Southern District Bankruptcy Judge Stuart Bernstein has refused to lift the bankruptcy stay in a couple’s Chapter 7 case to allow Beach Lane Management, a major New York City property management company, to enforce a state court contempt order and arrest warrant against the couple.
Beach Lane won a $108,000 judgment against Arieh and Gemma White in 2007. In 2011, with the judgment still unpaid, Beach Lane subpoenaed the couple to answer questions about the location of their assets. They failed to comply, and Beach Lane moved for them to be held in contempt. In April 2010, the Manhattan Supreme Court issued an order holding them in contempt and directing their arrest. A few days later, they filed for bankruptcy.
A bankruptcy filing triggers an automatic stay of litigation against the debtor, which includes civil contempt proceedings but not criminal contempt. It also makes an exception for civil contempt orders intended primarily to uphold the dignity of the court, rather than to aid the collection of a debt owed to a private party. Beach Lane moved to lift the stay, arguing that the contempt order was aimed at protecting the dignity of the court.
Bernstein said in In re White, 12-11847, that while “to some extent every contemptuous act involves an affront to the dignity of a court and every punishment meted out for contempt vindicates that court’s dignity,” the exception to the automatic stay must be applied narrowly, or “broad construction of the exception would swallow up the rule.” Beach Lane’s motion, he said, was “clearly an effort to continue a litigation that was commenced pre-petition and to recover a pre-petition claim for damages” and did not warrant lifting the stay, the judge said.