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Draiman v. Multiut Corp.

United States District Court, N.D. Illinois, Eastern Division

March 31, 2008



          DAVID COAR, District Judge

         This matter comes before the Court on Appellant Yehuda Draiman's ("Appellant, " or "Yehuda Draiman") appeal from the United States Bankruptcy Court pursuant to 28 U.S.C. § 158 (/statute/28-usc-158-appeals). Two cases, Draiman et al. v. Multiut Corp., 04-B-11665 and Draiman et al. v. Draiman, 04-B-11689, were dismissed by the bankruptcy court in favor of appellees Multiut Corporation ("Multiut") and Nachson Draiman (collectively "Appellees"), and against Yehuda Draiman, M. Draiman Corporation, and U.S. Gas Energy Corporation (collectively "alleged creditors") in orders dated March 26, 2004. Appellant also challenges orders in these two cases that assessed actual and punitive damages, dated June 28, 2004 and July 13, 2008, respectively. As the *2 bankruptcy court dispensed with both matters in the same sequence of hearings, this opinion will address Appellant's arguments with respect to both appeals simultaneously.

         1. FACTS

         Appellant has raised several challenges, claiming that: (1) the bankruptcy court proceedings were improperly administered in violation of his right to due process; (2) the court was mistaken in finding that Appellant filed his involuntary petitions in bad faith; and (3) the damages levied against him were unwarranted and unfounded.

         The parties relevant to this matter - two brothers and their affiliated corporations - have a lengthy litigation history in bankruptcy and state court proceedings. (See generally Appellees' Resp. at 3-7.) In its current form, the dispute entered the bankruptcy court by way of involuntary petitions for Chapter 7 bankruptcy, filed March 24, 2004[1] pursuant to 11 U.S.C. § 303 (/statute/11-usc-303-involuntary-cases) and on behalf of Yehuda Draiman, M. Draiman Corporation, and U.S. Gas Energy Corporation.

         On March 26, 2004, Appellees (then debtors) filed an emergency motion to dismiss the case and assess costs, fees, and damages.[2] A hearing was held that afternoon before the Hon. Judge Eugene R. Wedoff on an emergency basis, though Yehuda Draiman did not attend. When asked what notice had been provided Appellant, Appellees stated that he had been contacted via fax, messenger, and oral communication. At the hearing, Appellants argued that the emergency was warranted due to the fact that Multiut was suffering severe and immediate economic damages as a result of the involuntary petitions. They further argued that the claims were *3 meritless and improperly before the bankruptcy court. Judge Wedoff agreed, and dismissed the case without prejudice.

         At the March 26 hearing, Appellants also argued that they were entitled to costs, fees, and damages under the law. With respect to damages - which required a showing of bad faith on the part of the involuntary petitioners - Appellees reported that Appellant had transmitted many copies of the involuntary petitions to Multiut's customers and suppliers. Appellees argued that this represented a clear showing of bad faith warranting actual and punitive damages. Judge Wedoff, however, refused to rule on this issue, as it did not warrant emergency consideration. After a hearing was held on April 1 - and which Yehuda Draiman attended - the Hon. John D. Schwartz placed constraints on Appellant's ability to file any future actions in bankruptcy court, and enjoined him from communicating with third parties regarding such proceedings.

         In response to Appellant's filing of a motion to reconsider the March 26 dismissal and reinstate the involuntary petitions, a hearing was held on April 20, 2004. The bankruptcy court upheld the emergency judge's finding that there was no basis for asserting jurisdiction over the case under 11 U.S.C. § 303 (/statute/11-usc-303-involuntary-cases). Judge Schwartz provided an additional rationale warranting dismissal, stating that the two corporate petitioners were not represented by counsel as is necessary to stand before the bankruptcy court. The motion to reconsider was therefore denied.

         On May 21, 2004, Appellant filed another motion to reconsider. At a hearing on May 24, this too was denied.

         On June 21, 2004, the parties again appeared before Judge Schwartz, for the purpose of proving damages. Apparently, Appellant had requested a 10-minute postponement of this hearing after being held up in traffic. The court delayed the proceedings for approximately 15 *4 minutes and then began. The only evidence added to the record in this hearing was the testimony of Nachson Draiman, by way of direct examination and additional questioning by the court. Yehuda Draiman entered the courtroom at approximately 11:10, forty minutes after the scheduled time and over twenty minutes into the proceedings. The court found in favor of Appellees for damages in the amount $400, 000, and attorneys' fees in the amount of $50, 000. Whether or not additional punitive damages would be assessed was postponed until a later hearing in light of an instanter motion filed by Yehuda Draiman.

         The final hearing before Judge Schwartz took place on July 12, 2004. The primary matters before the court were an additional motion to reconsider filed by Appellant, as well as the question of whether punitive damages should be levied. The court stated that the lack of jurisdiction had not been substantively challenged, and suggested that Appellant's complaints regarding due process were misdirected, as any procedural failings resulted from his own error. The court also outlined the history of the relationship between the parties, and found that in light of Appellant's actions, [3] punitive damages in the amount of $900, 000 were warranted.

         2. STANDARD

         On appeal to a district court, a bankruptcy court's findings of fact are reviewed for clear error, and its conclusions of law are reviewed de novo. Monarch Air Serv. v. Solow (In re *5 Midway Airlines, Inc.), 383 F.3d 663, 668 (/case/in-re-midway-air-lines-inc-4#p668) (7th Cir. 2004). "Where both the relevant law and the specific facts are clear, and the job of the bankruptcy court was to apply the law to the facts in the case, we reverse that court's conclusion only if clearly erroneous." Union Planters Bank, N.A. v. Connors, 283 F.3d 896, 899 (/case /union-planters-bank-na-v-connors#p899) (7th Cir. 2002). A finding is clearly erroneous only "when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." Id.

         "[D]ue regard shall be given to the opportunity of the bankrupt to judge the credibility of witnesses." Mungo v. Taylor, 355 F.3d 969, 974 (/case/mungo-v-taylor#p974) (7th Cir. 2004); Fed.R.Bankr.P. 8013 (West 2003).

         3. ANALYSIS

         The grounds for appellate review asserted by Appellant are not compelling. Yehuda Draiman's claims are generally undermined by the fact that he does not now show, nor has he ever shown, a meritorious argument for invoking the jurisdiction of the bankruptcy court. Allegations of misconduct against Appellant's brother or any other party are generally irrelevant. Appellant was shown every due process right at his bankruptcy proceedings. Any prejudice that Appellant might have suffered as a result of irregularities in the bankruptcy proceedings - which were non-existent or caused by his own actions - were mitigated by the fact that he was given multiple opportunities to preserve his case. It ...

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