In Re: Matthew N. Murray

Filing 17

MEMORANDUM & OPINION: For the foregoing reasons, and the reasons stated in the Bankruptcy Court's thorough and well-reasoned decision, the decision is AFFIRMED and the case is DISMISSED. The Clerk of Court is respectfully directed to close the case. (Signed by Judge Vernon S. Broderick on 3/31/2017) (cla)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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IN RE MATTHEW N. MURRAY
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Debtor.
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WILK AUSLANDER LLP,
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Appellant, :
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-v:
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MATTHEW N. MURRAY,
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Appellee.
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3/31/2017

16-CV-771 (VSB)
MEMORANDUM & OPINION

Appearances:
Eric J. Snyder
Wilk Auslander LLP
New York, New York
Counsel for Appellant
Tracy L. Klestadt
Brendan M. Scott
Klestadt, Winters, Jureller, Southard & Stevens LLP
New York, New York
Counsel for Appellee
VERNON S. BRODERICK, United States District Judge:
Appellant and Petitioning Creditor Wilk Auslander LLP1 appeals the Decision and Order
of the Bankruptcy Court for the Southern District of New York (Gerber, B.J.) granting the
motion of Appellee and Alleged Debtor Matthew N. Murray and dismissing the involuntary

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Wilk Auslander LLP is acting as both Appellant and its own counsel.

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bankruptcy petition pursuant to § 707(a) of Title 11 of the United States Bankruptcy Code. For
the reasons stated herein, the appeal is DISMISSED and the Bankruptcy Court’s decision is
AFFIRMED.
Factual Background2
This case relates back to a 2006 dispute between Murray and his former employer,
Rodman & Renshaw. While employed by Rodman & Renshaw, Murray made certain
disclosures about what he believed to be improper business practices within the company to the
United States Senate Finance Committee. (App’x 45-47.)3 He was fired shortly thereafter and
contributed to two New York Times articles about the alleged improper practices. (Id. at 47-48.)
Rodman & Renshaw commenced arbitration proceedings before the Financial Industry
Regulatory Authority (“FINRA”) alleging, inter alia, defamation and breach of contract. (Id. at
48.) Wilk Auslander (the “Law Firm”) represented Rodman & Renshaw in the FINRA
arbitration proceedings. The FINRA panel issued an award in favor of Rodman & Renshaw in
the amount of $10.7 million, which, with prejudgment interest, later grew to $16 million. (Id.)
The FINRA arbitration award was confirmed by the New York State Supreme Court, and
affirmed by the Appellate Division (the “Judgment”). (Id. at 48-49.)
After the Judgment was entered against Murray, the Law Firm, still representing Rodman
& Renshaw, engaged in post-judgment discovery of Murray’s assets and liabilities. (Id. at 49.)
Murray and his wife each served responses, which demonstrated that Murray is unemployed and
his only material asset is an interest in a tenancy by the entirety that he shares with his wife in a

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The Bankruptcy Court relied on the undisputed facts described herein, as do I. (App’x 420 n.3.) Except for the
sole creditor issue, described more fully below, Appellant does not contest the Bankruptcy Court’s recitation of
undisputed facts.
3

“App’x” refers to Appellant’s Appendix. (Doc. 11.)

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cooperative apartment they live in with their two daughters. (Id. at 49, 51.) The shares that
represent the interest in the apartment are encumbered by a mortgage held by Bank or America,
N.A. in the approximate amount of $590,000. (Id. at 51, 11.5) The apartment was appraised at
approximately $2.98 million as of January 2013. (Id. at 51.) In February 2014, Appellant had it
appraised at approximately $4.6 million. (Id. at 11.6.)
On January 11, 2013, Rodman & Renshaw filed for voluntary Chapter 7 bankruptcy. (Id.
at 422 (citing In re Rodman & Renshaw LLC, No. 13-10087 (REG) (Bankr. S.D.N.Y.).)
Pursuant to an agreement settling outstanding legal fees, the Rodman & Renshaw bankruptcy
trustee assigned the Judgment to the Law Firm, provided that Rodman & Renshaw would share
in any recovery on it. (Id. at 335-40.) After the assignment, the Law Firm caused the New York
County Sheriff’s Office to levy on Murray’s shares in the cooperative apartment, thereby
securing a lien on them effective February 26, 2013. (Id. at 249-51.)
Procedural History
The Law Firm commenced this action by filing an Involuntary Petition on February 6,
2014, which it amended the next day. (Id. at 9-11.) As explained by Judge Gerber, and admitted
by Appellant, the Law Firm—despite already having secured a lien—sought to pursue
bankruptcy remedies, rather than rely on state law judgment enforcement mechanisms, so that it
could force the sale of the apartment:
As a judgment creditor, the Law Firm has the ability, under non-bankruptcy
law (here, New York law), to execute on Mr. Murray’s interest in the Apartment
and to cause it to be sold in a judgment execution sale. But the judgment the Law
Firm acquired was solely against Mr. Murray—and not against his wife. And the
sale of Mr. Murray’s interest alone would fetch less in a sale than it would if he
were the sole owner, because New York state law respects the rights of a tenant by
the entirety. New York law would permit the Law Firm to execute on Mr. Murray’s
interest in the Apartment, but not the entire interest held by both Mr. Murray and
his wife.

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By contrast, the Bankruptcy Code includes provisions with the potential to
increase the amount that can be realized when jointly held property is sold. Section
363 of the Code provides in substance that when the requirements of section 363(h)
. . . and its companion provisions are satisfied, a bankruptcy trustee can sell the
jointly held property free and clear of both owners’ interests, without the coowners[’] consent, leaving the nondebtor only with a right of first refusal to match
the sale offer (and thus to stay in residence), and with her share of the proceeds of
the forced sale.
(Id. at 422-24 (citations omitted).)
On March 18, 2015, Murray filed a motion to dismiss the Involuntary Petition under 11
U.S.C. §§ 303(i) and 305(a), 28 U.S.C. § 1334(c), and Federal Rule of Bankruptcy Procedure
1003(a), and for an award of attorneys’ fees and damages. (App’x 45.) On June 30, 2014, Judge
Gerber held a hearing on the motion to dismiss. Although Murray had not raised the possibility
of a § 707(a) dismissal in his moving papers, Judge Gerber raised it during the hearing. (Id. at
403-06.)
On January 4, 2016, the Bankruptcy Court issued its Decision and Order dismissing the
case for cause under section 707(a). (Id. at 418-37.) Specifically, the Bankruptcy Court found
that the Law Firm was attempting to use the bankruptcy court as a judgment-enforcement
mechanism in a two-party dispute, that the involuntary petition was filed solely to achieve a
result not available outside of bankruptcy (i.e., the sale of the jointly held property), no other
creditors existed, and there was no legitimate bankruptcy purpose for the case. It held that the
involuntary petition was “an inappropriate invocation—and exploitation—of the bankruptcy
system,” and dismissed the case for cause. (Id. at 420.)
Standard of Review
This court has jurisdiction pursuant to 28 U.S.C. § 158(a)(1) to hear appeals from final
judgments, orders, and decrees of a bankruptcy court. On such an appeal, a district court reviews
the bankruptcy court’s findings of fact for clear error, and any conclusions of law de novo. In re

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Momentum Mfg. Corp., 25 F.3d 1132, 1136 (2d Cir. 1994). Because a bankruptcy court’s
decision to dismiss for cause is guided by equitable principles, it is reviewed for abuse of
discretion. In re Smith, 507 F.3d 64, 73 (2d Cir. 2007); see also In re Chovev, 559 B.R. 339,
343-44 (E.D.N.Y. 2016) (“The determination of what constitutes ‘cause’ to dismiss an individual
debtor’s chapter 7 case is left to the discretion of the court.”). “A bankruptcy court exceeds its
allowable discretion where its decision (1) ‘rests on an error of law (such as application of the
wrong legal principle) or a clearly erroneous factual finding,’ or (2) ‘cannot be located within the
range of permissible decisions,’ even if it is ‘not necessarily the product of a legal error or a
clearly erroneous factual finding.’” In re Smith, 507 F.3d at 73 (quoting Schwartz v. Aquatic
Dev. Grp., Inc., 352 F.3d 671, 678 (2d Cir. 2003) (alteration omitted)).
Discussion
Appellant makes three arguments seeking reversal: (1) the Bankruptcy Court erred in
“bypassing” § 303; (2) dismissal under § 707(a) was improper because it was based on the
erroneous factual finding that Appellant is the only creditor; and (3) Appellant’s resort to the
bankruptcy system is established by its satisfaction of § 303(b)(2) and the fact that relief is
unavailable outside of bankruptcy.
Dismissal Under § 707(a) Was Not Premature
Appellant argues that the Bankruptcy Court’s decision was procedurally improper in that
it “bypassed” dismissal under § 303, which governs the filing of involuntary petitions.
First, the Bankruptcy Court in no way “bypassed” Section 303; it explicitly accepted the
concession that the § 303 requirements had been met, which would result in the case moving
forward as a chapter 7 case:
Mr. Murray does not dispute that the Law Firm’s petition complies with
section 303 of the Code, which authorizes the filing of involuntary petitions, in

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certain instances, by only a single creditor. An involuntary petition (filed under
section 303 of the Code), like the much more common voluntary petition (filed
under section 301 of the Code), can result in an ‘order for relief’ which would
cause a case under the Code (as applicable here, under chapter 7) then to be
pending.
Accordingly, the Court assumes, for the purposes of this analysis, that if
there were not cause for dismissal, the involuntary case commenced by the Law
Firm[] could continue.
(App’x 424.) There is no support for the argument that the Bankruptcy Court was required to
formally enter an order of relief, or appoint an interim trustee (which only occurs after an order
for relief is entered), before dismissing the case under § 707. Having assumed that all the
requirements under § 303 had been met and the chapter 7 case would proceed, the Bankruptcy
Court was within its discretion to dismiss the case under § 707(a). See 11 U.S.C. § 707(a) (“The
court may dismiss a case under this chapter . . . for cause . . . .”). Indeed, it was Appellant that
brought the case pursuant to chapter 7 in the first instance. It is not unprecedented for a
bankruptcy court to simultaneously dismiss a case under § 303 and § 707(a), without first
entering an order for relief. See, e.g., In re VII Holdings Co., 362 B.R. 663, 666 (Bankr. D. Del.
2007) (“Ultimately, this Court . . . dismissed the involuntary petition pursuant to sections 303(i),
305(a)(1), and 707(a) upon a finding that the involuntary petition was filed in bad faith and ‘for
no other purpose than to improperly frustrate . . . .’”); Carpenter, Weir & Myers, Chtd v. St. Paul
Fire & Marine Ins. Co., No. 96-4076-SAC, 1998 WL 976309, at *3 (D. Kan. Oct. 30, 1998)
(noting that bankruptcy judge found simultaneously that dismissal was warranted under
§ 303(h)(1) and, because “the petition was filed in bad faith by the petitioning creditor,” under
§ 707(a)).
Second, contrary to Appellant’s argument, § 707 can be used to dismiss cases brought by
involuntary petitions. See In re Dinova, 212 B.R. 437, 441 (2d Cir. BAP 1997) (“Dismissal of a

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Chapter 7 case, whether voluntarily or involuntarily as to the debtor, implicates all those
considerations affecting both the debtor and creditors which are at the heart of the Bankruptcy
Code . . . .”); In re Dickinson & Co., No. 99-1039-CH, 1999 WL 35020210, at *2–3 (Bankr. S.D.
Iowa Dec. 31, 1999) (declining to dismiss involuntary petition under § 707(a) for failure to show
bad faith, but noting that an “involuntary case . . . commenced under Chapter 7 . . . is . . . subject
to dismissal under § 707 for cause”); In re Valdez, 250 B.R. 386, 394 (D. Or. 1999) (affirming
dismissal of involuntary petition under § 303 and § 707 filed by non-petitioning creditor). The
language of the statute clearly contemplates § 707(a)’s application to involuntary petitions.
Unlike subsection 707(a)(3), which applies only to “the debtor in a voluntary case,” the
remaining subsections are not so limited, suggesting that they apply to both voluntary and
involuntary cases. See In re MacFarlane Webster Assocs., 121 B.R. 694, 696 (Bankr. S.D.N.Y.
1990) (“The wording of the statute indicates that it covers both voluntary and involuntary cases,
compare § 707(a)(1) with 707(a)(3).”). “The language of the statute thus requires the bankruptcy
courts to determine, on a case by case basis, whether an abuse constituting cause has occurred.”
Id. at 697 (citing In re Sky Group Int’l., Inc., 108 B.R. 86, 90 (Bankr. W.D. Pa. 1989)).
Furthermore, the purpose of § 707(a) is not limited to voluntary petitions. “[N]ot to construe
section 707(a) to vest the court with authority to find cause in the abuse of creditors through the
continued maintenance of a bankruptcy case commenced by the filing of an involuntary petition
would be to permit such abuse.” Id. at 700.
Appellant attempts to distinguish cases where courts have granted § 707(a) dismissals of
involuntary petitions as involving petitions by non-petitioning creditors, as opposed to debtors.
Again, § 707(a) is not so limited and there is no reason to prevent debtors facing involuntary
chapter 7 petitions filed by abusive creditors from seeking relief under § 707(a). See In re

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Dickinson, 1999 WL 35020210 (considering but ultimately declining to grant § 707(a)
application by debtor).
Appellant Did Not Raise The Issue of Additional Creditors Below
Next, Appellant argues that the Bankruptcy Court’s finding that it was the sole creditor
was both clearly erroneous and an insufficient basis upon which to dismiss the case under
§ 707(a). Appellant contends that Murray’s wife is also a creditor, as is Bank of America, the
mortgage holder on the apartment.
In reciting the undisputed facts, the Bankruptcy Court characterized the Law Firm as the
“only creditor” in this case. (App’x 420-21.) This characterization did not occur in a vacuum.
Rather, the Appellant not only conceded this fact, but affirmatively argued for it below. In a
declaration submitted to the Bankruptcy Court in support of its Involuntary Petition, Appellant
stated that “Petitioner is the only creditor of Alleged Debtor.” (Id. at 11.2 ¶ 5.) In its sur-reply
below, Appellant pointed out that “[Murray] admits that Petitioning Creditor is his sole creditor.”
(Id. at 445.) At no point did Appellant argue that there were other creditors. Therefore, the
argument is waived for failure to raise it before the Bankruptcy Court first. See In re GE-Ray
Fabrics, Inc., No. 06 Civ. 13744(DC), 2007 WL 646284, at *1 (S.D.N.Y. Mar. 1, 2007).
Appellant contends that its reversal of position is immaterial because the wife and Bank of
America are creditors “as a matter of law.” (Appellant’s Reply Br. 7.) Even if this were true, it
does not excuse its failure to raise it, as legal arguments are also subject to the waiver rule. See
In re Worldcom, Inc., No. 07 Civ. 3408 DLC, 2007 WL 2682882, at *8 (S.D.N.Y. Sept. 14,
2007). While appellate courts have discretion to consider an issue raised for the first time on
appeal, Appellant has not demonstrated that “manifest injustice” would result or that there is “no
need for additional fact-finding,” and I decline to consider it. See Bogle-Assegai v. Connecticut,

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470 F.3d 498, 504 (2d Cir. 2006); In re East 36th LLC, Nos. 13-11506 (REG), 15 Civ. 1541
(AT), 2016 WL 1117588, at *2 (S.D.N.Y. Mar. 21, 2016).
The Bankruptcy Court Did Not Abuse Its Discretion in
Dismissing For Cause
Section 707(a) of the Bankruptcy Code authorizes a court to dismiss a Chapter 7 case for
“cause,” and provides the three examples of “cause”: (1) unreasonable and prejudicial delay by
the debtor; (2) nonpayment of fees, and (3) failure to comply with the duties imposed by the
debtor in § 521.4 It is well-settled, however, that the three examples provided are “illustrative,
not exclusive.” In re Smith, 507 F.3d at 72. Courts “‘must engage in case-by-case analysis in
order to determine what constitutes ‘cause’ sufficient to warrant dismissal’ and must determine
‘whether dismissal would be in the best interest of all parties in interest.’” In re Bucurescu, 282
B.R. 124, 133 (S.D.N.Y. 2002) (quoting Dinova, 212 B.R. at 442). Generally, the best interest of
the debtor is in “securing an effective fresh start and in the reduction of administrative expenses
leaving him with resources to work out his debts.” Dinova, 212 B.R. at 441. As to the creditor,
“the issue is one of prejudice”; “[t]hey are generally not prejudiced by dismissal since they will
no longer be stayed from resorting to the state courts to enforce and realize upon their claims.
But creditors can be prejudiced if the motion to dismiss is brought after the passage of a

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Section 707(a) states:
(a) The court may dismiss a case under this chapter only after notice and a hearing and only for
cause, including—
(1) unreasonable delay by the debtor that is prejudicial to creditors;
(2) nonpayment of any fees or charges required under chapter 123 of title 28; and
(3) failure of the debtor in a voluntary case to file, within fifteen days or such additional time as the
court may allow after the filing of the petition commencing such case, the information required by
paragraph (1) of section 521(a), but only on a motion by the United States trustee.

11 U.S.C. § 707(a). Section 521 lists the debtor’s duties after commencing bankruptcy.

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considerable amount of time and they have been forestalled from collecting the amounts owed to
them.” Id.; accord In re Smith, 507 F.3d at 72. That is not the case here.
Judge Gerber’s decision listed the following factors as bearing on his decision:
[1] This Court is the most recent battlefield in a long-standing two party dispute.
[2] This case has been brought solely as a judgment enforcement mechanism.
[3] There are no creditors competing with each other to be first in line to collect on
claims. There are no other creditors to help. In fact, there are no other creditors.
[4] There being no other creditors, there is no need for pari passu distribution.
[5] Assuming, arguendo, that there were any fraudulent transfers that could be
avoided and then recovered, the Law Firm could do so on its own, without resort to
the bankruptcy court.
[6] The Law Firm has adequate remedies under nonbankruptcy law.
[7] The Law Firm is seeking bankruptcy solely to secure a benefit that it does not
have under nonbankruptcy law, without a creditor community to protect whose
needs might justify the invocation of bankruptcy law.
[8] No assets would be lost of dissipated in the event that the bankruptcy case did
not continue. The Law Firm’s interest in the Judgment, and its ability to enforce
the Judgment against the Apartment, will each remain.
[9] The debtor does not need, or want, a discharge.
(App’x 429-30.) Appellant argues that sole-creditor actions are contemplated by § 303(b), and
the Bankruptcy Court erred in concluding that inability to get relief elsewhere is not a legitimate
bankruptcy objective. However, the fact that there was only one creditor and one debtor was
merely one factor the bankruptcy court considered in evaluating whether dismissal was
warranted. (See id. at 430 (“[T]he existence of a two-party dispute does not, by itself, warrant
dismissal of a case where there are other legitimate bankruptcy objectives to achieve . . . .”).)
It was also not an abuse of discretion for the Bankruptcy Court to consider the fact that
state law remedies for enforcing the Judgment are available to Appellant outside of bankruptcy.

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See Dinova, 212 B.R. at 441; see also C-TV 9th Ave. P’ship v. Norton Co., 113 F.3d 1304 (2d
Cir. 1997) (affirming dismissal of chapter 11 case for cause where bankruptcy court found that
petition was filed as “litigation tactic” and dispute could be “fully resolved in non-bankruptcy
forum”). Appellant argues that the exact remedy it seeks—sale of the Apartment under § 363 of
the Bankruptcy Code—is not actually available under New York law. But this does not change
the fact that New York law provides the means by which Appellant can enforce its judgment
against Murray, namely, the ability to execute on Murray’s interest in the apartment and cause it
to be sold. The fact that Murray’s interest is worth less and perhaps far less by virtue of the
wife’s shared interest, and New York’s respect for tenancies in the entirety, does not change the
fact that New York law has provided for and defined the scope of available remedies to judgment
holders. In other words, New York law provides Appellant with a remedy and that is all to
which Appellant is entitled. Appellant’s inability to execute on the wife’s interest under New
York law does not justify relief in bankruptcy.
Conclusion
For the foregoing reasons, and the reasons stated in the Bankruptcy Court’s thorough and
well-reasoned decision, the decision is AFFIRMED and the case is DISMISSED. The Clerk of
Court is respectfully directed to close the case.
SO ORDERED.
Dated: March 31, 2017
New York, New York
______________________
Vernon S. Broderick
United States District Judge

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