cir. 2000) (interpreting Taylor).
Applying the Rule 4003(b)(1) time bar to this case is straightforward. On the same day
he filed his Chapter 7 petition, Martin filed Bankruptcy Schedules that claimed exemptions for
his full interest in the Westbrook Property and the 2005 Honda Accord. 8 The section 341
meeting of creditors opened and closed on November 6, 2018. There is no dispute that Labbadia
had notice of the meeting: He was there. Any objection to Martin’s claimed exemptions was
due by December 6, 2018. Labbadia did not make any objection by December 6, nor did he seek
an extension of time within which to do so. Thus, by operation of the above-mentioned statutes
and rules, Martin’s interests in the Westbrook Property and the 2005 Honda Accord were not
part of his bankruptcy estate. 9
As described above, see supra n.4, Martin claimed only a $1 exemption for the 2014 Honda Accord,
pursuant to Conn. Gen. Stat. § 52-352b(r), because an automobile loan encumbered the title.
The Bankruptcy Court was also correct in holding that Labbadia’s adversary proceeding—timely filed in
January 2019—cannot somehow serve as a timely objection to Martin’s claimed exemptions. In re Martin (MTD),
2019 WL 3543778, at *6–7. Because the Federal Rules of Bankruptcy Procedure do not specify how a creditor or
trustee should object to a debtor’s claimed exemptions, some courts (outside this circuit) have held that an adversary
proceeding may serve as a valid objection to a claimed exemption. See, e.g., In re Lee, 889 F.3d 639, 644–46 (9th
Cir. 2018). Vitally, however, “[t]o be an adequate substitute for a separate objection to exemptions . . . , any such
proceeding must . . . be filed within the deadline set forth in Rule 4003(b).” 9 Collier on Bankruptcy ¶ 4003.03;
see also In re Lee, 889 F.3d at 645 (emphasizing that “the adversary complaint and proceeding met Rule 4003’s
procedural requirements,” including the 30-day time bar). Here, of course, Labbadia’s adversary proceeding was
filed outside the 30-day limit that Rule 4003(b)(1) establishes, and so it cannot serve as an adequate substitute.
Because Labbadia has forfeited his ability to object to Martin’s claimed exemption in the
Westbrook Property, I need not reach Labbadia’s argument on the merits. However, I mention
briefly that Labbadia’s argument is weak and misconstrues the law regarding claimed
exemptions. In his support, Labbadia focuses on changes made to section 522 of the Bankruptcy
Code by a 2005 law: the Bankruptcy Abuse Prevention and Consumer Protection Act (the
“BAPCPA”), Pub. L. No. 109-8, 119 Stat. 23 (2005). Labbadia claims that “it is clear that after
the BAPCPA, the conversion of [nonexempt into exempt] assets became more difficult and
problematic.” Labbadia’s Br., Doc. No. 22, at 16–17. In fact, though, that is not the case.
“Congress enacted the” BAPCPA—which altered numerous provisions of the
Bankruptcy Code—“to correct perceived abuses of the bankruptcy system,” Milavetz, Gallop &
Milavetz, P.A. v. United States, 559 U.S. 229, 231–32 (2010), and to “ensure that the system is
fair for both debtors and creditors,” Connecticut Bar Ass’n v. United States, 620 F.3d 81, 85 (2d
Cir. 2010) (cleaned up). As relevant here, the BAPCPA added two sections to the Bankruptcy
Code—11 U.S.C. §§ 522(o) and (p). Section 522(o) limits the value of a debtor’s interest in a
claimed homestead exemption “to the extent that such value is attributable to any portion of any
property that the debtor disposed of in the 10-year period ending on the date of the filing of the
bankruptcy petition with the intent to hinder, delay, or defraud a creditor.” 11 U.S.C. § 522(o).
And section 522(p), by putting a limited cap on state-law homestead exemptions, was enacted to
address the “mansion loophole by which wealthy individuals could shield millions of dollars
from creditors by filing bankruptcy after converting nonexempt assets into expensive and exempt
homesteads in one of the handful of states that have unlimited homestead exemptions.” In re
Greene, 583 F.3d 614, 619 (9th Cir. 2009) (cleaned up); see also 11 U.S.C. § 522(p).
Courts and commentators have been clear that the BAPCPA’s additions to section 522
“do not change the longstanding policy of permitting intentional but nonfraudulent conversion
of nonexempt property to exempt property on the eve of filing.” David M. Holliday, Reduction,
Under § 522(o) of Bankruptcy Code, 11 U.S.C.A. § 522(o), of Value of Interest in Property
Claimed by Debtor as Homestead, 48 A.L.R. Fed. 2d 569 (2010); see also 4 Collier on
Bankruptcy ¶ 522.08 (explaining that, “under section 522, the debtor may convert nonexempt
property into exempt property immediately before the commencement of the case” and “[a]n
eleventh hour acquisition of exempt property will not require disallowance of an exemption in
the property”); In re Shaw, 622 B.R. 569, 578 (Bankr. D. Conn. 2020) (“The enactment of §
522(o) did not change th[e] long-standing policy” of allowing a debtor to intentionally, but nonfraudulently, convert nonexempt property into exempt property on the eve of bankruptcy filing);
In re Agnew, 355 B.R. 276, 283–84 (Bankr. D. Kan. 2006) (“Section 522 continues to adopt the
position favorably viewed by the Code drafters that the mere conversion of nonexempt property
into exempt property, without fraudulent intent, does not deprive the debtor of exemption rights
in the converted property.”) (quoting 4 Collier on Bankruptcy ¶ 522.08). Indeed, the cases on
which Labbadia himself relies confirm the same view. See, e.g., In re Willcut, 472 B.R. 88, 94
(10th Cir. BAP 2012); In re Corbett, 478 B.R. 62, 70–72 (Bankr. D. Mass 2012). Thus,
Labbadia’s argument regarding the effect of the BAPCPA, even asserted at a high level of
generality, appears weak.
Labbadia does not have standing to assert a state-law fraudulent
Labbadia claims that the Bankruptcy Court somehow relied on issues of “standing” in
improperly refusing to deny Martin a discharge of his interest in the Westbrook Property. See,
e.g., Labbadia’s Br., Doc. No. 22, at 8–9, 15. But that is incorrect. Labbadia had standing to
object to any discharge granted to Martin pursuant to section 727(a). See 11 U.S.C. § 727(c)(1).
The Bankruptcy Court did not hold otherwise. Instead, as explained above, the Bankruptcy
Court correctly held that Martin’s interest in the Westbrook Property was not part of Martin’s
bankruptcy estate, and so Labbadia’s objection to its discharge pursuant to section 727(a)(2)(A)
was irrelevant. See In re Bell, 225 F.3d at 215 (“It is well-settled law that the effect of this selfexecuting exemption is to remove property from the estate and to vest it in the debtor.”); In re
Mwangi, 764 F.3d 1168, 1175 (9th Cir. 2014) (“The general rule is that exempt property
immediately revests in the debtor.”). Thus, Labbadia’s arguments regarding “standing” as they
relate to his ability to object to a discharge are off the mark.
However, construing Labbadia’s arguments liberally (even though I need not), Labbadia
may be objecting to the Bankruptcy Court’s dismissal of counts seven and twelve of Labbadia’s
second amended complaint, which “assert[ed] fraudulent transfer claims under common law and
Connecticut’s Uniform Fraudulent Transfer Act (UFTA).” In re Martin (MTD), 2019 WL
3543778, at *13. However, the Bankruptcy Court correctly dismissed those claims because
Labbadia, as a creditor, does not have standing to bring them. See id. at *13–14.
Section 548 of the Bankruptcy Code “incorporates the law of fraudulent transfers.” 5
Collier on Bankruptcy ¶ 548.01. As relevant, section 548 provides:
The trustee may avoid any transfer . . . of an interest of the debtor in property, or
any obligation . . . incurred by the debtor, that was made or incurred on or within
2 years before the date of the filing of the petition, if the debtor voluntarily or
involuntarily . . . (A) made such transfer or incurred such obligation with actual
intent to hinder, delay, or defraud any entity to which the debtor was or became . .
11 U.S.C. § 548(a)(1)(A) (emphasis added). As the Bankruptcy Court correctly noted, in a
Chapter 7 case, “only the trustee is authorized to bring an action to avoid an allegedly fraudulent
transfer.” In re Martin (MTD), 2019 WL 3543778, at *13; see also Matter of Xonics
Photochemical, Inc., 841 F.2d 198, 202–03 (7th Cir. 1988) (“The right to invoke the provisions
[in section 548(a)] belongs not to a particular unsecured creditor . . . but to the trustee (or debtor
in possession) as the representative of all the unsecured creditors.”); 5 Collier on Bankruptcy ¶
548.02 (“Section 548 vests the power to avoid fraudulent transfers in the bankruptcy
trustee.”). Of course, here, Labbadia is not the trustee—he is an unsecured creditor. Thus, he
has no standing to assert a claim for fraudulent transfer.
The Bankruptcy Court also correctly noted that “the Second Circuit has developed a
limited exception to this general rule in the form of derivative standing.” In re Martin (MTD),
2019 WL 3543778, at *13. That exception applies only in limited circumstances, 10 and one
requirement is especially salient here: To obtain derivative standing, a creditor or creditors’
committee must obtain consent to bring the suit from both the trustee and the court. See In re
AppliedTheory Corp., 493 F.3d 82, 86 (2d Cir. 2007) (recognizing both consent of the trustee or
debtor in possession and court approval as prerequisites); In re Milazzo, 450 B.R. 363, 372
(Bankr. D. Conn. 2011) (“Consent of the trustee is the quintessential element of [derivative]
[s]tanding.”); In re David X. Manners Co., Inc., 2018 WL 1057140, at *1–2 (Bankr. D. Conn.
Feb. 23, 2018); 5 Collier on Bankruptcy ¶ 548.02 (“Typically, a party other than the trustee or
debtor in possession must obtain permission from the court before commencing the action.”). In
this case, there is no dispute: Labbadia did not obtain the trustee’s consent or the Bankruptcy
The Second Circuit has held that a creditors’ committee might have derivative standing when the trustee or
debtor in possession “refuses to bring suit,” In re Housecraft Indus. USA, Inc., 310 F.3d 64, 70 (2d Cir. 2002) (citing
In re STN Enterprises, 779 F.2d 901, 904 (2d Cir. 1985)), or, even if the trustee or debtor in possession has not
refused to bring suit, when “(1) the committee has the consent of the debtor in possession or trustee, and (2) the
court finds that suit by the committee is (a) in the best interest of the bankruptcy estate, and (b) is necessary and
beneficial to the fair and efficient resolution of the bankruptcy proceedings,” id. (quoting In re Commodore Int’l,
Ltd., 262 F.3d 96, 100 (2d Cir. 2001)) (cleaned up).
Court’s approval before bringing his fraudulent transfer claim. Thus, the Bankruptcy Court was
correct to dismiss those counts of Labbadia’s complaint. 11
The upshot of all the above is that, by operation of law, Labbadia has lost his chance to
challenge the legitimacy of the Westbrook Property Transfer. But that does not mean that the
Westbrook Property Transfer escaped all scrutiny. In this case, the trustee and the Bankruptcy
Court were fully aware that Labbadia claimed the Westbrook Property Transfer was fraudulent:
Labbadia appeared at the section 341 meeting of creditors to question Martin, and the main
substance of his entire adversary proceeding regarded that transfer. The trustee and the
Bankruptcy Court thus had ample opportunity—and authority 12—to inquire further about the
Westbrook Property Transfer, investigate whether it may have been fraudulent, and punish any
fraudulent behavior. Significantly, neither the trustee nor the Bankruptcy Court chose to do so.
Thus, the potential inequity of Labbadia’s waiver is substantially diminished (if not non-existent)
in this case.
Labbadia does not raise any other arguments concerning the Bankruptcy Court’s rulings. More
specifically, Labbadia does not challenge the Bankruptcy Court’s dismissal of Labbadia’s section 727(a)(2)(A)
claims on the merits, which regarded debts that Martin allegedly accrued while his daughter was in college. Even if
Labbadia did raise such an argument, though, in my view the Bankruptcy Court made no error of law or clear error
of fact, and so I would affirm its ruling in that respect, too.
For instance, as described above, the trustee could have—but did not—bring an avoidance claim against
Martin regarding the Westbrook Property Transfer. See 11 U.S.C. § 548(a)(1)(A); In re Greenfield, 65 F. App’x
549, 552 (6th Cir. 2003) (noting that even when trustee misses 30-day exemption objection deadline, trustee may
bring “an action to avoid the transfer of property under § 548”). Second, it is likely that the trustee—but only the
trustee—could have objected to Martin’s claimed exemption in the Westbrook Property past the 30-day exemption
objection deadline. See Fed. R. Bankr. P. 4003(b)(2) (“The trustee may file an objection to a claim of exemption at
any time prior to one year after the closing of the case if the debtor fraudulently asserted the claim of exemption.”);
id. at advisory committee’s note to 2008 amendment (mentioning explicitly that “[s]ubdivision (b)(2) extends the
objection deadline only for trustees”) (emphasis added). Third, the Bankruptcy Court could have imposed sanctions
on Martin or otherwise disciplined him if it believed that Martin had engaged in fraud. See, e.g., Fed. R. Bankr. P.
9011(c) (allowing for sanctions); Chambers v. NASCO, Inc., 501 U.S. 32, 50 (1991) (allowing courts, under certain
limited circumstances, to impose sanctions pursuant to their inherent authority); 11 U.S.C. § 105(a) (“The court may
issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.”); 18
U.S.C. § 152 (allowing for criminal penalties of up to 5 years’ imprisonment for fraud in bankruptcy cases).
The Supreme Court has recognized that several of the provisions and authorities mentioned above are
available alternatives to discipline and address debtor misconduct when a party in interest has missed the exemption
objection deadline in Rule 4003(b)(1). See Taylor, 503 U.S. at 644–45; Siegel, 571 U.S. at 427.
For the foregoing reasons, I affirm the Bankruptcy Court’s judgment. The Clerk is
instructed to enter judgment in favor of the appellee, Bradford J. Martin, and to close the case.
Dated at Bridgeport, Connecticut, this 27th day of April 2021.
/s/ STEFAN R. UNDERHILL
Stefan R. Underhill
United States District Judge
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