Tuesday, August 25, 2015

Bankruptcy Code's Automatic Stay Applies To Proceedings In Jewish Religious Court

In In re Congregation Birchos Yosef, (SD NY Bkrptcy, Aug. 24, 2015), a New York federal bankruptcy court held that the statutory automatic stay of proceedings against a debtor that is triggered by the filing of a petition in a bankruptcy reorganization applies to invalidate proceedings against a debtor and its principals in a Jewish religious court (beis din).  In the case, a religious organization in Monsey, New York that had filed for bankruptcy reorganization, as part of the bankruptcy proceedings, instituted suit against a Jewish school, Bais Chinuch L'Bonois, asserting claims for fraud, breach of fiduciary duty and looting of the Debtor’s assets.  In response, Bais Chinuch invoked a beis din which issued a hazmana or summons to individuals controlling Congregation Birchos Yosef inviting them to adjudicate their dispute in the Jewish religious court.  The beis din also issued an ekul or injunction against the parties continuing to pursue the dispute through the Bankruptcy Court.

The Bankruptcy Court held that:
Bais Chinuch and the individuals’ invocation of the beis din proceeding - and the issuance of the beis din's ekul, or injunction - are actually directed at the Debtor through its principals with the intention of wresting control of the Debtor’s adversary proceeding and exerting pressure to have it dismissed....  Because of the principals’ identity of interest here with the Debtor, the automatic stay applies to protect them from the beis din
The court went on to hold that enforcement of the automatic stay does not violate the Free Exercise or Establishment Clause of the First Amendment.  It held that RFRA is not applicable, because it does not apply to the Debtor's motion, a private action between private parties.  Even if applicable, application of the automatic stay survives RFRA strict scrutiny.  The court added, "The automatic stay’s enforcement here does not substantially burden the objectors’ free exercise of religion, moreover, when they have invoked a rabbinical court to decide (and interfere with) an essentially commercial dispute."