Monday, September 14, 2015

Religious Proceeding Violates Automatic Stay

By Jeff Sayer
Scorpion Legal Services, LLC
Roswell, GA
The Honorable Robert Drain of the United States Bankruptcy Court for the Southern District of New York issued an opinion on August 24, 2015 in a case which raised a conflict between bankruptcy law and Jewish religious proceedings.

In In re: Congregation Birchos Yosef, the Debtor was a debtor in possession of a Jewish School in a case filed under Chapter 11. The issue arose when the Debtor asserted an adversary proceeding against Bais Chinuch L’Bonois (“Bais”), another Jewish School asserting claims of breach of fiduciary duty and looting of the Debtor’s assets. Upon the filing of the adversary proceeding, Bais invoked a religious proceeding to hear the case, in which a Jewish religious court, a Beis Din, would allow the principals of the Debtor to dispute the charges brought by the Bais. If the principals of the Debtor did not participate in the Jewish court hearing, the result would be at a minimum a shunning by their religious community, a Sirov, and potentially all Orthodox Jews. 

When Bais invoked the Jewish court hearing, the principals of the Debtor were sent a summons, a Hazmana, inviting them to participate in the hearing.  Upon receipt of the summons, the Debtor’s counsel wrote to those who had invoked the hearing that they had violated the automatic stay and needed to stop the hearing.

Bais, even after receiving notice of the violation of the automatic stay, proceeded with sending yet another Hazama (summons) to the principals of the Debtor. Because of threat of the Sirov, by not answering the Hazama, it affected their standing in the community and the principals of the Debtor’s children were even harassed and threated with expulsion from school. 

The Bankruptcy Court ruled that initiating the religious court proceeding process violated that automatic stay because it was of the same subject matter and interest as the adversary proceeding against the Debtor. The Court reasoned that the Beis Din proceeding and seeking Ekul (an order/injunction) was intended to control the adversary proceeding which is an estate asset, and thus violated the automatic stay. Because Bais had actual knowledge of the violation of the automatic stay, the judge issued actual damages as well as coercive sanctions against Bais as the judge opined that Bais was unlikely to withdraw its Beis Din against the Debtors absent sanctions.

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