Bankruptcy Court Must Handle Ex-Wife's Bid for Future Support Payments

The attempt of the ex-wife of jailed attorney Marc S. Dreier to collect $7 million in support from his bankruptcy estate suffered a setback in October. Refusing to lift an automatic stay in the case, Southern District Chief Bankruptcy Judge Stuart M. Bernstein held that Elisa Dreier was not entitled to have a state judge decide whether Mr. Dreier's non-compliance with a separation agreement accelerated all of the support obligations payable under the pact.

Ms. Dreier had argued that her $7.1 million support claim should be paid before other creditors. The judge wrote in In re Marc S. Dreier, 09-10371, that “the disagreement over the acceleration issue is between the estate and Elisa, and not Elisa and Marc. At bottom, it concerns a question of priority under the Bankruptcy Code rather than a matrimonial contest between the Dreiers.” That means the question of how much support Ms. Dreier receives will be decided in bankruptcy court, where her claim will be weighed against that of other creditors.

The Settlement

The Dreiers married in 1987 and had two children, Spencer, now 20 years old, and Jackie, now 17 years old. When the couple split 16 years later, they signed a 109-page settlement agreement. Among other things, Mr. Dreier agreed to pay Ms. Dreier $25,000 a month so that she could rent an apartment in midtown-Manhattan and pay all medical expenses for both children.

In December 2008, the year the Dreiers finalized their divorce, Mr. Dreier was arrested for selling more than $700 million in bogus real estate and pension plan notes to investors. That same month, Ms. Dreier, who runs a court reporting service, sent her ex-husband a notice that he had failed to comply with the terms of the settlement agreement. Following the default, Mr. Dreier's creditors forced him into involuntary bankruptcy.

A Matter of Timing

Claiming that Mr. Dreier's default triggered acceleration provisions in the settlement agreement, Ms. Dreier filed a $7.1 million claim last year in bankruptcy court for “support and maintenance.”

When Joseph S. Maniscalco, the trustee charged with liquidating Mr. Dreier's estate, submitted an interim fee request to the bankruptcy court, Ms. Dreier objected. She maintained that her support claim was entitled to priority under ' 507(a)(1) of the Bankruptcy Code, which gives priority to “allowed unsecured claims for domestic support obligations that, as of the date of the filing of the petition ' are owed to or recoverable by a spouse, former spouse, or child of the debtor.”

Ms. Dreier pointed out that Mr. Dreier's obligations under the settlement agreement were “set prior to his legal transgressions.” She wrote in court papers, “When the Debtor is scheduled to be released from prison on Oct. 26, 2026, he will be seventy-six years old, and his children will be in their late thirties. Absent a miracle, collecting on Ms. Dreier's claim against this bankruptcy estate is quite possibly the only chance she has of recovering on the Debtor's obligations to care for her and her children.” Ms. Dreier admitted that the trustee should get paid in a timely manner, but noted her “impossible circumstance” and observed that she had “not collected a penny in support since late-2008.”

With her ex-husband in federal prison, Ms. Dreier said her “ongoing claims for maintenance and support” were “worthless” unless she could collect against his estate.

The bankruptcy trustee agreed that Ms. Dreier had a partial, valid support obligation in the amount of roughly $106,500, the amount of support that was in arrears. However, he took issue with Ms. Dreier's claim that she should receive $7.1 million and said she was “impermissibly attempting to re-negotiate the terms” of the settlement agreement. The document “unmistakably does not incorporate an acceleration provision,” the trustee wrote in court papers.

State Court Action Barred

This summer, Ms. Dreier filed a motion urging Judge Bernstein to allow her to resolve the dispute in state court. Citing ' 362(b)(2) of the Bankruptcy Code, which removes certain family law proceedings from the operation of an automatic stay, Ms. Dreier argued that the stay did not bar her from asking a state judge to “clarify” the settlement agreement.

Judge Bernstein disagreed. “The automatic stay does not prevent Elisa from seeking to collect domestic support obligations from Marc's non-estate property, and pressing the claim against Marc in state court that Marc's obligations accelerated under the Settlement,” he wrote. However, the judge said that the statute did not allow Ms. Dreier “to haul the Trustee into state court to litigate the acceleration question, and ultimately, the extent of her priority claim against the estate.”

Judge Bernstein also concluded that adequate cause did not exist for him to grant Ms. Dreier relief from the stay.

Under the Second Circuit's ruling in Sonnax Indus. Inc. v. Tri Component Prods. Corp., 907 F.2d 1280 (1990), a judge should consider 12 factors when deciding whether to lift a stay for cause, including the “lack of any connection with or interference with the bankruptcy case” and “whether a specialized tribunal with the necessary expertise has been established to hear the cause of action.” Judge Bernstein pointed out that the “question of acceleration is one of general contract interpretation” and said that Ms. Dreier had failed to “identify any special rules of contract interpretation that apply to matrimonial agreements.”

Moreover, the judge noted that the “acceleration question and the extent of Elisa's priority claim will have a significant impact on the administration of the bankruptcy case.” Wrote Judge Berstein, “Awarding a state court determination will prejudice the other creditors that stand behind her alleged first priority, and cannot receive a distribution until the dispute is resolved.”

Mark R. Jacobs, Robert M. Fleisher and Seth H. Lieberman of Pryor Cashman represented Ms. Dreier. While Mr. Jacbos said in an interview he disagreed with the ruling, he does not intend to appeal. Gary F. Herbst and Holly Rai of LaMonica Herbst and Maniscalco represented the trustee.

Meanwhile, Mr. Dreier, 60, is serving out his 20-year sentence at a federal prison in Minnesota.

The attempt of the ex-wife of jailed attorney Marc S. Dreier to collect $7 million in support from his bankruptcy estate suffered a setback in October. Refusing to lift an automatic stay in the case, Southern District Chief Bankruptcy Judge Stuart M. Bernstein held that Elisa Dreier was not entitled to have a state judge decide whether Mr. Dreier's non-compliance with a separation agreement accelerated all of the support obligations payable under the pact.

Ms. Dreier had argued that her $7.1 million support claim should be paid before other creditors. The judge wrote in In re Marc S. Dreier, 09-10371, that “the disagreement over the acceleration issue is between the estate and Elisa, and not Elisa and Marc. At bottom, it concerns a question of priority under the Bankruptcy Code rather than a matrimonial contest between the Dreiers.” That means the question of how much support Ms. Dreier receives will be decided in bankruptcy court, where her claim will be weighed against that of other creditors.

The Settlement

The Dreiers married in 1987 and had two children, Spencer, now 20 years old, and Jackie, now 17 years old. When the couple split 16 years later, they signed a 109-page settlement agreement. Among other things, Mr. Dreier agreed to pay Ms. Dreier $25,000 a month so that she could rent an apartment in midtown-Manhattan and pay all medical expenses for both children.

In December 2008, the year the Dreiers finalized their divorce, Mr. Dreier was arrested for selling more than $700 million in bogus real estate and pension plan notes to investors. That same month, Ms. Dreier, who runs a court reporting service, sent her ex-husband a notice that he had failed to comply with the terms of the settlement agreement. Following the default, Mr. Dreier's creditors forced him into involuntary bankruptcy.

A Matter of Timing

Claiming that Mr. Dreier's default triggered acceleration provisions in the settlement agreement, Ms. Dreier filed a $7.1 million claim last year in bankruptcy court for “support and maintenance.”

When Joseph S. Maniscalco, the trustee charged with liquidating Mr. Dreier's estate, submitted an interim fee request to the bankruptcy court, Ms. Dreier objected. She maintained that her support claim was entitled to priority under ' 507(a)(1) of the Bankruptcy Code, which gives priority to “allowed unsecured claims for domestic support obligations that, as of the date of the filing of the petition ' are owed to or recoverable by a spouse, former spouse, or child of the debtor.”

Ms. Dreier pointed out that Mr. Dreier's obligations under the settlement agreement were “set prior to his legal transgressions.” She wrote in court papers, “When the Debtor is scheduled to be released from prison on Oct. 26, 2026, he will be seventy-six years old, and his children will be in their late thirties. Absent a miracle, collecting on Ms. Dreier's claim against this bankruptcy estate is quite possibly the only chance she has of recovering on the Debtor's obligations to care for her and her children.” Ms. Dreier admitted that the trustee should get paid in a timely manner, but noted her “impossible circumstance” and observed that she had “not collected a penny in support since late-2008.”

With her ex-husband in federal prison, Ms. Dreier said her “ongoing claims for maintenance and support” were “worthless” unless she could collect against his estate.

The bankruptcy trustee agreed that Ms. Dreier had a partial, valid support obligation in the amount of roughly $106,500, the amount of support that was in arrears. However, he took issue with Ms. Dreier's claim that she should receive $7.1 million and said she was “impermissibly attempting to re-negotiate the terms” of the settlement agreement. The document “unmistakably does not incorporate an acceleration provision,” the trustee wrote in court papers.

State Court Action Barred

This summer, Ms. Dreier filed a motion urging Judge Bernstein to allow her to resolve the dispute in state court. Citing ' 362(b)(2) of the Bankruptcy Code, which removes certain family law proceedings from the operation of an automatic stay, Ms. Dreier argued that the stay did not bar her from asking a state judge to “clarify” the settlement agreement.

Judge Bernstein disagreed. “The automatic stay does not prevent Elisa from seeking to collect domestic support obligations from Marc's non-estate property, and pressing the claim against Marc in state court that Marc's obligations accelerated under the Settlement,” he wrote. However, the judge said that the statute did not allow Ms. Dreier “to haul the Trustee into state court to litigate the acceleration question, and ultimately, the extent of her priority claim against the estate.”

Judge Bernstein also concluded that adequate cause did not exist for him to grant Ms. Dreier relief from the stay.

Under the Second Circuit's ruling in Sonnax Indus. Inc. v. Tri Component Prods. Corp. , 907 F.2d 1280 (1990), a judge should consider 12 factors when deciding whether to lift a stay for cause, including the “lack of any connection with or interference with the bankruptcy case” and “whether a specialized tribunal with the necessary expertise has been established to hear the cause of action.” Judge Bernstein pointed out that the “question of acceleration is one of general contract interpretation” and said that Ms. Dreier had failed to “identify any special rules of contract interpretation that apply to matrimonial agreements.”

Moreover, the judge noted that the “acceleration question and the extent of Elisa's priority claim will have a significant impact on the administration of the bankruptcy case.” Wrote Judge Berstein, “Awarding a state court determination will prejudice the other creditors that stand behind her alleged first priority, and cannot receive a distribution until the dispute is resolved.”

Mark R. Jacobs, Robert M. Fleisher and Seth H. Lieberman of Pryor Cashman represented Ms. Dreier. While Mr. Jacbos said in an interview he disagreed with the ruling, he does not intend to appeal. Gary F. Herbst and Holly Rai of LaMonica Herbst and Maniscalco represented the trustee.

Meanwhile, Mr. Dreier, 60, is serving out his 20-year sentence at a federal prison in Minnesota.