Rabbinical Court Can’t Appeal Bankruptcy Court’s Order

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By Daniel Gill

Sept. 30 — A Jewish rabbinical court can’t appeal a bankruptcy court order issued in the case of a Monsey, New York, synagogue, a federal district court ruled ( Bais Din of Mechon L’Hoyroa v. Congregation Birchos Yosef (In re Congregation Birchos Yosef) , 2016 BL 318125, S.D.N.Y., No. 15-CV-6408 (CS), 9/27/16 ).

Judge Cathy Seibel dismissed the appeal by Bais Din of Mechon L’Hoyroa from a bankruptcy court order on Sept. 27. That order found that certain defendants violated the automatic stay created by the filing of a bankruptcy case by a local synagogue, Congregation Birchos Yosef, when the defendants attempted to invoke the jurisdiction of the rabbinical court to resolve disputes originally raised in the bankruptcy case.

The U.S. District Court for the Southern District of New York held that although the bais din (which is also sometimes spelled in English transliteration as “beit din,” “bait din” or “beth din” and is Hebrew for “house of judgment") argued that the bankruptcy court’s ruling violated certain First Amendment Free Exercise or Establishment Clause rights, the court didn’t have jurisdiction to consider those arguments.

At least one law professor agrees that the bankruptcy court’s order likely infringed on constitutional rights.

In bankruptcy, to have standing the appellant must be “aggrieved” specifically in a pecuniary way, the court said. It was not sufficient to be aggrieved by a denial of non-monetary constitutional rights.

The bankruptcy court’s order from which the beit din appealed was against the defendants who tried to compel the debtor in bankruptcy to have its claims adjudicated by the rabbinic court. The beit din itself was not the subject of the order, which subjected those defendants to sanctions of $10,000 a day if they did not heed the court’s injunctions.

Congregation Files Chapter 11, Lawsuits

Birchos Yosef, a Hasidic congregation, filed a Chapter 11 case on Feb. 26, 2015. Chapter 11 allows entities (or individuals) to enjoy protections from creditors while they seek to reorganize their debt or liquidate pursuant to a plan which must be approved by the bankruptcy court.

The debtor congregation then commenced adversary proceedings (lawsuits) against a Jewish school and associated individuals, asserting claims for fraud, breach of fiduciary duty, and “looting” of the debtor’s assets, the court said.

Invoking Jewish Court and Automatic Stay

In response to the complaints, the defendants turned to their religious community to invoke a beit din to resolve the dispute. The beit din then issued a hazmana, a summons, to the debtor, “inviting” it to have the disputes resolved in the Jewish court according to Jewish law, the court said.

This hazmana also included an injunction, called an ekul: “And we hereby restrict continuing the claims before the secular courts, and you are required to stop immediately the claims, until the matter will be clarified before a Jewish Bais Din,” the court said, quoting the hazmana sent to the debtor.

Filing for bankruptcy imposes an automatic stay under the Bankruptcy Code, which halts all judicial proceedings or other collection activities against the debtor. A party must get court permission to lift the automatic stay in order to proceed with an action against the debtor.

The debtor claimed that the acts of the defendant violated the automatic stay by seeking to resolve the dispute in another forum, and the congregation filed a motion in the bankruptcy court to enforce the stay and requesting an award of damages for violating it.

The court granted the motion ( In re: Congregation of Birchos Yosef , Bankr. S.D.N.Y., 8/24/15 ). Judge Seibel said that the bankruptcy judge found that “the mere threat of the issuance of a sirov [an order condemning a refusal to appear], and . . . the commencement of the beis din proceeding itself . . . adversely affected the Debtor, through its principals, and made it more difficult to conduct this [bankruptcy] case by exerting significant pressure” on the debtor.

The issuance of a sirov, the district court explained, could have severe consequences, including the “exclusion of the congregant and his family from community functions, including worship and school.” The bankruptcy court found that such coercion amounted to a violation of the automatic stay.

The bankruptcy court ordered that the defendants who invoked the beit din would be sanctioned $10,000 a day if they did not obey the court’s order and cease the beit din proceedings.

Appeal and First Amendment Rights

The court said that the named defendants all settled with the debtor, but the beit din itself prosecuted the appeal, claiming that its—and its constituents'—First Amendment rights to free exercise of religion were impaired by the bankruptcy court’s order.

Prof. Michael A. Helfand told Bloomberg BNA Sept. 29 that the defendants in the bankruptcy court had a strong argument that their turning to the beit din was shielded by the First Amendment and that the sanctions order may not have been appropriate.

On the other hand, Helfand also noted that at least some batei din (the plural for “beit din") avoid issuing hazmanot in cases where an automatic stay is in effect.

Helfand is an Associate Professor at Pepperdine University School of Law in Malibu, Calif., and is also the Associate Director at the university’s Diane & Guildford Glazer Institute for Jewish Studies. He teaches courses on arbitration, Jewish law and law and religion.

Rabbi Shlomo Weissmann, Director of Beth Din of America, told Bloomberg BNA in a Sept. 29 e-mail that his organization, which he says is the largest rabbinical court in North America, has a general policy not to initiate proceedings where an automatic stay has been issued by a bankruptcy court.

No Money at Stake, No Standing to Appeal

Because the beit din appellant had no pecuniary injury by the bankruptcy court’s order—no sanctions were ordered against it—the court determined that it could not consider any of the rabbinic court’s constitutional arguments; the appellant’s lack of standing deprived the court of jurisdiction to rule, the court said.

The court drew a parallel to other adjudicative bodies seeking to appeal a federal court. “Allowing the Bais Din to bring the instant appeal is akin to allowing an arbitrator to appeal a court’s decision voiding an arbitration clause or allowing a state court to appeal the removal of a case to federal court. There is simply no precedent for this type of appeal,” the court said.

Again, Prof. Helfand disagreed. He told Bloomberg BNA that it was a mistake to conflate these other secular forums with the religious functions of a religious court.

Bais Din of Mechon L’Hoyroa was represented by Y. David Scharf, Joseph T. Moldovan, and Robert K. Dakis, Morrison Cohen LLP, New York. Michael Levine, Levine & Associates, P.C., Scarsdale, New York, represented Congregation Birchos Yosef.

To contact the reporter on this story: Daniel Gill in Washington at dgill@bna.com

To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com

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