James S. Feltman v. Tri-State Employment Service, Inc.

Background

TS Employment, Inc. filed for Chapter 11 bankruptcy, and James S. Feltman was appointed its Chapter 11 trustee. The trustee previously obtained a nearly $100 million default judgment against Tri-State Employment Service, Inc. in a bankruptcy adversary proceeding. He then sought to collect from Jofaz Transportation, Inc., Y&M Transit Corp., and Third Avenue Transit, Inc., alleging that those entities owed money to Tri-State for unpaid invoices.

The respondents produced invoices, check stubs, and accounting records. Those records showed that Tri-State billed the respondents $2,723,670.57, that the respondents made partial payments totaling $763,464.14, and that identified offsets totaled $568,636.68. The Bankruptcy Court determined that $1,391,569.75 remained unpaid. The respondents did not identify evidence in the record disputing that amount, and they acknowledged during argument that they could not point to evidence supporting additional offsets.

The Bankruptcy Court recommended granting the trustee’s motion for partial summary judgment and entering judgment against the respondents. It recommended awards of $1,104,465.64 against Jofaz, $197,192.04 against Y&M, and $89,912.07 against Third Avenue, plus 9% prejudgment interest from January 25, 2016. Because the parties had not consented to the Bankruptcy Court entering a final judgment, the proposed findings and conclusions were submitted to the district court for review.

District Court Review

The respondents filed six objections. They argued that the Bankruptcy Court should have decided their earlier opposition to the trustee’s turnover request before addressing summary judgment; that the summary-judgment motion was untimely; that their alleged debt was not subject to collection under New York Civil Practice Law and Rules § 5227; that the Bankruptcy Court lacked subject-matter jurisdiction; that genuine factual disputes existed; and that prejudgment interest should not have been awarded.

The district court rejected the jurisdictional objection. It held that the proceeding was sufficiently related to the bankruptcy because its outcome could enlarge the bankruptcy estate by more than $1 million. The court also declined to abstain from exercising jurisdiction, noting that the case had been pending since 2019, would be inefficient to restart in state court, and involved state-law issues that were not especially difficult or unsettled.

The court rejected the procedural objections as well. It held that the Bankruptcy Court had authority to manage its docket and decide the summary-judgment motion without first ruling separately on the turnover opposition. The Bankruptcy Court had considered the arguments raised in that opposition. The district court also found no improper handling of the summary-judgment deadline, particularly because the respondents had not served discovery requests before the discovery deadline or timely sought an extension.

Merits and Holding

Summary judgment is appropriate when the evidence shows no genuine dispute about a material fact and the moving party is entitled to judgment under the law. Reviewing the challenged portions of the Bankruptcy Court’s proposed findings and conclusions independently, Judge Furman agreed that the respondents’ debt was not contingent or conditional. It arose from unpaid invoices for a definite amount, and New York’s collection procedure could be used even though the respondents disputed the debt.

The court also held that the respondents’ own business records supported liability under an “account stated” theory, a claim based on a party’s failure to timely object to an account and conduct indicating agreement with it. The respondents’ partial payments supported that conclusion. A later letter referring to allegedly unpaid Tri-State taxes did not defeat the claim because it was sent more than nine months after the invoices and did not dispute the invoices or the quality of the services. The Bankruptcy Court had already credited the offsets the respondents identified.

Because the trustee presented evidence establishing the unpaid amount, the respondents were required to identify specific admissible evidence creating a genuine factual dispute. The court found that they failed to do so. It also upheld prejudgment interest, explaining that the respondents had not raised their fairness arguments before the Bankruptcy Court and, independently, that New York law made the interest award mandatory on this record.

Disposition

The court overruled the respondents’ objections, adopted the Bankruptcy Court’s proposed findings of fact and conclusions of law in their entirety, and granted summary judgment to the trustee. It directed the Clerk to enter judgment against Jofaz for $1,104,465.64, against Y&M for $197,192.04, and against Third Avenue for $89,912.07, plus 9% prejudgment interest from January 25, 2016, and ordered the case closed.