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https://www.courtlistener.com/api/rest/v3/opinions/8493740/ | *431MEMORANDUM AND ORDER DENYING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND GRANTING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
E. STEPHEN DERBY, Bankruptcy Judge.
Pending before the Court are cross motions for summary judgment filed by Plaintiff McShane, Inc. t/a MCS (“MCS”) and Defendant Monumental Supply Co., Inc. (“Monumental”). The parties have filed responses and replies to the summary judgment motions, and a hearing will not materially aid the court in resolving the motions. For reasons stated below, the court will grant summary judgment in favor of Defendant Monumental and deny summary judgment as to Plaintiff MCS.
I. BACKGROUND AND RELEVANT FACTS
The material facts are not in dispute. In October, 2001, general contractor Kam-tech, Inc. (“Kamtech”) entered into an Agreement with Wells Fargo Northwest, N.A., for Procurement, Construction and Installation Services for the Possum Point Generation Facility (“Construction Contract”) in Virginia (“Possum Point Project”).
Pursuant to the Construction Contract, Kamtech was responsible for paying subcontractors and vendors and for ensuring that subcontractors paid their subcontractors and suppliers. Construction Contract, Section 10.2, attached as Exhibit A to Monumental’s Motion for Summary Judgment. Section 10.2 states as follows:
Payments to Subcontractors and Vendors. Upon receipt of payment from, or on behalf of, Owner, Contractor shall promptly pay each Subcontractor and Vendor per its agreements with its Subcontractors and Vendors, out of the amount paid to Contractor on account of Subcontractor’s or Vendor’s work. Contractor shall require each Subcontractor or Vendor to make similar payments to its Subcontractors and Vendors. Except as otherwise provided in this Agreement, Owner shall have no right or obligation to pay, or cause the payment of, any money to any Subcontractor or Vendor or any other person acting through, under or on behalf of Contractor except as may otherwise be required by Laws and Codes, and then subject to Contractor’s indemnity obligations under this Agreement. Notwithstanding the foregoing, any payments made by Owner to any Subcontractor or Vendor as permitted in this Agreement shall be reimbursed by Contractor to Owner or may be offset by Owner against, and deducted from, any future payments due to Contractor from Owner.
Construction Contract, § 10.2. The Construction Contract also provides that the Owner could withhold final payment from Kamtech under the Construction Contract to protect the Owner from losses from, inter alia, mechanics liens, unless Kam-tech posted a performance bond under which such obligations would be paid. Construction Contract, § 11.7 Payments Withheld. Section 11.8.2 specifically authorized Kamtech to obtain a performance bond to indemnify the owner and lenders against mechanics liens in order to obtain final payment on the Project. If such a Performance Bond was posted, final payment to Kamtech could not be withheld.
Indeed, Kamtech executed a Payment Bond with United States Fidelity and *432Guaranty (“USFG”) to guaranty performance of the Construction Contract (“Payment Bond”). Pursuant to the Payment Bond, and as the joint and several co-obligor with USFG, Kamtech became obligated to pay for all “labor, materials, and equipment furnished for use in performance of the Construction Contract...”. Payment Bond, ¶ 1, attached to Monumental’s Motion for Summary Judgment, Exhibit A (Construction Contract). The Payment Bond creates a direct obligation for Kamtech to make payment to all Claimants, which are defined as “persons or entities having a direct contract with [Kamtech] or with any subcontractor of [Kamtech] to furnish labor materials or equipment for use in the [Construction] Contract.” Payment Bond, ¶ 15. This direct obligation to any Claimant under the Payment Bond was only satisfied, and became null and void, if and when Kamtech promptly made payment, directly or indirectly, for all sums due. Payment Bond, ¶ 3.
On October 26, 2001 Kamtech executed a subcontract with MCS for MCS to supply piping materials for the Possum Point Project (“MCS Subcontract”). The MCS Subcontract was amended on several occasions to increase the amount of piping to be installed and the price to be paid. In turn, MCS executed a contract with Monumental for the supply of materials to MCS related to the MCS Subcontract (“Monumental Materials Contract”).
As of February 7, 2002, Kamtech had paid Monumental $44,423.56, leaving a balance under the MCS Subcontract of $118,120.26. On or about February 18, 2002, Monumental notified Kamtech directly that Monumental had not been paid approximately $84,300 under the Monumental Materials Contract, and that unless Kamtech made payment Monumental would enforce mechanics lien rights against the project property. The lien waiver Kamtech requested from MCS in February, 2002 specifically removed the certification that MCS had paid all sums due for materials and supplies furnished or supplied by of for MCS for the Possum Point Project. MCS Lien Waiver, attached as Exhibit C to Monumental’s Motion for Summary Judgment.
On March 14, 2002, Kamtech, MCS and Monumental Executed a Settlement Agreement and Release (“Settlement Agreement”) relative to the Possum Point Project. Pursuant to the Settlement Agreement, Kamtech agreed to pay $80,000 directly to Monumental and $38,120 to MCS. The Settlement Agreement released all claims of Monumental and MCS against Kamtech and the Possum Point Project. Kamtech thereafter drafted a check in the amount of $80,000, which was presented to Monumental on or around March 19, 2002.
MCS filed for protection under Chapter 11 of the Bankruptcy Code on March 18, 2002. In this adversary proceeding, MCS seeks recovery of the $80,000 paid from Kamtech to Monumental as an avoidable preference under 11 U.S.C. Section 547(b). Alternatively, MCS maintains that the payment was a post-petition transfer of estate property in violation of 11 U.S.C. Section 549(a). Monumental takes the position that the $80,000 payment was neither property of the debtor nor property of the estate based on Kamtech’s independent obligation to ensure payment to all suppliers, and that as a result the payment was neither a pre-petition preference nor a post-petition transfer of estate property. MCS and Monumental have both filed motions for summary judgment.
II. ANALYSIS
A. Summary Judgment Standard
Summary judgment is appropriate when “the pleadings, depositions, answers to in*433terrogatories, and admissions on file, together with the affidavits, if any,” demonstrate the absence of a genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed. R.Civ.P. 56( c), made applicable to these proceedings by Fed. R. Bankr.P. 7056. The Court may grant summary judgment against a party who “fails to make a showing sufficient to establish the existence of an element essential to that party’s case, and on which that party will bear the burden of proof at trial.” Preston v. Mountainside Transport, Inc., 795 F.Supp. 159, 160 (D.Md.1992), quoting Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Permissible inferences to be drawn from the underlying facts are viewed in the light most favorable to the nonmoving party. Miller v. Federal Deposit Insurance Corporation, 906 F.2d 972, 973-74 (4th Cir.1990), citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587-88, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986).
In this case, there is no dispute as to the material facts and the issue presented is one that may be decided as a matter of law. Therefore, summary judgment is appropriate.
B. MCS’ Avoidance Claims Against Monumental Under Sections 547(b) and 549(a)
11 U.S.C. § 549, one of the trustee’s avoiding powers, provides for the recovery of post-petition transfers of estate property. Section 549(a) provides that the trustee may avoid post-petition transfers that have not been authorized by the Court or that is authorized only under Section 303(f)1 or 542( c).2 For purposes of this case, the key element is that any such transfer must be of property of the estate. 11 U.S.C. Section 549(a).
Section 541 defines property of the estate as all equitable or legal interest of the debtor in property as of the commencement of the case.3 A fortiori property of the estate does not include property in which the debtor had no interest at the commencement of the case.
11 U.S.C. § 547, another one of the trustee’s avoiding powers, provides for the avoidance of certain payments made by the debtor to non-insiders in the 90 days preceding a bankruptcy filing. Section 547(b) authorizes avoidance when the trustee shows that the transfer is one:
1. To or for the benefit of creditors;
2. For or on account of an antecedent debt owed by the debtor before such transfer was made;
3. Made while the debtor was insolvent;
4. Made on or within 90 days before filing of the petition;
5. That enables the creditor to receive more than such creditor would receive if the case was a case under Chapter 7, the transfer had not been made, and the creditor received a distribution in the Chapter 7 case.
11 U.S.C. § 547. It is axiomatic that to be avoidable the transfer must involve the Debtor’s interest in property. Id. Thus, a transfer of money or property by a third person to a creditor of the debtor, that does not issue from property of the debtor, *434is not a preference. See Collier on Bankruptcy, ¶ 547.03[2](15th Revised Ed.).
Monumental argues that the $80,000 Kamtech transferred to it was neither property of MCS if the transfer occurred pre-petition nor property of the estate if transferred post-petition. Thus, because MCS cannot meet one of the elements required under either § 547(b) or § 549(a), Monumental asserts that it is entitled to judgment as a matter of law. Monumental claims Kamtech had an independent obligation to pay Monumental, first because the Construction Contract executed by the owner and Kamtech and the Payment Bond executed by Kamtech made Kamtech liable for payment to Monumental in full, and second because Monumental’s mechanic’s lien rights against the property and other potential claims under Virginia law would ultimately have required the owner or USFG to pay Monumental and Kamtech to reimburse the payment. MCS counters that the funds transferred are part of the receivable owed by Kamtech to MCS, and that payment to Monumental resulted in either a preferential transfer or an unauthorized post-petition transfer. MCS further claims that there is no evidence that Monumental timely exercised its rights under applicable mechanic’s lien law or under the Payment Bond, and as a result Kamtech had no obligation to pay the Monumental claim. The $80,000 payment was thus either MCS’ property or the Estate’s property, and it may be recovered for the benefit of creditors.
The ease of In re Tri-Co, Inc., 221 B.R. 606 (Bankr.D.Mass.1998), and cited by Monumental in its motion for summary judgment, is instructive. In Tri-Co, the debtor subcontractor (“Tri-Co”) had entered into a pre-petition subcontract with L. Addison and Associates, Inc. (“Addison”), the general contractor under a contract with the United States for work at an Air Force base. As of the filing date, Addison owed the debtor $16,678 and debt- or owed Star Building Systems (“Star”) $6,382 for materials furnished under a sub-subcontract. Prior to filing, Addison and debtor agreed to make payments with joint checks to debtor and Star. Post-petition, Addison paid Star directly the $6,382, and Tri-Co sued to recover the payment as an unauthorized post-petition transfer of a receivable owed to the debtor under 11 U.S.C. § 549(a). The court found that the payment was necessary to protect Addison’s interests because (1) it may have acquired liability to Star by agreeing to the joint check arrangement; and (2) because Addison was contingently liable to Star through a surety bond, a requirement of United States government projects which would have entitled the surety to reimbursement from Addison had the surety been required to pay Star absent the payment at issue. Tri-Co, 221 B.R. at 608. The court concluded that the payment was not a transfer of the debtor’s receivable, and stated:
The payment would perhaps effect an involuntary and indirect transfer if its sole function was to pay the Debtor’s indebtedness to the Defendant. As we have seen, however, Addison’s financial interests benefitted from the payment. Addison was thereby relieved of its own liability under the bond and the letter. It is thus unrealistic to treat the payment as a transfer of the receivable and its proceeds. The payment was in substance a satisfaction of Addison’s liabilities to the surety and the Defendant. Mason v. Zorn Indus., Inc. (In re Underground Storage Tank Technical Servs. Group, Inc.), 212 B.R. 564 (Bankr.E.D.Mich.1997) (prepetition payment by debtor’s debtor not a transfer of debtor’s property because of payor’s independent reimbursement liability under payment bond). I agree with the *435perceptive analysis of Judge Spector in Mason. See also Crocker v. Braid Elec. Co. (In re Arnold), 908 F.2d 52, 55 (6th Cir.1990) (postpetition payment by general contractor to sub-subcontractor not a transfer of estate property because of general’s independent obligation to recipient under the general contract and under “reasonable commercial expectations to see to the proper applications of construction funds”).
In re Tri-Co., Inc., 221 B.R. 606, 608-09 (Bankr.D.Mass.1998). Because the funds did not constitute property of the estate, Tri-Co’s complaint was dismissed. Id. At 609.
The rationale espoused by the Tri-Co court is applicable to claims under § 547(b) and § 549(a). See In re Flooring Concepts, Inc., 37 B.R. 957 (9th Cir. BAP 1984). In In re Flooring Concepts, debtor was a subcontractor for the installation of carpet at an apartment building project. Debtor entered into a contract with a ma-terialman to provide the carpeting. Debt- or failed to pay the materialman and the materialman served a preliminary notice under California law of its mechanics lien. Thereafter, the general contractor, debtor and the materialman entered into an agreement (“Three Way Agreement”) wherein the materialman would not record a mechanics lien and the general contractor would pay the monies owed directly to the materialman. The general contractor thereafter made direct payments to the materialman on a pre-petition and post-petition basis. Debtor sought to avoid the payments under §§ 547(b) and 549(a). The Court found that the Three Way Agreement, whereby the general contractor and the materialman exchanged independent consideration, created the general contractor’s obligation to pay the material-man directly and the materialman’s obligation to forbear from recording a mechanic’s lien. In re Flooring Concepts, Inc., 37 B.R. at 961. The court held that payments “made by a contract debtor of a bankrupt to a creditor of the bankrupt do not become part of the bankruptcy estate where there is an independent obligation on the part of the debtor to pay the creditor,” regardless whether the general contractor’s duty to pay the materialman is contractual or statutory. In re Flooring Concepts, Inc., 37 B.R. at 961, citing Keenan Pipe & Supply Co. v. Shields, 241 F.2d 486 (9th Cir.1956); Selby v. Ford Motor Co., 590 F.2d 642 (6th Cir.1979). The court concluded that because the pre-petition transfers were not of property of the debtor and the post-petition transfer was not of property of the estate, Debtor’s avoidance claims failed. In re Flooring Concepts, Inc., 37 B.R. at 963-64.
In this case, because Kamtech had an independent obligation to Monumental, the payment of $80,000 was neither property of MCS nor property of the estate. Section 10.2 of the Construction Contract obligated Monumental to deliver the completed project to the owner free of all claims, including mechanics liens. The owner could withhold payment from Kamtech if the project was not delivered free of liens and claims, absent a performance bond. Id. at §§ 11.7 and 11.8.2. Kamtech obtained the Payment Bond, which directly obligated Kamtech, as well as USFG, to pay for all labor, materials and equipment furnished for use in the performance of the Construction Contract. Payment Bond, ¶ 1. Importantly the Payment Bond, while containing obligations owed by Kamtech to the owner, also specifically and directly obligated Kamtech to pay all subcontractors and material suppliers such as Monumental. Payment Bond, ¶¶ 1, 3,15.
It is undisputed that Monumental, a material supplier to MCS, was not paid approximately $80,000 owed to it by MCS. *436Upon its failure to pay Monumental, MCS’ interest in receiving the $80,000 from Kamtech ceased, and MCS retained merely an interest in seeing payment made, in fulfillment of the Monumental Supply Contract, to Monumental. Concurrently, Monumental obtained a right to these monies due, pursuant to the terms of the Settlement Agreement and, as a third party beneficiary, the terms of the Payment Bond, directly from Kamtech. Thus, payment from Kamtech was of neither MCS’ property nor property of the estate, but was rather payment of a direct obligation owing by Kamtech to Monumental.
Monumental also likely held rights against the property under applicable mechanics lien law, and against the owner or Kamtech under Virginia statutory4 or common law5 which were released under the Settlement Agreement. Monumental had provided notice to Kamtech of the non-payment and its intent to pursue mechanics lien remedies. See Letter dated February 18, 2002 from counsel for Monumental to Kamtech, attached as Exhibit D to Monumental’s Motion for Summary Judgment. While many if not all of Monumental’s rights against Kamtech, the owner, and the property existed at the time the Settlement Agreement was executed and may have provided independent consideration to Kamtech for payment of the $80,000, see In re Flooring Concepts, 37 B.R. 957, 961 (9th Cir. BAP 1984), neither MCS nor Monumental has presented any facts by affidavit, attachment or otherwise to allow the court to determine the status of such claims. The court need not decide these issues because the court holds that Kamtech’s execution of the Payment Bond required Kamtech to make payment to Monumental, not on behalf of MCS or the estate, but as an independent obligation owed by Kamtech to Monumental. See In re Tri-Co., Inc., 221 B.R. 606, 608-09 (Bankr.D.Mass.1998).
In sum, the Court concludes that the payment from Kamtech to Monumental was made on an independent obligation between Kamtech and Monumental separate and distinct from any amount or receivable claimed due by MCS from Kam-tech. As a result, the payment of $80,000 was neither property of the Debtor nor property of the estate, and MCS’ claims for preferential transfer under § 547(b) and for an unauthorized post-petition transfer under § 549(a) fail as a matter of law.6 Summary judgment shall therefore be entered in favor of Monumental.
C. MCS’ Motion for Summary Judgment Against Monumental
MCS has also moved for summary judgment on both claims under 11 U.S.C. §§ 547(b) and 549(a). MCS argues that the undisputed facts show that it has met all necessary elements, as outlined previously in this Order, supra, required to prove its preference claim under § 547(a) and its post-petition transfer claim under § 549, and as a result it is entitled to judgment in this matter as a matter of law.
*437However, the court has determined that the funds at issue in this case were not property of the Debtor for purposes of MCS’ claim under § 547(b) nor property of the estate for purposes of MCS’ claim under § 549(a). Because MCS cannot prove one of the elements necessary to prevail on each of its claims, MCS’ motion for summary judgment will be denied.
Therefore, by the United States Bankruptcy Court for the District of Maryland, it is:
ORDERED that McShane, Inc.’s Motion for Summary Judgment is DENIED; and it is
FURTHER ORDERED that Monumental Supply Company’s Motion for Summary Judgment is GRANTED; and it is
FURTHER ORDERED that final judgment is GRANTED in favor of Defendant Monumental Supply Company; and it is
FURTHER ORDERED that the Joint Motion to Convert Trial Date to Motion for Summary Judgment Hearing is DENIED as moot; and it is
. This section is applicable in involuntary cases.
. This section is applicable in turnover actions by parties who transfer estate property without knowledge of debtor's bankruptcy.
.Exceptions to the definition of property of the estate, none of which are relevant to the facts of this case, are contained in 11 U.S.C. § 541(b) and (c)(2). See 11 U.S.C. § 541(a).
. See Monumental's Motion for Summary Judgment, at 11-12, fn 5-6, for a recitation of Virginia Code on the rights of material men, and the corresponding obligation of general contractors such as Kamtech.
. For instance, even if all other claims were foreclosed. Monumental may still have held a claim against the owner for unjust enrichment or quantum meruit. See Lyons Const. Co. v. TRM Development Corp., 25 Va. Cir. 352, 1991 WL 835247 (Va. Cir. Ct.1991); In re Twin B Auto Parts, Inc., 271 B.R. 71, 84 (Bankr.E.D.Va.2001).
.Because the result is the same under each section, the Court need not determine whether the transfer was made pre-petition or post-petition. Regardless which section is applied, Monumental is entitled to summary judgment. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493741/ | JUDGMENT
WILLIAM T. THURMAN, Bankruptcy Judge.
Based upon the Court’s MEMORANDUM DECISION GRANTING JUDGMENT IN FAVOR OF PLAINTIFF, dated June 3, 2005, and good cause appearing, the Court orders as follows:
1. Plaintiffs claim against Defendant is hereby determined to be NON-DIS-CHARGEABLE.
2. Plaintiff shall have and recover $992,086 principal; plus pre-judgment interest on the principal amount at the rate of 10% per an-num, commencing July 1, 1998, for total prejudgment interest through June 15, 2005 of $690,926.73; plus discovery sanctions of $5,066.00; for a total money judgment against Defendant of One Million, Six Hundred Eighty-Three Thousand Twelve Dollars and Seventy-Three cents ($1,683,012.73).
3.Plaintiff is awarded his costs of suit pursuant to Bankruptcy Rule 7054. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484617/ | People v Tugwell (2022 NY Slip Op 06442)
People v Tugwell
2022 NY Slip Op 06442
Decided on November 15, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 15, 2022
Before: Manzanet-Daniels, J.P., Webber, Mazzarelli, Friedman, Shulman, JJ.
Ind. No. 2324/15 Appeal No. 16662 Case No. 2019-1875
[*1]The People of the State of New York, Respondent,
vLeon Tugwell, Defendant-Appellant.
Justine M. Luongo, The Legal Aid Society, New York (Lawrence T. Hausman of counsel), for appellant.
Darcel D. Clark, District Attorney, Bronx (Lori Ann Farrington of counsel), for respondent.
Order, Supreme Court, Bronx County (Raymond L. Bruce, J.), entered on or about January 25, 2019, which adjudicated defendant a level two sexually violent offender pursuant to the Sex Offender Registration Act (Correction Law art 6-C), unanimously affirmed, without costs.
The court providently exercised its discretion when it declined to grant a downward departure (see People v Gillotti, 23 NY3d 841 [2014]). There is no basis for a downward departure, given the seriousness of the underlying conduct, committed against a child. Defendant has not shown that his deportation to Jamaica would result in such a reduced risk to public safety as to warrant a downward departure (see e.g. People v Guaman, 136 AD3d 605 [1st Dept 2016], lv denied 27 NY3d 905 [2016]; People v Zepeda, 124 AD3d 417 [1st Dept 2015], lv denied 25 NY3d 902 [2015]). The other alleged mitigating factors do not warrant a departure. There was nothing exceptional about defendant's routine completion of sex offender and alcohol abuse treatment programs.
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 15, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484627/ | Matter of Mattis (2022 NY Slip Op 06438)
Matter of Mattis
2022 NY Slip Op 06438
Decided on November 15, 2022
Appellate Division, First Department
Per Curiam
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 15, 2022
SUPREME COURT, APPELLATE DIVISION
First Judicial Department
Sallie Manzanet-Daniels,J.P.,
Cynthia S. Kern
Ellen Gesmer
Manuel J. Mendez
Martin Shulman, JJ.
Motion No. 2022-03298 Case No. 2022-03674
[*1]In the Matter of Colinford King Mattis, an Attorney and Counselor-at Law: Attorney Grievance Committee for the First Judicial Department, Petitioner, Colinford King Mattis, (OCA Atty. Reg. No. 5547898), Respondent.
Disciplinary proceedings instituted by the Attorney Grievance Committee for the First Judicial Department. Respondent was admitted to the Bar of the State of New York at a Term of the Appellate Division of the Supreme Court for the Second Judicial Department on January 31, 2018.
Jorge Dopico, Chief Attorney, Attorney Grievance Committee, New York (Denice Szkeley, Esq., of counsel), for petitioner.
Respondent pro se.
Per Curiam
Respondent Colinford King Mattis was admitted to practice law in the State of New York by the Second Judicial Department on January 31, 2018. At all times relevant herein, respondent maintained an office for the practice of law within the First Judicial Department.
On June 2, 2022, respondent entered a guilty plea to a superseding federal information which charged him and codefendant Urooj Rahman with conspiracy to commit arson and to make and possess an unregistered destructive device in violation of 18 USC §§ 371 and 844(i) and 26 USC §§ 5861(d) and 5861(f). His conviction was based on an incident in which he and Rahman made and possessed an improvised incendiary device, i.e., a Molotov cocktail, which was used to damage an unoccupied New York City police vehicle during a 2020 protest over the death of George Floyd.
By notice of motion dated August 12, 2022, the Attorney Grievance Committee (AGC) seeks an order striking respondent's name from the roll of attorneys pursuant to Judicial Law § 90(4)(a) and (b) and the Rules for Attorney Disciplinary Matters (22 NYCRR) § 1240.12, on the ground that respondent was convicted of a felony as defined by Judiciary Law § 90(4)(e) and has therefore been automatically disbarred. It should be noted that for purposes of automatic disbarment, a conviction occurs at the time of plea or verdict (see Matter of Conroy, 167 AD3d 44, 46 [1st Dept 2018]), not at sentencing.
Respondent was convicted on federal charges "essentially similar" to one or more felony offenses as defined under New York Law so as to result in his automatic disbarment (Judiciary Law § 90[4][a]). Respondent's federal conviction for conspiracy to maliciously damage or destroy, or attempt to damage or destroy by means of fire or an explosive, any building, vehicle, or other real or personal property used in interstate or foreign commerce in violation of 18 USC §§ 371 and 844(i) is "essentially similar," in language and elements, to conspiracy in the fourth degree, a class E felony in violation of Penal Law § 105.10(1), to commit arson in the third degree, a class C felony in violation of Penal law § 150.10(1). Indeed, in his plea agreement, he stipulated and agreed that his federal conviction was "essentially similar" to one or more felony offenses defined under New York law, including conspiracy to commit arson in the third degree, and that "even though the likely consequence of [his] guilty plea will be automatic disbarment from the practice of law in the State of New York," he nevertheless wished to plead guilty.
Accordingly, the AGC's motion to disbar should be granted and respondent's name stricken from the roll of attorneys in the State of New York, effective nunc pro tunc to June 2, 2022.
All concur.
IT IS ORDERED that the Attorney Grievance Committee's motion to strike the name of the respondent, Colinford King Mattis, from the [*2]roll of attorney's and counselors-at-law, pursuant to Judiciary Law § 90(4), is granted; and,
IT IS FURTHER ORDERED that pursuant to Judiciary Law § 90(4)(a) and (b) and 22 NYCRR 1240.12(c)(1), the respondent, Colinford King Mattis, is disbarred, effective nunc pro tunc to June 2, 2022, and his name is stricken from the roll of attorneys and counselors-at-law; and,
IT IS FURTHER ORDERED that the respondent, Colinford King Mattis, shall comply with the rules governing the conduct of disbarred or suspended attorneys (see 22 NYCRR 1240.15); and,
IT IS FURTHER ORDERED that pursuant to Judiciary Law § 90, the respondent, Colinford King Mattis, is commanded to desist and refrain from (1) practicing law in any form, either as principal or as agent, clerk, or employee of another, (2) appearing as an attorney or counselor-at-law before any court, Judge, Justice, board, commission, or other public authority, (3) giving to another an opinion as to the law or its application or any advice in relation thereto, and (4) holding himself out in any way as an attorney and counselor-at-law; and
IT IS FURTHER ORDERED that if the respondent, Colinford King Mattis, has been issued a secure pass by the Office of Court Administration, it shall be returned forthwith to the issuing agency.
Entered: November 15, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484623/ | Mejia v Duran de la Rosa (2022 NY Slip Op 06440)
Mejia v Duran de la Rosa
2022 NY Slip Op 06440
Decided on November 15, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 15, 2022
Before: Gische, J.P., Kapnick, Kern, Gesmer, Higgitt, JJ.
Index No. 650925/20 Appeal No. 16649- Case No. 2022-02898
[*1]Alba Mejia, Plaintiff-Respondent,
vRobert Duran de la Rosa et al., Defendants-Appellants, Hugo Santana et al., Defendants.
Max D. Leifer, P.C., New York (Max D. Leifer of counsel), for appellants.
Garcia & Kalicharan, P.C., New York (William A. Garcia of counsel), for respondent.
Order, Supreme Court, New York County (Melissa Crane, J.), entered March 1, 2022, which, to the extent appealed from, denied defendants Robert Duran De La Rosa and Jose Hernandez's motion to vacate the default judgment against them, unanimously reversed, on the law and in the exercise of discretion, without costs, and the motion granted as to those defendants.
Although defendants' claimed lack of fluency in English, by itself, did not amount to a reasonable excuse for their failure to appear or interpose an answer to plaintiff's complaint, vacatur is warranted under the circumstances here, where defendants have also shown that their default was neither willful nor part of a pattern of dilatory behavior, and plaintiff has not demonstrated prejudice (see DaimlerChrysler Ins. Co. v Seck, 82 AD3d 581, 582 [1st Dept 2011]; Chelli v Kelly Group, P.C., 63 AD3d 632, 633 [1st Dept 2009]). Further, defendants raised meritorious defenses to the breach of contract and unjust enrichment claims. The subject stock purchase agreement itself establishes that Hernandez was not a signatory to the contract and had no ownership interest in the company (see Randall's Is. Aquatic Leisure, LLC v City of New York, 92 AD3d 463, 463-464 [1st Dept 2012]). Although Duran De La Rosa signed the agreement, his affidavit raised factual issues as to his actual ownership interest in the company and plaintiff's performance under the contract. In light of the strong public policy to dispose of cases on their merits, the motion court improvidently exercised its discretion in denying defendants' motion to vacate the default judgment (see Cornwall Warehousing, Inc. v Lerner, 171 AD3d 540, 541 [1st Dept 2019]).
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 15, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484621/ | People v Emiliano (2022 NY Slip Op 06443)
People v Emiliano
2022 NY Slip Op 06443
Decided on November 15, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 15, 2022
Before: Manzanet-Daniels, J.P., Webber, Mazzarelli, Friedman, Shulman, JJ.
Ind. No. 1822/18 Appeal No. 16650 Case No. 2020-04108
[*1]The People of the State of New York, Respondent,
vLewis Emiliano, Defendant-Appellant.
Twyla Carter, The Legal Aid Society, New York (Angie Louie of counsel), and Kramer Levin Naftalis & Frankel, LLP, New York (Thomas M. Twitchell of counsel), for appellant.
Alvin L. Bragg, Jr., District Attorney, New York (Nathan Shi of counsel), for respondent.
An appeal having been taken to this Court by the above-named appellant from a judgment of the Supreme Court, New York County (Ann Scherzer, J.), rendered September 29, 2020,
Said appeal having been argued by counsel for the respective parties, due deliberation having been had thereon, and finding the sentence not excessive,
It is unanimously ordered that the judgment so appealed from be and the same is hereby affirmed.
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 15, 2022
Counsel for appellant is referred to § 606.5, Rules of the Appellate Division, First Department. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484626/ | Matter of Neumann (2022 NY Slip Op 06424)
Matter of Neumann
2022 NY Slip Op 06424
Decided on November 15, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 15, 2022
Before: Manzanet-Daniels, J.P., Webber, Mazzarelli, Friedman, Shulman, JJ.
File No. 4105/16 Appeal No. 16661 Case No. 2022-01665
[*1]In the Matter of Dolores Ormandy Neumann, Deceased.
Belinda Neumann Donnelly, Petitioner-Appellant-Respondent,
Hubert G. Neumann et al., Objectants-Respondents-Appellants, Winter Donnelly et al., Respondents.
Greenfield Stein & Senior, LLP, New York (Gary B. Freidman of counsel), for appellant-respondent.
Farrell Fritz, P.C., Uniondale (John R. Morken of counsel), for Hubert G. Neumann, respondent-appellant.
Novick & Associates, P.C., Huntington (Donald Novick of counsel), for Mellissa Neumann, respondent-appellant.
Order, Surrogate's Court, New York County (Rita Mella, S.), entered March 30, 2022, which, insofar appealed from as limited by the briefs, granted petitioner's motion for summary judgment dismissing the objections based on lack of testamentary capacity and due execution but denied the motion as to undue influence, confidential relationship, and constructive fraud, unanimously affirmed, without costs.
The affidavits of the witnesses to the will, attesting to decedent's sound mind, memory, and understanding, "created a presumption of testamentary capacity and prima facie evidence of the facts attested to" (Matter of Giaquinto, 164 AD3d 1527, 1528 [3d Dept 2018] [internal quotation marks omitted], affd 32 NY3d 1180 [2019]). In opposition, objectants failed to raise a triable issue of fact (see e.g. Matter of Katz, 103 AD3d 484, 485 [1st Dept 2013] ["a medical opinion . . . by a doctor who had never examined decedent and based her opinion solely on medical records" was insufficient to defeat a motion for summary judgment dismissing objections]; see also Matter of Coddington, 281 App Div 143, 145 [3d Dept 1952], affd 307 NY 181 [1954]).
Given decedent's presumptive testamentary capacity and therefore the lack of triable issues of fact concerning capacity, objectants' contention that although the requirements set forth in EPTL 3-2.1(a) were satisfied, summary judgment is premature is without merit. Objectants' reliance upon Matter of Elkan (22 Misc 3d 1125[A], 2009 NY Slip Op 50280[U] [Sur Ct, Bronx County], affd 84 AD3d 603 [1st Dept 2011], lv denied 17 NY3d 709 [2011]) is misplaced.
Objectants' contention that "something more" than formal execution was required due to decedent's infirmities is also without merit. The record is silent as to any infirmities by decedent which would affect execution (Rollwagen v Rollwagen, 63 NY 504, 517 [1876]; see Matter of Creekmore, 1 NY2d 284 [1956]; Matter of Dralle, 192 AD3d 1239, 1242 [3d Dept 2021]).
As stated by the court, "objectants . . . submitted sufficient evidence to raise a question as to whether [petitioner] could have and did assume such control of decedent's affairs during decedent's hospitalization and rehabilitation that she could be considered to be in a confidential relationship with her mother at the time the propounded instrument was executed." "A confidential relationship exists between two parties where they. . .deal on unequal terms due to one party's weakness, dependence or trust justifiably reposed upon the other[,] and unfair advantage is rendered probable" (Giaquinto, 164 AD3d at 1531 [internal quotation marks and brackets omitted]). "The existence of such a relationship will ordinarily be a question of fact" (Matter of Nealon, 104 AD3d 1088, 1089 [3d Dept 2013], affd 22 NY3d 1045 [2014]; see also e.g. Doheny v Lacy, 168 NY 213, 223 [1901]).
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 15, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484620/ | People v Fonseca (2022 NY Slip Op 06444)
People v Fonseca
2022 NY Slip Op 06444
Decided on November 15, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 15, 2022
Before: Gische, J.P., Kapnick, Kern, Gesmer, Higgitt, JJ.
Ind. No. 2699/14 Appeal No. 16641 Case No. 2018-1974
[*1]The People of the State of New York, Respondent,
vRigoberto Fonseca, Defendant-Appellant.
Caprice R. Jenerson, Office of the Appellate Defender, New York (Sean Nuttall of counsel), for appellant.
Darcel D. Clark, District Attorney, Bronx (Cynthia A. Carlson of counsel), for respondent.
Judgment, Supreme Court, Bronx County (Robert A. Neary, J.), rendered August 2, 2017, convicting defendant, after a jury trial, of attempted gang assault in the first degree and assault in the third degree, and sentencing him to an aggregate term of 5½ years with 4 years' postrelease supervision, unanimously affirmed.
The court did not unfairly restrict defense counsels' questioning of prospective jurors regarding the presumption of innocence, burden of proof, and right to remain silent (see generally CPL 270.15[1][c]; People v Steward, 17 NY3d 104, 110 [2011]). The court repeatedly secured prospective jurors' assurances that they would follow these rules and apply the law as instructed, and defense counsel had numerous opportunities to ask follow-up questions. In view of this, the court's time limits on questioning were appropriate exercises of discretion under the circumstances (see Steward, 17 NY3d at 110-11).
The court also did not unfairly restrict defense counsels' questioning of prospective jurors regarding the law of justification. Counsel had ample opportunity to ask prospective jurors about their experiences with and views regarding fighting and to elicit their assurances that people had a right to defend themselves. The court was not required to additionally provide a specific instruction regarding the justification defense, nor did counsel explicitly request one (see People v Marlett, 191 AD3d 1183, 1187 [3d Dept 2021], lv denied 37 NY3d 966 [2021]).
Although the court should have granted defense counsels' request to "briefly discuss the concept of accessorial liability . . . in connection with the prospective jurors' ability to follow the court's instructions" (see People v Thomas, 298 AD2d 187, 188 [1st Dept 2002], lv denied 99 NY2d 585 [2003]), defendant was not prejudiced by this omission, and thus reversal is not warranted (see Steward, 17 NY3d at 113). All seated jurors promised to apply the law as instructed, the law of accomplice liability was adequately explained at trial, defendant's involvement in the fight was established by overwhelming evidence, and defendant was acquitted of several charges of which his codefendants were convicted.
Although the court sometimes disagreed with or corrected defense counsel, its remarks did not rise to the level of denigration.
We perceive no basis for reducing the sentence.
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 15, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493742/ | *18
ORDER CORRECTING DECISION AFTER TRIAL
ADLAI S. HARDIN, JR., Bankruptcy Judge.
On January 14, 2000, this Court issued a decision after trial in this adversary proceeding, Gentry v. Kovler (In re Kovler), 249 B.R. 238 (Bankr.S.D.N.Y.2000). In that decision, the Court mistakenly misat-tributed a quote and misstated the propositions for which several cases stand. None of these errors affects the legal standard applied nor the conclusion the Court reached in the decision. However, because these errors misstate and misquote decisions of other courts, they should be corrected. Therefore, it is hereby
ORDERED that the paragraph on page 243-44 in this Court’s January 14, 2004 Decision After Trial, Gentry v. Kovler (In re Kovler), 249 B.R. 238 (Bankr.S.D.N.Y.2000), that reads:
“To prevail in an action under Section 276, the plaintiff must establish that (1) the thing disposed of must be of value, out of which the creditor could have realized a portion of his claim; (2) it must be transferred or disposed of by the debtor; and (3) it must be done with intent to defraud.” In re Montclair Homes, Inc., 200 B.R. 84, 96 (Bankr.E.D.N.Y.1996), citing Hoyt v. Godfrey, 88 N.Y. 669 (N.Y.1882). To declare a conveyance fraudulent, actual intent to defraud is necessary. Spear v. Spear, 101 Misc.2d 341, 421 N.Y.S.2d 277 (N.Y.Cty.1979). Mutual fraudulent intention on the part of both parties to the transaction is required in order to invoke the protection of the law prohibiting fraudulent conveyances; fraudulent intent on the part of one of the parties is insufficient. “The transferee must have participated or acquiesced in the trans-feror’s fraudulent act.” Anderson v. Blood, 152 N.Y. 285, 46 N.E. 493, reh’g denied, 153 N.Y. 649, 47 N.E. 1105 (N.Y.1897); Key Bank of New York v. Diamond, 203 A.D.2d 896, 897, 611 N.Y.S.2d 382, 384 (4th Dep’t 1994). Actual intent to hinder, delay or defraud creditors must be proved. Carey v. Crescenzi 923 F.2d 18, 21 (2d Cir.1991) (recovery or attorneys’ fees under Section 276-a requires “explicit finding of actual intent to defraud” by both the transferor and the transferee), citing Marine Midland Bank v. Murkoff, 120 A.D.2d 122, 508 N.Y.S.2d 17, 20-21 (2d Dep’t 1986). Actual intent to defraud is a prerequisite for an award of attorneys’ fees under Section 276-a. Domino Media, Inc. v. Kranis, 9 F.Supp.2d 374 (S.D.N.Y.1998), aff'd 173 F.3d 843 (2d Cir.1999).
be replaced with the following paragraph:
“To prevail in an action under Section 276, the plaintiff must establish that (1) the thing disposed of must be of value, out of which the creditor could have realized a portion of his claim; (2) it must be transferred or disposed of by the debtor; and (3) it must be done with intent to defraud.” Goscienski v. LaRosa (In re Montclair Homes), 200 B.R. 84, 96 (Bankr.E.D.N.Y.1996) (citing Hoyt v. Godfrey, 88 N.Y. 669 (1882)). To declare a conveyance fraudulent, actual intent to defraud is necessary. Spear v. Spear, 101 Misc.2d 341, 346, 421 N.Y.S.2d 277, 280 (NY.Sup.Ct.1979). Where the plaintiff establishes actual and mutual fraudulent intent by both parties, the transaction is a fraudulent conveyance regardless of consideration or the solvency of the transferor. Golden Budha Corp. v. Canadian Land Co. of America, 931 F.2d 196, 201 (2d Cir.1991) (“If ‘the transferee participated or acquiesced in the transferor’s fraudulent design... the transaction falls within the condemnation of the fraudulent conveyance statutes, without regard to the ade*19quacy or nature of the consideration, the solvency of the transferor, or the primary purpose of the transferee to secure a profitable purchase.’ ” (quoting 30 N.Y. JuR. 2d Creditor’s Rights § 243 (1983))); U.S. v. McCombs, 30 F.3d 310, 327-28 (2d Cir.1994) (“[S]ection 276 focuses on the ‘actual intent’ of the transacting parties.. .[and].. .where actual intent to defraud creditors is proven, the conveyance will be set aside regardless of the adequacy of consideration given.”). Actual intent to defraud is a prerequisite for an award of attorneys’ fees under Section 276-a, Domino Media, Inc. v. Kranis, 9 F.Supp.2d 374 (S.D.N.Y.1998), aff'd 173 F.3d 843 (2d Cir.1999), and that intent must be mutual. Carey v. Crescenzi, 923 F.2d 18, 21 (2d Cir.1991) (recovery of attorneys’ fees under Section 276-a requires “explicit finding of actual intent to defraud” by both the transferor and the transferee) (citing Marine Midland Bank v. Murkoff, 120 A.D.2d 122, 508 N.Y.S.2d 17, 20-21 (2d Dep’t 1986)); Key Bank of New York v. Diamond, 203 A.D.2d 896, 897, 611 N.Y.S.2d 382, 384 (4th Dep’t 1994).
and;
ORDERED that the correction above be considered only as correcting the misstatement and misattribution of other courts’ decisions and that the correction in no way affects the legal standard or legal and factual findings contained therein.
It is further
ORDERED that this adversary proceeding, closed on February 10, 2003, be reopened solely to docket this order and that this adversary proceeding be closed again immediately thereafter. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493743/ | *37
MEMORANDUM OPINION
m. bruce McCullough, Bankruptcy Judge.
T.P. Electric, Inc. (hereafter “T.P.”) moves for relief from the automatic stay in the instant bankruptcy case so that it may then proceed to complete perfection of its mechanic’s lien against the instant debtor, Glenshaw Glass Co. (hereafter “the Debt- or”). T.P. performed work for the Debtor between September 29, 2004, and October 8, 2004, which work, pursuant to 49 P.S. § 1301, resulted in T.P.’s mechanic’s lien1 (hereafter “T.P.’s Lien”).2 Although T.P. neglects to inform the Court as to whether the nature of such work constituted the erection or construction of an improvement, on the one hand, or the alteration or repair of an improvement, on the other hand, T.P. maintains that, pursuant to 49 P.S. § 1508(b), T.P.’s Lien was effective against, and had priority over, third parties as of the point in time when T.P. filed its mechanic’s lien claim in the Pennsylvania Court of Common Pleas, Allegheny County — because § 1508(b) rather than § 1508(a) applies “in the case of the alteration or repair of an improvement,” 49 P.S. § 1508(b) (Purdon’s 2005),3 the Court must conclude that T.P. altered or repaired an improvement owned by the Debtor. The Debtor does not disagree that the nature of T.P.’s work was to alter or repair property of the Debtor.
T.P. filed its mechanic’s lien claim on February 1, 2005, at 4:24 p.m. Also on February 1, 2005, but at 11:39 a.m., an involuntary bankruptcy petition was filed against the Debtor, thereby commencing the instant bankruptcy case. T.P. has yet to comply with all of the lien perfection requirements regarding its lien called for under § 1502(a), namely the service of notice and affidavit requirements. T.P. maintains that it could not comply with such additional perfection requirements without first gaining relief from stay.
The Debtor opposes the instant stay relief motion by T.P. on several grounds. First, the Debtor maintains that (a) T.P., by virtue of 11 U.S.C. § 362(b)(3), was not stayed from completing the perfection process relative to T.P.’s Lien, (b) it is now too late, according to § 1502(a), for T.P. to complete such perfection process, (c) T.P.’s Lien accordingly can never be perfected pursuant to relevant state law, and (d) stay relief is consequently uncalled for. Second, the Debtor contends that (a) stay relief, even if it were to be granted and T.P.’s Lien could then be perfected in accordance with state law, *38would be utterly futile given that, according to the Debtor, such lien would nevertheless be avoidable and would ultimately be avoided pursuant to 11 U.S.C. § 545(2), and (b) stay relief should not be granted to accomplish a futile act. The Court, based upon the rationale set forth below, agrees with the second of the Debtor’s two preceding contentions and, accordingly, denies with prejudice T.P.’s instant stay relief motion.
The Court holds that T.P.’s Lien could not now ever be perfected as of the commencement of the instant bankruptcy case so as to prime, that is outrank, the Debt- or’s avoidance power under § 545(2)4 (a) because, even if such lien were to now be perfected in accordance with § 1502(a) subsequent to a grant of stay relief, it could only, pursuant to § 1508(b), have priority against a third party — such as the Debtor via § 545(2) — as of the time when T.P. filed its mechanic’s lien claim, (b) since T.P. did not file its mechanic’s lien claim until February 1, 2005, at 4:24 p.m., and (c) because the Debtor’s priority by virtue of § 545(2) arose as of the time when the instant bankruptcy ease was commenced, or on February 1, 2005, at 11:39 a.m. — i.e., the Debtor’s priority would always be first-in-time by almost five hours when compared to that of T.P. and, thus, would always be superior to that of T.P.5 See In re Oxford Royal Mushroom Products, Inc., 40 B.R. 930, 931-932 (Bankr.E.D.Pa.1984) (mechanic’s lien in Pennsylvania for alteration or repair is avoidable in bankruptcy if mechanic’s lien claim is filed subsequent to the commencement of bankruptcy case); In re Poloron Products of Bloomsbury, Inc., 76 B.R. 383, 384-385 (Bankr.M.D.Pa.1987) (same). The effect of 11 U.S.C. § 546(b)(1)(A) in the instant matter does not change the foregoing analysis because (a) such provision only operates to subject the Debtor’s avoidance power under § 545(2) to 49 P.S. § 1508(b), see Oxford Royal, 40 B.R. at 931 (“the reference in § 546 to 'generally applicable law1 is Pennsylvania’s Mechanics’ Lien Law [§ 1508(b)]”); Poloron Products, 76 B.R. at 385 (same), and (b) even after applying § 1508(b) to the instant matter (and even if the Court were to grant stay relief to accomplish perfection via § 1508(b)), the Debtor’s avoidance power via § 545(2), as just set forth in the preceding sentence, would still prime T.P.’s Lien, see Id.
T.P. apparently, and bewilderingly, argues that, because its state law right to file its mechanic’s lien claim relates back to the time when it completed its work for the Debtor, T.P.’s Lien cannot be primed by the Debtor via § 545(2). Such argument is bewildering, the Court finds, because (a) T.P. itself concedes that its lien nevertheless can only have priority vis-a-vis the Debtor as of the time when such claim was filed rather than when such *39work was performed, and (b) such claim indisputably was filed subsequent to when (i)the instant bankruptcy case was commenced, and (ii) the Debtor’s consequent priority by virtue of § 545(2) arose.6 Therefore, and based upon the foregoing rationale, the Court holds that T.P.’s Lien could not now ever be perfected as of the commencement of the instant bankruptcy case so as to prime the Debtor’s avoidance power under § 545(2).
Because T.P.’s Lien could not now ever be perfected as of the commencement of the instant bankruptcy case so as to prime the Debtor’s avoidance power under § 545(2), it would, of course, be utterly futile to grant stay relief so as to allow the completion of the perfection of such lien. Furthermore, because stay relief should not be granted to accomplish a futile act, the Court is constrained to deny T.P.’s instant motion for relief from the automatic stay.
As an aside, because the perfection of T.P.’s Lien could never have related back to a point in time pre-petition, and since, consequently, such lien could never have primed the Debtor’s avoidance power under § 545(2), the very act by T.P. of filing its mechanic’s lien claim approximately five hours after the commencement of the instant bankruptcy case and without the obtaining of stay relief (a) does not fall within the exception to the automatic stay set forth in 11 U.S.C. § 362(b)(3), and (b) constitutes a substantive violation of the automatic stay in the instant case under, at least, § 362(a)(4) and (5). See In re Maas, 69 B.R. 245, 246-247 (Bankr.M.D.Fla.1986) (post-petition perfection of a lien does not violate automatic stay by virtue of §§ 362(b)(3) and 546(b)(1) if such perfection relates back to pre-petition time and such lien accordingly would defeat trustee’s avoidance rights under §§ 544 and 545); In re Westport-Sandpiper Associates Limited Partnership, 116 B.R. 355, 358-359 (Bankr.D.Conn.1990) (same); In re Microfab. Inc., 105 B.R. 152, 158 (Bankr.D.Mass.1989) (post-petition perfection of a lien does not violate automatic stay by virtue of §§ 362(b)(3) and 546(b)(1) even if such perfection does not relate back to pre-petition time as long as such lien nevertheless would defeat trustee’s avoidance rights under §§ 544 and 545).7 Such stay violation, the Court finds, was unintentional and, therefore, not sanctiona-ble pursuant to 11 U.S.C. § 362(h) — the Court so finds because the involuntary bankruptcy petition in the instant case was filed but roughly five hours prior to when T.P. filed its mechanic’s lien claim.
For all of the foregoing reasons, the Court shall deny with prejudice T.P.’s instant stay relief motion. Because T.P.’s Lien is presently, and shall always be, avoidable pursuant to 11 U.S.C. § 545(2), the Court shall also order that T.P.’s filed mechanic’s lien claim be stricken.
. 49 P.S. § 1301 provides, in pertinent part, that:
[e]very improvement and the estate or title of the owner in the property shall be subject to a lien, to be perfected as herein provided, for the payment of all debts due by the owner to the contractor ... for labor or materials furnished in the erection or construction, or the alteration or repair of the improvement.
49 P.S. § 1301 (Purdon’s 2005).
. Pursuant to 49 P.S. § 1301, T.P. appears to have possessed a mechanic’s lien immediately as of the time that it completed its work for the Debtor, and regardless of whether, pursuant to 49 P.S. § 1502(a), it perfected such lien, see 23 P.L.E. Mechanics’ Liens § 30 at 554 (West 1959) (“As between the claimant and the owner, however, a lien remains effective despite defective entry or indexing”).
.49 P.S. § 1508 provides that:
[t]he lien of a claim filed under this act shall take effect and have priority:
(a) In the case of the erection or construction of an improvement, as of the date of the visible commencement upon the ground of the work of erecting or constructing the improvement; and
(b) In the case of the alteration or repair of an improvement, as of the date of the filing of the claim.
49 P.S. § 1508 (Purdon’s 2005).
. The Debtor, because it is a debtor-in-possession in the instant bankruptcy case, is vested with the avoidance powers of a bankruptcy trustee pursuant to, inter alia, § 545(2). See 11 U.S.C.A. § 1107(a) (West 1993).
. 11 U.S.C. § 545(2) provides that:
The trustee may avoid the fixing of a statutory lien on property of the debtor to the extent that such lien—
(2) is not perfected or enforceable at the time of the commencement of the case against a bona fide purchaser that purchases such property at the time of the commencement of the case, whether or not such a purchaser exists.
11 U.S.C.A. § 545(2) (West 1993).
. T.P. also argues that 11 U.S.C. § 108(c) operates to preserve — i.e., toll the running of — the time period set forth in § 1502(a) within which T.P. would need to complete perfection of its lien once the Court were to grant the stay relief that is presently sought by T.P. While that is true, the Court, for the reasons set forth above, shall not grant such stay relief.
. The Court's holding that T.P. violated the automatic stay by filing its mechanic’s lien claim post-petition and thereby commencing the lien perfection process post-petition serves to defeat the Debtor’s first argument in response to T.P.’s instant stay relief motion, that is that T.P., by virtue of 11 U.S.C. § 362(b)(3), was not stayed from completing the perfection process relative to its lien and that such perfection process, accordingly, can no longer be timely completed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493744/ | *103
MEMORANDUM OPINION
ARTHUR B. BRISKMAN, Bankruptcy Judge.
This case came before the Court on the Complaint to Deny Dischargeability of Debt (Doc. 1) by plaintiff William G. Kienstra (“Plaintiff’) against Stewart 0. Hendricks, the defendant and debtor herein (“Debtor”). This is an action to determine the dischargeability of an unsecured personal loan pursuant to 11 U.S.C. § 523(a)(2). A trial was held on June 29, 2005. Appearing at trial were the Plaintiff, pro se, the Debtor, and James H. Monroe, Esquire, counsel for the Debtor. After reviewing the pleadings and evidence, and hearing live testimony and arguments of the Plaintiff and counsel for the Debtor, the Court finds that there is no basis to except the debt from the Debt- or’s discharge, which was granted on January 27, 2005, and judgment will be entered for the Debtor.
FINDINGS OF FACT
On October 13, 2000 the Plaintiff and the Debtor entered into a Loan Agreement through which the Plaintiff made an unsecured loan in the principal amount of $15,000.00 to the Debtor. The Loan Agreement called for repayment of the loan within 90 days or by January 13, 2001, with interest running on the principal at the “rate of 15% or $2,250.00.” Loan Agreement at ¶ 1. The loan proceeds were to be used by the Debtor to purchase real property from the Debtor’s grandmother’s probate estate and the Debtor was to have repaid the loan from the sale of the Debtor’s primary residence.
The Debtor was unable to purchase the real property from the probate estate because the property did not appraise at a high enough value. The Debtor spent the loan proceeds on appraisal fees and business expenses. The Debtor tendered a -personal check in the amount of $5,000.00 to the Plaintiff on or about April 5, 2001 as a loan payment and the check was returned for insufficient funds. On September 20, 2001, the Plaintiff and the Debtor then entered into a revised promissory note, the Promissory Note (Installment Repayment), under which the Debtor agreed to pay the amount of $17,250.00 to the Plaintiff in monthly installments. The new promissory note called for interest to accrue at the rate of 15% and became due in full on March 15, 2005.
The Debtor made two payments under the new promissory note to the Plaintiff, which included a cash payment in the amount of $500.00 on October 24, 2001 and a cash payment of $1,000.00 on January 22, 2002. The Debtor then stopped making payments under the new note. On July 14, 2003, the Debtor was found guilty of issuing a worthless check to the Plaintiff and was ordered to pay $5,000 in restitution to the Plaintiff by the Eighteenth Judicial Circuit.
At some point after the loan payments ceased, the Debtor was laid off from his job and his business failed. As a result of the ensuing financial difficulties the Debt- or sought bankruptcy protection by filing a Chapter 7 case on October 11, 2004. The Debtor listed in his Schedule F an undisputed unsecured debt in the amount of $16,150.00 owed to the Plaintiff for a “2001 Loan.” Schedule F at p. 7.
At the time the loan was made the Debt- or appears to have meant to use the loan for the purpose promised and then changed circumstances prevented the Debtor from purchasing the probate property and selling his residence. The Debtor willingly entered into a revised loan agreement after the purchase of the probate property fell through and the Debtor made payments to the Plaintiff shortly after the *104new loan agreement was signed. The Court finds that the Debtor did not commit any misrepresentation or deceit in connection with the loan at issue.
CONCLUSIONS OF LAW
On January 10, 2005, the Plaintiff timely instituted this adversary proceeding seeking to have the debt owed to the Plaintiff by the Debtor be deemed nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A). The Court conducted a trial of this case on June 29, 2005 and at the conclusion of the trial took the case under advisement.
At trial, the Plaintiff presented six (6) exhibits, which were accepted into evidence. The exhibits include: (i) a copy of the case captioned Cordeiro v. McDermott (In re McDermott), 139 B.R. 50 (Bankr. D.R.I.1992); (ii) a copy of the Debtor’s petition; (iii) a copy of the transcript of the Debtor’s § 341 meeting of creditors; (iv) the Loan Agreement; (v) the new Promissory Note; and (vi) a copy of the case captioned Greenberg v. Schools, 711 F.2d 152 (11th Cir.1983). The Plaintiff testified and argued at trial that the debt should be excepted from discharge pursuant to 11 U.S.C. § 523(a)(2)(A) because the Debtor did not use the loan proceeds for the purpose of purchasing real property and, thus, such funds were obtained through fraud.
The Plaintiffs evidence fails to prove that the Debtor committed any fraud under § 523(a)(2)(A) of the Bankruptcy Code. Section 523(a)(2)(A) provides that a chapter 7 discharge does not discharge an individual debtor from a debt to the extent such debt is obtained by “false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition.” 11 U.S.C. § 523(a)(2)(A). The party objecting to the dischargeability of a debt carries the burden of proof, and the standard of proof is preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 291, 111 S.Ct. 654, 661, 112 L.Ed.2d 755 (1991). To establish fraud under § 523(a)(2)(A), courts have generally required a plaintiff to establish the traditional elements of common law fraud. A plaintiff must prove the following elements: (i) the debtor made a false representation to deceive the creditor; (ii) the creditor relied on the misrepresentation; (iii) the reliance was justified; and (iv) the creditor sustained a loss as a result of the misrepresentation. SEC v. Bilzerian (In re Bilzerian), 153 F.3d 1278, 1281 (11th Cir.1998).
The focus here is whether the Debtor committed actual fraud either when he incurred the initial loan from the Plaintiff or when he entered into the new loan agreement. The Plaintiff urges that the Debtor obtained the loan proceeds by actual fraud since the Debtor never intended to use and did not use the loan funds to purchase the probate estate property. However, the Plaintiff has provided no evidence whatsoever to show that the Debtor made such promise as to how the funds would be used with the intent to deceive the Plaintiff. Furthermore, the Plaintiff has provided no evidence that the Debtor entered into the loan agreements with fraudulent intent.
Because the Plaintiff has failed to prove the elements of § 523(a)(2)(A) the debt cannot be excepted from discharge and judgment shall be entered in favor of the Debtor.
A separate order will be entered.
JUDGMENT
The complaint of the Plaintiff, William G. Kienstra, to determine the discharge-ability of indebtedness owing to him from the Debtor/Defendant, Stewart O. Hendricks having been tried before the Court *105and after reviewing the pleadings, evidence, receiving testimony, exhibits, arguments of counsel and authorities for their respective positions, and in conformity with and pursuant to the Memorandum Opinion entered contemporaneously herewith, it is
ORDERED, ADJUDGED and DECREED that the relief sought in the Plaintiffs Complaint Seeking Exception to Discharge pursuant to 11 U.S.C. § 523(a)(2)(A) is DENIED and JUDGMENT is entered for Debtor/Defendant, Stewart 0. Hendricks; and it is further
ORDERED, ADJUDGED and DECREED that the Debtor’s indebtedness owed to the William G. Kienstra by the Debtor/Defendant, Stewart 0. Hendricks is DISCHARGEABLE and shall be discharged if and when a discharge is granted to the Debtor. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493745/ | *138MEMORANDUM OPINION1
MARY F. WALRATH, Bankruptcy Judge.
Before the Court are the Cross Motions for Summary Judgment filed by HLI Creditor Trust (the “Plaintiff’) and Hyundai Motor Company (the “Defendant”). For the reasons set forth below, the Court will deny both Motions.
II. FACTUAL BACKGROUND
On December 5, 2001, Hayes Lemmerz International Inc., and several of its affiliates (the “Debtors”), filed voluntary petitions for relief under chapter 11. Prior to the petition, the Debtors manufactured and sold wheel and brake components for commercial vehicles. As part of their business, the Debtors purchased machines from the Defendant. On June 29, 2001, the Debtors ordered two machines from the Defendant for the total price of $469,192.00. Under the terms of the purchase order, the Debtors agreed to make the following installment payments: 1) a 20% down payment of $93,838.40; 2) a 20% payment of $93,838.40 upon delivery; and 3) a 60% payment of $281,515.20 by February 5, 2002.
On October 6, 2001, the Defendant shipped the machines from South Korea. The machines arrived at a port in Long Beach, California on October 15, 2001. The Debtors were required to present certain documentation2 to port officials in order to take possession of the machines. The documents were mailed to the Debtors via next-day delivery on October 16 or 17, 2001. The Plaintiff asserts that the Debtors took possession of the machines no later than October 22, 2001.
The Debtors sent a check for $93,838.40, via international mail, to the Defendant between October 16 and 19, 2001. The Defendant received the check on October 23, 2001, and deposited the check the following day, October 24, 2001.
The Debtors, through their Plan of Reorganization, created the Plaintiff to prosecute avoidance actions on behalf of the estate. On October 16, 2003, the Plaintiff filed a complaint against the Defendant seeking to avoid the payment received by the Defendant on October 23, 2001, as a preferential transfer. On December 26, 2003, the Defendant filed an Answer to the Plaintiffs Complaint raising several affirmative defenses.
On February 22, 2005, the Defendant filed a Motion for Summary Judgment, arguing that judgment should be granted in its favor because the transfer constituted a contemporaneous exchange under section 547(c)(1). On March 14, 2005, the Plaintiff filed a Response and Cross Motion for Summary Judgment. The Motions have been fully briefed and are ripe for decision.
II. JURISDICTION
This Court has jurisdiction over this matter pursuant to 28 U.S.C. section 157(b)(2)(G).
III. DISCUSSION
A. Standard of Review
A court may grant summary judgment where no genuine issue of material fact is present and the moving party is entitled to judgment as a matter of law. Fed. R.Civ.P. 56; Celotex Corp. v. Catrett, 477 *139U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). To succeed, the moving party must establish that these requirements have been met. Celotex, 477 U.S. at 325, 106 S.Ct. 2548. A court must draw all inferences in favor of the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
The burden on the non-moving party is to come forward with evidence that there is a genuine issue of material fact. Id. at 249, 106 S.Ct. 2505. To do so, the non-moving party need only show that reasonable minds could disagree on the result. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The non-moving party cannot rely solely on allegations made in its pleadings. Celotex, 477 U.S. at 324, 106 S.Ct. 2548 (“Rule 56(e) permits a proper summary judgment motion to be opposed by any of the kinds of evidentiary materials listed in Rule 56(c), except the mere pleadings themselves .... ”). Instead, it must present evidence to support its contentions. Id. (identifying affidavits, depositions, answers to interrogatories, and admissions on file, which designate “specific facts showing that there is a genuine issue for trial”).
B. The Defendant’s Motion for Summary Judgment
The Defendant asserts in its motion that the transfer is exempt from avoidance under section 547(c)(1). Under that defense, a transfer may not be avoided to the extent it (A) was intended by the debtor and the creditor to be a contemporaneous exchange for new value given to the debtor; and (B) was, in fact, a substantially contemporaneous exchange. 11 U.S.C. § 547(c)(1). See also, Hechinger Inv. Co. of Del. v. Universal Forest Prods., Inc. (In re Hechinger Inv. Co. of Del.), 2004 WL 3113718, *7-8, 2004 Bankr.LEXIS 2156 at *12-13 (Bankr.D.Del. Dec. 14, 2004); Harbour v. ABX Enters. (In re APS Holding Corp.), 282 B.R. 795, 801 (Bankr.D.Del.2002). The defendant has the burden of establishing both elements. 11 U.S.C. § 547(g).
1. The Parties ’ Intent
The parties dispute whether the exchange was intended to be contemporaneous. The Defendant asserts that the terms of the purchase order and the parties’ conduct establishes the intent requirement. The Defendant submitted copies of the following documents to establish that the parties intended a substantially contemporaneous exchange: (1) the purchase order; (2) the Defendant’s invoice for the disputed transfer; (3) the check used to make the disputed transfer; (3) the commercial invoice for the machines; and (4) the packing list. All those documents stated that 20% of the total purchase price was due upon delivery of the machines.
The Plaintiff disagrees. It contends that the parties intended to create a credit transaction, and therefore the transfer is not subject to section 547(c)(1). The Plaintiff argues that, had the parties intended to create a substantially contemporaneous exchange, they would have structured the transaction so that the Defendant received payment prior to or at the time of shipment.3
*140The fact that the parties could have made a prior or contemporaneous exchange is irrelevant; section 547(c)(1) is to insulate payments that the parties intended to be contemporaneous but were not. Further, the mere fact that the payment was made by check does not mean that the parties did not intend the exchange to be contemporaneous.
Normally, a check is a credit transaction. However, for the purposes of [section 547(c)(1) ], a transfer involving a check is considered to be “intended to be contemporaneous,” and if the check is presented for payment in the normal course of affairs, which the Uniform Commercial Code specifies as 30 days... that will amount to a transfer that is “in fact substantially contemporaneous.”
S.Rep. No. 95-989, at 88 (1978); H.R.Rep. No. 95-595, at 373 (1977).
The critical inquiry is whether the parties intended the transaction to be substantially contemporaneous. Harbour, 282 B.R. at 800 (citations omitted). The Defendant submitted evidence to support a finding that the payment was due upon delivery of the machines. This is sufficient to establish that the parties intended to create a substantially contemporaneous exchange. See, e.g., Computer Personalities Sys., Inc. v. Aspect Computer, 320 B.R. 812, 818 (E.D.Pa.2005) (holding that to establish intent “there must be some manifest desire by the parties of a contemporaneous exchange for new value to sustain a finding of intent.”) (citations omitted). The Plaintiffs mere statement that there was no intent for the exchange to be substantially contemporaneous is insufficient to rebut this evidence. Celotex, 477 U.S. at 324, 106 S.Ct. 2548.
2. Substantially Contemporaneous
Courts use two approaches to determine whether a transaction is, in fact, substantially contemporaneous. Some courts follow a strict 10-day rule, adopted from section 547(e)(2).4 See, e.g., Ray v. Sec. Mut. Fin. Corp. (In re Arnett), 731 F.2d 358, 363 (6th Cir.1984) (holding that, for purposes of perfection of a security interest, section 547(c)(1) must incorporate the 10 day perfection rule of section 547(e)(2)). The majority of courts, however, follow a less rigid approach by examining the totality of circumstances in the case. Lindquist v. Dorholt (In re Dorholt, Inc.), 224 F.3d 871, 874 (8th Cir.2000) (finding that perfection of security interest within 16 days was substantially contemporaneous). Relevant circumstances include: (1) the length of delay, (2) the reason for the delay, (3) the nature of the transaction, (4) the intentions of the parties, and (5) the possible risk of fraud. Pine Top Ins. Co. v. Bank of Am. Nat’l Trust & Sav. Ass’n, 969 F.2d 321, 328 (7th Cir.1992) (citations omitted).
Critical to the Court’s analysis under the flexible approach in this case is the time between when the Debtors took possession of the machines and when the check was delivered.5 The Defendant failed to provide evidence on these points. Accordingly, the Court lacks the essential ingredients to the contemporaneousness stew. Without them, the Court can not grant summary judgment, as the moving party has the initial burden of showing that it is entitled to relief. Celotex, 477 U.S. at 325, 106 S.Ct. 2548. Thus, the *141Court will deny the Defendant’s Motion for summary judgment.
C. The Plaintiffs Motion for Summary Judgment
The Plaintiff contends that the transfer is a voidable preference under section 547(b). The Defendant does not dispute that Plaintiff has proved several of the elements of section 547(b).6 Instead, it disputes that the transfer was made on account of an antecedent debt and involved property of the Debtors.
Under section 547(b)(2), the transfer must be “for or on account of an antecedent debt owed by the debtor before such transfer was made.” 11 U.S.C. § 547(b)(2). Although “antecedent” is not defined in the Bankruptcy Code, “a debt is ‘antecedent’ when the debtor becomes legally bound to pay before the transfer is made.” The Fonda Group, Inc. v. Marcus Travel (In re The Fonda Group, Inc.), 108 B.R. 956, 959 (Bankr.D.N.J.1989). Therefore, it is necessary to determine both when the Debtors became legally bound to pay and when the transfer occurred.
In this ease, the Debtors became legally bound to pay on the day they signed the purchase order for the machines. Laws v. United Mo. Bank of Kansas City, N.A., 98 F.3d 1047, 1049-51 (8th Cir.1996).7 That date was June 29, 2001.
For purposes of section 547(b), a check is deemed transferred on the date the check is honored by the drawee bank. Barnhill v. Johnson, 503 U.S. 393, 394-95, 112 S.Ct. 1386, 118 L.Ed.2d 39 (1992). In this case, the check was deposited on October 24, 2001, which is thus the earliest date that the transfer could have occurred. Therefore, the payment was on an antecedent debt.
The Defendant also argues that the property transferred was not an interest of the Debtors because the check they received bears the name “CMI-Texas, Inc.” The Plaintiff responds that “CMI-Texas, Inc.” is a former name of one of the Debtors. The Plaintiff relies on the voluntary petition, which lists “CMI-Texas, Inc.” as a name used by the Debtors within the last six years, to establish this fact.
In order to be a preference under section 547(b), the transfer must involve an “interest of the debtor in property.” 11 U.S.C. § 547(b). Thus, the use of another entity’s property to pay a creditor of the debtor cannot be a preference. See Mktg Res. Int’l Corp. v. PTC Corp. (In re Mktg. Res. Int’l Corp.), 41 B.R. 580, 581 (Bankr.E.D.Pa.1984). While the Bankruptcy Code does not define “interest of the debt- or in property,” the Supreme Court has interpreted the phrase to mean “property that would have been part of the estate had it not been transferred before the commencement of bankruptcy proceedings.” Begier v. IRS, 496 U.S. 53, 58, 110 S.Ct. 2258, 110 L.Ed.2d 46 (1990). Under section 541, property of the estate includes “all legal or equitable interests of the debt- or in property as of the commencement of the case.” 11 U.S.C. § 541.
In this case, a genuine issue of material fact exists as to the Debtors’ legal or equitable interest in the property transferred to the Defendant. The Plaintiffs reliance on the petition, which simply lists CMI-Texas as a name the Debtors used in the *142last six years, is insufficient to establish this point. The Plaintiff did not submit any evidence that the disputed transfer diminished the Debtors’ estate. Hansen v. MacDonald Meat Co. (In re Kemp Pac. Fisheries, Inc.), 16 F.3d 313, 316 (9th Cir.1994) (a transfer of the debtor’s property occurs where the transfer “diminish[es] directly or indirectly the fund to which creditors of the same class can legally resort for the payment of their debts....”) (quoting 4 Collier on Bankruptcy, ¶ 547.03 at 547-26). This is an essential element of section 547(b), thus it is a material fact. Am. Metrocomm Corp. v. Duane Morris & Heckscher LLP (In re Am. Metrocomm Corp.), 274 B.R. 641, 649 (Bankr.D.Del. 2002) (holding that a fact which could resolve the case is material). Therefore, a genuine issue of material fact exists, and the Court cannot grant summary judgment in favor of the Plaintiff.
IV. CONCLUSION
For the reasons set forth above, the Court will deny both Motions.
. This Opinion constitutes the findings of fact and conclusions of law of the Court pursuant to Federal Rule of Bankruptcy Procedure 7052.
. The documents include the original bill of lading, the commercial invoice, and the packing list.
. The Plaintiff also relies on the fact that the Defendant received the Debtors' check seventeen days after the Defendant shipped the machines. (The Defendant shipped the machines on October 6, 2001, and the check was received by the Defendant on October 23, 2001.) However, the shipment date is irrelevant. The payment was due on delivery, not on shipment.
. Section 547(e)(2) provides that a transfer is made at the time such transfer takes effect between the transferor and the transferee, if such transfer is perfected within 10 days.
. For purposes of section 547(c)(1), courts have held that payment by a check that is not postdated is effective on the date the check is delivered. Staff Builders of Phila., Inc. v. Koschitzki, 989 F.2d 692, 695 (3d Cir.1993).
. Sections 547(b)(1), (b)(3), (b)(4), and (b)(5).
. Although the second payment was not due until delivery, the Debtors became legally obligated to pay the purchase price of the machines when they ordered them subject only to the satisfaction of the condition precedent that the machines be delivered. See, e.g., Diffusion Finance S.A.R.L. v. Smith, 1997 WL 272391 *2-4 (S.D.N.Y.1997) (holding that contract was formed when offer was accepted, though performance was excused by failure of condition precedent). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493746/ | MEMORANDUM AND ORDER OF COURT
m. bruce McCullough, Bankruptcy Judge.
AND NOW, this 26th day of August, 2005, upon consideration of (a) the Ninth Omnibus Objection to Certain Disputed Proofs of Claim, which motion is brought by the instant debtors (hereafter “the Debtors”) to object to, inter alia, the pre-petition claims of the above-named respondents (hereafter “the Respondents”), coupled with the Debtors’ Motion to Estimate Such Claims to be $0.00 for the Purposes of Distribution (Doc. No. 1806), (b) the motions for relief from stay brought by the Respondents so that they may henceforth pursue prosecution of their pre-petition claims in nonbankruptcy forums (Doc. No’s. 1380, 1381 & 1384), (c) the parties’ briefs devoted to the issue of whether this Court has the subject matter jurisdiction to resolve and/or estimate the Respondents’ claims for purposes of distribution, and (d) the Debtors’ motion to strike the Respondents’ late-filed brief devoted to the aforementioned issue (Doc. No. 2131);
and subsequent to notice and hearings on the Debtors’ motions and the Respondents’ stay relief motions,
it is hereby ORDERED, ADJUDGED, AND DECREED as follows:
(a) This Court, pursuant to 28 U.S.C. §§ 1334(b), 157(b)(2)(B) and 157(c)(1), has at least noncore (i.e., “related to”), if not core, subject matter jurisdiction to rule, as a matter of law, as to the validity of (i.e., to allow or disallow as a matter of law) the Respondents’ claims, even for distribution purposes and even if stick claims constitute personal injury tort claims, at any point prior to a trial regarding such claims (i.e., during the pretrial stage), see In re UAL Corp., 310 B.R. 373, 383 (Bankr.N.D.Ill.2004) (resolution of an objection to the legal validity of a personal injury tort claim is a core matter susceptible to disposition by final judgment in a bankruptcy court because such resolution does not constitute the liquidation of such claim, but even if such resolution constitutes claim liquidation, thereby making such resolution a noncore matter pursuant to § 157(b)(2)(B), a bankruptcy court may nevertheless propose a ruling to the district court regarding the legal validity of such claim given that “§ 157(b)(5) ... does not affect pretrial proceedings”); In re *144G-I Holdings, Inc., 323 B.R. 583, 613-616 (Bankr.D.N.J.2005) (same);1
(b) In light of the immediately preceding ruling set forth in paragraph (a) and the discussion set forth in footnote 1 herein, the Court sees no need, and thus declines, to presently rule as to whether Respondents’ claims constitute personal injury tort claims — the Court determines that it need, and thus the Court will, only address whether such claims constitute personal injury tort claims if such claims cannot be resolved during the pretrial stage vis-a-vis each of such claims;
(c) The Respondents’ request that this Court mandatorily abstain from resolving their claims is denied with prejudice. Such request is denied not only because it is inappropriately made from a procedural standpoint, that is other than by way of the requisite motion called for under 28 U.S.C. § 1334(c)(2), but also on substantive grounds. In particular, if Respondents’ claims do not constitute personal injury tort claims, or even if they do but such claims can be disposed of as a matter of law during the pretrial phase, then the disposition of such claims constitutes a core matter; the foregoing is significant because this Court may not manda-torily abstain from core matters (i.e., those that arise either under title 11 or in a case under title 11), see 28 U.S.C.A. § 1334(c)(2) (West 2004) (mandatory abstention only applies with respect to noncore matters, that is those for which a bankruptcy court’s subject matter jurisdiction is of the “related to” variety). On the other hand, if Respondents’ personal injury tort claims constitute personal injury tort claims the disposition of which can only constitute a noncore matter, then mandatory abstention is barred by virtue of the express directive to that effect in 28 U.S.C. § 157(b)(4);
(d) The Respondents’ request that this Court discretionarily abstain from resolving their claims, presuming arguendo that such request was properly made without a motion, is nevertheless denied with prejudice. The Court so rules to the extent that the disposition of such claims constitutes (a) a core matter because the Court will not discretionarily abstain with respect to a core matter, and (b) a noncore matter because (i) such disposition is already presently holding up administration of — in particular, a distribution to unsecured creditors from — the Debtors’ bankruptcy es*145tate, and (ii) a trial, if one is necessary, can nevertheless still potentially be had in the Virgin Islands if the District Court in this district sees fit to transfer adjudication of such claims to such locale subsequent to the pretrial stage, see 28 U.S.C.A. § 157(b)(5)(West 1993);
(e) The Respondents’ motions for relief from the automatic stay (Doc. No’s. 1380, 1381 & 1384) are, in light of the foregoing rulings, DENIED WITH PREJUDICE;
(f) The Debtors’ objections to, and motion to estimate, Respondents’ claims (Doc. No. 1806) are CONTINUED — the Debtors, if they are presently prepared to do so, shall henceforth file dispositive motions regarding such claims;2 and
(g) The Debtors’ motion to strike the Respondents’ late-filed brief (Doc. No. 2131) is DENIED AS MOOT.
IN SUMMARY, (a) the Respondents’ motions for relief from the automatic stay (Doc. No’s. 1380, 1381 & 1384) are denied with prejudice, (b) the Debtors’ objections to, and motion to estimate, Respondents’ claims (Doc. No. 1806) are continued, and (c) the Debtors’ motion to strike the Respondents’ late-filed brief (Doc. No. 2131) is denied as moot.
. Expanding on the Court’s ruling that precedes the instant footnote, if Respondents’ claims do not constitute personal injury tort claims, then this Court, pursuant to § 157(b)(2)(B), would obviously have core subject matter jurisdiction to either allow or disallow such claims, or to estimate or liquidate such claims for distribution purposes. If such claims constitute personal injury tort claims, then, in accordance with the UAL and G-I Holdings decisions, this Court would have at least noncore, if not core, subject matter jurisdiction to dispose of such claims as a matter of law at the pretrial stage. Consequently, if Respondents’ claims constitute personal injury tort claims, then the only thing that the Court would not have subject matter jurisdiction to do, by virtue of § 157(b)(5), is to resolve such claims by way of a trial. The Court notes that if such claims constitute personal injury tort claims but such claims are disposed of as a matter of law during the pretrial phase, then it would practically matter not whether such disposition is categorized as a core matter or a noncore matter given that, either way, the review of such disposition by the District Court would be de novo.
. One such motion has thus far been filed and is scheduled for hearing on September 6, 2005, at 3:00 p.m., namely the Debtors’ motion for sanctions wherein the Debtors seek, inter alia, the disallowance of Respondents’ claims. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493748/ | MEMORANDUM OPINION AND ORDER
STEVEN A. FELSENTHAL, Chief Judge.
Douglas Peckover (“Peckover”) and the Peckover Children’s Trust bring this declaratory judgment action against Robert Yaquinto, Jr., to declare the ownership of the stock of Demand Engine, Inc. (“DEI”). Peckover Corp. and the trust had originally filed the complaint. At trial, the court dismissed the complaint by Peckover Corp., but, upon stipulation of the parties, substituted Peckover as the co-plaintiff.
On October 22, 2004, this court entered an order for relief on an involuntary petition against Privacy Infrastructure, Inc. (“PII”), the debtor. On October 29, 2004, the court appointed Yaquinto the Chapter 11 trustee of PII.
The trustee listed the stock of DEI as an asset of the PII bankruptcy estate. Peckover contends, in this declaratory judgment action, that the stockholders of PII own the stock of DEI. The trustee and Privacy, Inc., jointly filed a plan of reorganization for Privacy and PII. Section 9.4 of the plan provided for a settlement between DEI and PII premised on a court finding that DEI was a wholly-owned subsidiary of PII. On April 6, 2005, the court entered an order confirming the plan and deferring a determination of the DEI stock ownership issue to this adversary proceeding. The plan became effective on May 6, 2005.
In a nutshell, Peckover contends that the stockholders of PII own the stock of *582DEI. The trustee contends that PII owns the stock of DEI. The court conducted a trial on June 16, 2005, June 17, 2005, June 29, 2005, and July 8, 2005. The determination of whether property constitutes property of a bankruptcy estate is a core matter over which this court has jurisdiction to enter a final judgment or order. 28 U.S.C. §§ 157(b)(2)(A) and 1334. This memorandum opinion contains the court’s findings of fact and conclusions of law. Bankruptcy Rule 7052. Peckover has the burden of proof by a preponderance of the evidence. See Eidson v. Perry Nat'l Bank, 327 S.W.2d 683 (Tex.Civ.App.1959); Davis v. Fraser, 319 S.W.2d 799, 807 (Tex.Civ.App.1958)(“The burden of proof is on the plaintiffs to establish their present ownership of the lost [stock] certificate by a preponderance of the evidence.”)
Facts
PII was initially incorporated under Texas law on January 31, 1996, under the name “@workandplay, Inc.” PII changed its name to Personal Agents, Inc., on February 9, 1996, then to @YourCommand, Inc., on June 15,1999, and finally to PII on January 2, 2001. Peckover was a founder of PII and from 1996 to at least October 22, 2004, the majority shareholder of PII, a director of PII, and a control person of PII.
PII had two lines of business in 1999: a “demand” line of business and a “privacy” line of business. Beginning in 1999, PII considered separating the two lines of business. Vernell Guest, the chief executive officer in early 2000, and charged by PII to raise capital, testified that PII discussed financing with Tower Hill Capital Group. To facilitate a Tower Hill investment, Guest testified that PII considered a spinoff of the demand line of business. She discussed a tax-free transaction for PII stockholders, with the spin-off corporation assuming the assets and liabilities of the demand side of the business.
On April 10, 2000, at a special meeting of the board of directors of PII, the directors discussed the separation of the lines of business as well as a name change for PII. The board approved a resolution determining that it would be in the best interest of PII “to evaluate the possibility of separating the assets and liabilities of [PII] into two entities.” The board referred to the demand entity as the “spinoff.” The board observed that a spinoff might maximize the value of the two lines of business. The board resolved “the Spinoff proposal shall be submitted for approval by the [PII] shareholders at the Annual Stockholders Meeting.” The board further authorized a PII name change and directed that the officers obtain shareholder approval.
PII held its annual shareholders meeting the next day, April 11, 2000. Even though the board premised its April 10, 2000, resolution on an evaluation of the possibility of a spinoff, Peckover presented a spinoff resolution at the annual shareholders meeting. Guest informed the shareholders that Tower Hill expressed an interest in forming a joint venture with PII and that Tower Hill was proceeding with its due diligence. The shareholders considered two resolutions: changing the corporate name and approving “the spinoff of Demand Engine line of business to NewCo with existing shareholders receiving one share of NewCo for each share of @YourCommand.” According to the minutes of the shareholders meeting, the shareholders approved both resolutions. Peckover introduced the minutes of the meeting and the shareholder ballots at the trial, but not the resolutions.
Following the shareholder meeting, on April 11, 2000, the PII board met. The board adopted the following resolution:
*583WHEREAS, the stockholders of the Corporation have voted and approved the creation of an entity with the assets and liabilities associated with demand quantification (a “Spinoff”) into a new corporation (a “NewCo”) with existing shareholders receiving one share of the NewCo for each share of the Corporation, be it
RESOLVED, that the Officers of the Corporation are hereby instructed to evaluate the Spinoff in regards to the financing of the Corporation, and, if the Officers deem it appropriate to maximize the value of the Corporation’s privacy and demand quantification lines of businesses in separate but more focused efforts, be it
FURTHER RESOLVED that the Corporation’s Officers are hereby authorized and directed to take the necessary actions required to effect the Spinoff upon such terms (including any licenses and cross-licenses of the respective entities’ intellectual property) as the Officers deem advisable and in the Company’s best interests.
Exhibit 0.
Guest testified that shortly thereafter Tower Hill determined not to proceed with an investment in PII. Peckover testified that Guest handled the Tower Hill negotiations. By May 2000 discussions of a Tower Hill transaction ended. Guest left the corporation.
Despite Tower Hills’ withdrawal, Peck-over worked with PII’s corporate attorneys to pursue a spinoff anyway. The attorneys prepared a checklist of documents to be drafted and executed for a spinoff of the demand line of business.
On December 29, 2000, DEI was incorporated. The initial sole shareholder of DEI was PII. Beyond those two undisputed facts, the record is ambiguous as to the actions of the board of directors on December 29, 2000.
Peckover and the other two PII board members, Ralph Poore and Ed McDunn, signed documents entitled “Consent by the Board of Directors,” which they hand-dated December 29, 2000, although the record also contains typed-dated but unsigned versions, as well. The “consent” form refers to an “Exhibit A.” Peckover, Poore, and McDunn all testified that Exhibit A was not attached to the consent form they each signed. Peckover testified that the attorneys had prepared Exhibit A. Peek-over testified that the attorneys attached Exhibit A to the consent forms after receipt of the executed consents. No attorney involved in the transaction testified.
Exhibit A included both a name change and the spinoff authorization. Poore and McDunn both testified that they understood that they were only acting on the name change. They understood that execution of the consent form was time-sensitive regarding year-end transactions, but did not know why. Again, the lawyers who prepared the documents did not testify-
In addition to the name change, Exhibit A, although not attached to the consent form, contained a resolution that provided for a 10 to 1 stock split of PII stock and for the spinoff of the demand line of business. The resolution for the spinoff stated:
WHEREAS, the Board of Directors of the Corporation deems it to be in the best interests of the Corporation to form a subsidiary of the business (the “New-co”) as an independent entity under the name of Demand Engine, Inc. and that Neweo’s shares be distributed to the shareholders of the Corporation (the “Distribution”).
*584WHEREAS, the Corporation shall own all the outstanding shares of the capital stock of the Newco, and
NOW, THEREFORE, BE IT RESOLVED, that the formation of the Newco is hereby authorized, adopted, and approved;
FURTHER RESOLVED, to effect the Distribution, the outstanding shares of the capital stock of the Newco be distributed to the holders of the record of the Common Stock of the Corporation at the rate of one share of the Newco for each share of the Corporation held on the Record Date after giving effect to the 10-for-l stock split;
FURTHER. RESOLVED, that no fractional shares of the Newco or scrip will be issued and that shareholders of the Corporation entitled to fractional share interests may purchase for their respective accounts the additional fractional shares needed to make up a full share, at the market price prevailing on the date of purchase;
FURTHER RESOLVED, that a notice be sent to all holders of the Common Stock of the Corporation advising them of the action taken by the Board of Directors; and
FURTHER RESOLVED, that the directors and officers of the Corporation be, and they hereby are, authorized, empowered and directed, in the name and on behalf of the Corporation to do all other acts, take all actions, waive any and all conditions and to prepare all papers, instruments and documents in connection therewith which they, in then-sole discretion, deem necessary, appropriate or desirable in order to accomplish and carry out the purposes and intent of the foregoing resolutions and any and all actions previously carried out in connection herewith and they hereby are ratified, confirmed, approved and adopted as the official acts and deeds of the Corporation.
Exhibit S.
The resolution is inherently contradictory. It provides for the formation of Demand Engine, Inc., as a “subsidiary” of the business and that its shares of stock “be distributed to the shareholders of [PII],” but the resolution separately provides that “[PII] shall own all the outstanding shares of the capital stock of [Demand Engine, Inc.].” To effectuate the distribution, the board resolved that the outstanding shares of the capital stock of Demand Engine, Inc., be distributed to the holders of record of the stock of PII at the rate of one share of Demand Engine, Inc., for each share of PII after the ten-for-one split.
PII owned the DEI stock as of December 29, 2000. Other than Exhibit A, Peck-over presented no board resolution expressly declaring a dividend of DEI stock to be issued to PII shareholders. Exhibit A authorized the directors to take any action needed to implement the resolution. Peckover presented no minutes of a board meeting discussing the spinoff process. Peckover presented no memorandum from the corporation’s attorneys to the directors explaining the process.
Poore and McDunn testified that they both thought they were voting for the name change only on December 29, 2000. Peckover complains that they had no basis for that position, while ignoring the name change discussion at the April meeting and in Exhibit A. Poore and McDunn further testified that they thought the spinoff would not be pursued because of Tower Hill’s withdrawal. Both also testified that they anticipated that any spinoff would require the assumption of assets and liabilities by DEI of the demand line of business, with the spinoff having no tax consequences for stockholders of PII.
*585Effective January 1, 2001, Peckover, as president of PII and DEI, executed a contribution agreement. That agreement proposes for PII to provide demand assets in exchange for DEI common stock. The agreement provides for 101,092 shares of DEI to be issued to PII. The agreement schedules assets but no liabilities. Peck-over testified that PII had no demand-related liabilities at the time. As found above, PII obtained the shares of DEI stock. A purported list of PII shareholders is attached to the copy of the contribution agreement introduced in evidence. The list reflects holders of 1,010,920 shares of stock, which would be consistent with a ten-for-one stock split. But Peckover conceded that the list was not accurate. The list showed Peckover Corp. with 600,000 shares, but Peckover Corp. did not own shares. Peckover produced no evidence of any board action to issue by dividend shares of stock of DEI from PII to PH’s shareholders.
Peckover testified that PITs attorneys had prepared stock certificates for DEI stock in the names of PII shareholders. No attorney testified to the preparation of DEI stock certificates in the name of PII’s shareholders. The attorney’s time records reflect review of the stock ledger and discussion of stock certificates in April and May 2001, but no description of the actual preparation of DEI stock certificates in the names of PII shareholders. Peckover introduced no board of director action authorizing or even recognizing the creation or issuance of DEI stock for PII shareholders in April or May 2001.
Peckover testified that he had the DEI stock certificates in May 2001 but lost them. He testified at a Bankruptcy Rule 2004 examination that he created the stock certificates in 2001, which he produced to the trustee in 2004. Peckover did not create the certificates he produced to the trustee in 2001. In fact, he created these stock certificates in 2004. Peckover introduced no evidence of any board of director action ratifying or recognizing the issuance of any such stock certificates.
DEI stock certificates have never been delivered to PII shareholders.
Analysis
The commencement of a bankruptcy case under 11 U.S.C. § 303 creates an estate comprised of all legal or equitable interests of the debtor in property as of the commencement of the case. 11 U.S.C. § 541(a)(1). An involuntary case was commenced against PII under § 303 on October 15, 2004. On that date, PII held the stock of DEI. No other person held a stock certificate of DEI stock. No other DEI stock certificate existed on that date. Peckover created DEI stock certificates after the commencement of the case. That act violated the automatic stay of 11 U.S.C. § 362 and may be declared void by this court. In re Coho Res., Inc., 345 F.3d 338 (5th Cir.2003); In re Jones, 63 F.3d 411 (5th Cir.1995); Picco v. Global Marine Drilling Co., 900 F.2d 846 (5th Cir.1990).
Peckover contends that the board of directors of PII on December 29, 2000, authorized the spinoff of the demand business into DEI with DEI stock to be owned by PII shareholders. As a matter of fact, the action of the board on that date is ambiguous at best. Peckover, Poore and McDunn, the directors, all signed consent forms adopting resolutions on an Exhibit A, which was not attached to the consent form and was not presented to the directors with or prior to their execution of the consent. Two of the three directors thought the consent form only covered a name change. Indeed, the Exhibit A does provide for a name change.
Peckover argues that Exhibit A also provides for the creation of DEI with a resolution authorizing the issuance of the *586DEI stock to PII shareholders as a PII dividend. Exhibit A is also ambiguous, however. It provides for the creation of DEI as a “subsidiary” of PII. It provides that PII “shall own all the outstanding shares of [DEI].” It further provides that DEI stock be distributed to PII shareholders. It provides that to facilitate the distribution, outstanding shares of DEI stock be distributed to the [PII] shareholders after effecting a ten-for-one stock split. Thus, Exhibit A provides that PII owns the DEI stock as a subsidiary and that the stock “be distributed” to PII shareholders after effecting a stock split. That ambiguity connotes a further step to be performed by the board pursuant to an implementing resolution, namely, that the board perform the distribution after a subsequent event, the stock split. The board never authorized the next step.
Peckover executed the contribution agreement, but it expressly recognizes that PII owns the DEI stock. The contribution agreement refers to the number of shares of DEI stock before any PII ten-for-one stock split. The contribution agreement does not contain any provision providing for a distribution of DEI stock to PII shareholders. The contribution agreement does not reference or incorporate the attached list of PII stockholders that reflects a ten-for-one stock split. And, in any event, that stock list is not an accurate listing of PII shareholders.
More fundamentally, Poore and McDunn testified that they believed the spinoff had not been effectuated. The PII shareholders and board of directors resolved to pursue a spinoff in April 2000, but that had been premised on a presentation regarding a venture with Tower Hill. That venture did not materialize, causing the chief executive officer, Guest, to resign by May 2000. On April 10, 2000, the board resolved to “evaluate” a spinoff based on the presentation of the separation of the demand line of business. Nevertheless, the next day, on April 11, 2000, the shareholders of PII approved a spinoff, even though no such evaluation could have been performed overnight. Indeed, the board followed the shareholder meeting on April 11, 2000, with a resolution to “evaluate” a spinoff. Peckover produced no corporate evaluation of a spinoff that would support the Exhibit A in December 2000.
Peckover testified that he had discussed the ongoing process with Poore and McDunn prior to the December 29, 2000, action, but they did not understand that a spinoff was to be completed. They knew that Tower Hill had pulled out of the proposed transaction. They understood that any spinoff would involve the assumption of all demand assets and liabilities, without tax consequences, to PII shareholders. Peckover produced no evidence of corporate actions to reflect completion of an evaluation of the spinoff prior to the Exhibit A, which Peckover contends would constitute the PII board declaration of a dividend of DEI stock to PII shareholders.
Considering that the consent forms had been provided to the directors in blank without any attachment for execution and that the attorneys did not testify regarding their acts and understandings, the court cannot find that Peckover met his burden of establishing that the PII board issued a dividend of DEI stock to PII shareholders on December 29, 2000. As found above, subsequent events confirm this finding of a failure of proof.
Under the Texas Business Corporation Act (“TBCA”), a Texas corporation may distribute property by issuing a dividend to its shareholders, providing the board of directors authorizes the distribution and does so consistent with the corporation’s articles of incorporation and the Texas Business Corporation Act. V.A.T.S. *587Bus. Corp. Act. Art. 1.02.A(13) and 2.38. The TBCA provides that a distribution may not be made if the corporation would be insolvent or the distribution exceeds the surplus of the corporation. Id., at Art. 2.38.
As found above, the December 29, 2000, consent forms do not establish that the PII directors issued a dividend of DEI stock to PII. Furthermore, without the purported value of DEI, PII would have been insolvent on December 29, 2000. Peckover testified that the demand line of business should have been valued at $11,000,000, and had no liabilities in December 2000. If that asset had been removed as a subsidiary of PII, PII would have been insolvent. PII actually ceased operations shortly thereafter. A dividend of DEI stock would be inconsistent with Texas law. That supports the court’s finding that Peckover did not establish that the PII board authorized the issuance of a dividend in December 2000.
Peckover argues that an incorrectly issued dividend cannot be voided. Rather, the remedy is an action against the directors who, in turn, could bring an action against the shareholders for contribution. See In re Dondi, 119 B.R. 106, 110-112 (Bankr.N.D.Tex.1990). Alternatively, the trustee could bring an avoidance action against the shareholders. 11 U.S.C. §§ 544, 548, 550. Peckover misses the point. The trustee does not seek to avoid the issuance of the dividend in this adversary proceeding. Rather, he seeks a declaration that the DEI stock had never been removed from PII ownership by the declaration of a dividend. He invokes the Texas Business Corporation Act in support of that position.
Similarly, a spinoff of DEI stock to PII shareholders would not, without more, be consistent with the merger provisions of the TBCA. Article 1.02.A(18)(a) of the TBCA defines a merger to include “the division of a domestic corporation into ... a surviving corporation and one or more new domestic corporations.” Under Peck-over’s approach to the case, the spinoff would be considered a merger under Texas law. But Peckover has not established that the spinoff complied with the merger requirements under the TBCA. No “plan of merger” was adopted by PII’s board of directors under Article 5.01.A and/or no document of any name was adopted by PII’s board of directors which met the requirements of a “plan of merger” under Article 5.01.B of the TBCA. To the extent Peckover claims that a “contribution agreement” is a plan of merger, the argument fails for several reasons: (1) There are at least two versions of the contribution agreement in existence; (2) the contribution agreements were not in existence until well after the April 2000 board and shareholder “votes”; and (3) the contribution agreements do not follow the alleged votes as they relate to (a) “the manner and basis of allocating and vesting ... property ... among one or more of the surviving or new domestic ... corporations ... ”; and (c) “the manner and basis of allocating ... liabilities and obligations of each” of the two companies, see TBCA Art. 5.01.-B(2)(a) & (c); and (4) the contribution agreements did not attach the articles of incorporation of DEI as an exhibit, see TBCA Art. 5.01.B(4). Even if there was a “plan of merger” validly adopted by PII’s board, there is no proof that PII’s shareholders were given a written notice twenty days before the meeting that: (a) stated that one of the purposes of the meeting was to consider the plan of merger and (b) contained or was accompanied with a copy or summary of the plan of merger. See TBCA Art. 5.03.D. Even if PII’s shareholders were given timely and proper notice, there is no proof that two-thirds of the shareholders affirmatively voted in fa*588vor of the plan of merger or exchange. See TBCA Art. 5.03.E. Lack of compliance with the merger requirements lends further support to the conclusion that Peck-over has not established that PII issued the DEI stock to PII shareholders.
Issuance of a dividend of DEI stock would not be consistent with PII’s articles of incorporation. TBCA Art. 2.38., Distributions, provides:
A. The board of directors of a corporation may authorize and the corporation may make distributions subject to any restrictions in its articles of incorporation and to the limitations set forth in this Article.
B. A distribution may not be made by a corporation if: (1) after giving effect to the distribution, the corporation would be insolvent; or (2) the distribution exceeds the surplus of the corporation.
Article 2.38-1., Share Dividends, provides:
A. The board of directors of a corporation may authorize and the corporation may pay share dividends subject to any restrictions in its articles of incorporation and to the limitations set forth in this Article.
B. A share dividend payable in authorized but unissued shares may not be paid by a corporation if the surplus of the corporation is less than the amount required by this Article to be transferred to stated capital at the time that share dividend is paid.
In April 2000, the PII shareholders authorized the board to pursue a spinoff but the board, before and after the shareholder’s meeting, only approved an “evaluation” of a spinoff. The board in December 2000 incorporated DEI with its stock owned by PII. Peckover has not met his burden of proof establishing that thereafter the board transferred by dividend the DEI stock to the PII shareholders. As of the commencement of the PII bankruptcy case, the DEI stock became property of the PII bankruptcy estate. Peckover’s request for a declaratory judgment must, therefore, be denied and the trustee’s request granted.
The trustee requests the award of attorney’s fees. Under both Texas and federal law, the court has discretion to award attorney’s fees. In a declaratory judgment action, Texas cases establish that the trial court may award either side costs and reasonable and necessary attorney’s fees as are equitable and just. Arthur M. Deck & Assoc. v. Crispin, 888 S.W.2d 56 (App. 1 Dist.1994). The Texas Declaratory Judgments Act does not require an award of attorney’s fees to the prevailing party; rather, it provides that the court “may” award attorney’s fees. Abraxas Petroleum Corp. v. Hornburg, 20 S.W.3d 741 (App.2000). See also City of Pasadena v. Gennedy, 125 S.W.3d 687 (App. 1 Dist.2003) (The Declaratory Judgments Act entrusts attorney fee awards to the trial court’s sound discretion, subject to the requirements that any fees awarded be reasonable and necessary, which are matters of fact, and to the additional requirements that fees be equitable and just, which are matters of law.); V.T.C.A., Civil Practice & Remedies Code § 37.009.
Pursuant to the Federal Declaratory Judgment Act, 28 U.S.C. §§ 2201 and 2202, “necessary or proper relief based on a declaratory judgment... may be granted against any adverse party whose rights have been determined by such judgment,” and thus the award of attorney’s fees is entrusted to the sound discretion of the trial court. Texas Commerce Bank Nat’l Ass’n v. Capital Bancshares, Inc., 907 F.2d 1571, 1574 (5th Cir.1990).
On this record, the trustee should recover his attorney’s fees. Peckover failed to *589meet his burden of proof, yet he conceded that he had not previously testified honestly regarding the stock certificates. Despite an ambiguous documentary record, Peckover produced no attorney involved in the transaction to testify in support of his contention, yet the other two board members testified that PII did not transfer its DEI stock to its shareholders. The court exercises its discretion to award attorney’s fees.
The trustee shall submit a fee reimbursement request with a supporting affidavit within twenty days of the entry of this order. Peckover may file an objection to the request within twenty days of service. Either side may request an eviden-tiary hearing on the request. Counsel for the trustee is reminded to exercise reasonable billing judgment when submitting the request.
Order
Based on the foregoing,
IT IS ORDERED that the request by Douglas Peckover and the Peckover Children’s Trust for a declaration that the stock of Demand Engine, Inc., was owned by the shareholders of Privacy Infrastructure, Inc., as of the commencement of the PII bankruptcy case is DENIED.
IT IS FURTHER ORDERED that the request of Robert Yaquinto, PII Chapter 11 trustee, that PII owned the stock of DEI as of the commencement of the PII bankruptcy is GRANTED.
IT IS FURTHER ORDERED that the request of Robert Yaquinto, PII Chapter 11 trustee, for an award of attorney’s fees is GRANTED. The court shall award attorney’s fees following the above procedure.
Upon the award of attorney’s fees by subsequent court order, counsel for the trustee shall prepare a final judgment consistent with this order.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493749/ | OPINION
WILLIAM V. ALTENBERGER, Bankruptcy Judge.
Franklin Dircks (“Plaintiff-debtor”) sustained personal injuries in a rear-end automobile accident on December 15, 2001, in Peoria, Illinois. The Plaintiff-debtor then retained attorneys to represent him in his personal injury claim. A personal injury claim was filed on behalf of the Plaintiff-debtor and suit was filed in state court on October 21, 2002.
On June 26, 2003, the Plaintiff-debtor contacted Global Financial Credit, L.L.C. (“Defendant”), via the internet, to apply for pre-settlement funding of his personal injury claim. In the application, the Plaintiff-debtor indicated that he was involved in an automobile accident and that he was represented by legal counsel. The Defendant subsequently confirmed that there was a $250,000 policy involved in the Plaintiff-debtor’s underlying personal injury claim that arose from the automobile accident.
*689On July 23, 2003, the Plaintiff-debtor, represented by legal counsel, entered into a Non-Recourse Investment Agreement (“Agreement”) with the Defendant whereby he contingently assigned a portion of the potential future proceeds from his personal injury claim. Pursuant to the Agreement, the Defendant advanced the Plaintiff-debtor $3,600 for immediate and necessary living expenses. The Defendant alleges that it was made clear to the Plaintiff-debtor that the advance was an investment and not a loan. The Defendant further emphasizes that Article IV of the Agreement provides that “Seller [Plaintiff-debtor] hereby expressly agrees not to declare bankruptcy in order to circumvent paying Purchaser [Defendant] said Investment Amount and Fee referenced in this agreement.” The Agreement, in Article V, also provides that “[a]ny controversy or claim arising out of or relating to this agreement, or the breach thereof, may be settled by arbitration in the State of Connecticut, in accordance with the rules of the American Arbitration Association then in effect and the laws of the State of Connecticut.” Article IX of the Agreement further provides that “[t]his Agreement shall in all respects be interpreted and construed and the rights of the Parties hereto shall be governed by the laws of the State of Connecticut.”
On October 29, 2003, the Plaintiff-debtor and his wife (“co-debtor,” collectively referred to as “Plaintiff-debtors”), filed a voluntary petition for bankruptcy protection under Chapter 7. On October 8, 2004, the Plaintiff-debtors filed the current adversary action to have this Court declare as void the pre-petition Agreement between the parties. According to the Plaintiff-debtors, the Agreement constitutes a lien and/or assignment that is in contravention of Illinois public policy against the assignment of personal injury claims. The Plaintiff-debtors assert in their Complaint that this Court has jurisdiction over this proceeding under 28 U.S.C. § 157(K). The Plaintiff-debtors further indicate, although not in so many words, that this matter is before this Court upon their filing because the Trustee has abandoned the Plaintiff-debtor’s personal injury claim and the co-debtor’s loss of consortium claim. See Pis.’ Compl. To Determine Invalidity of Lien/Assignment Against Personal Injury/Consortium Claim(s) ¶ 3 (Hereinafter referred to as “Complaint”).
The parties have agreed to have this issue decided through memoranda of law. Based on the parties’ pleadings, it is clear that they do not dispute the facts. Instead, the issues in this case are solely questions of law. The issue, the parties contend, is whether this case should be adjudicated according to the explicit choice of law provision contained in the Agreement. According to the parties, this is the dispositive issue because if the choice of law provision is enforceable, the Plaintiff-debtors concede that Connecticut law would apply, and under Connecticut law, the assignment of the personal injury claim would be enforceable.
The preliminary issue that this Court must first consider before addressing the issue raised by the parties is whether this Court has subject matter jurisdiction over this adversary proceeding. Although the Defendant has not raised the question of whether this proceeding is properly before this Court, “[t]his court has jurisdiction to determine its own jurisdiction.” In re Trafficwatch, 138 B.R. 841, 842 (Bankr.E.D.Tex.1992). Section 157 of the Judicial Code provides that “[t]he bankruptcy judge shall determine, on the judge’s own motion or on timely motion of a party, whether a proceeding is a core proceeding under this subsection or is a proceeding that is otherwise related to a *690case under title 11. A determination that a proceeding is not a core proceeding shall not be made solely on the basis that its resolution may be affected by State law.” 28 U.S.C. § 157(b)(3). For example, despite the fact that the Defendant did not raise issues about the Court’s subject matter jurisdiction, the court in In re F/S Airlease II, Inc., 67 B.R. 428, 431 (Bankr.W.D.Pa.1986), held that “pursuant to the Bankruptcy Amendments and Federal Judgeship Act of 1984 (BAFJA), and specifically Title 28 U.S.C. § 157(b)(3), this Court may, upon its own motion, determine if the action in question constitutes a ‘core’ or ‘related’ proceeding.” See also In re Nanodata Computer Corp., 52 B.R. 334, 341 (Bankr.W.D.N.Y.1985) (“[T]he bankruptcy court [is] required in all instances, whether the issue is raised by a party or not, to determine if a proceeding is ‘core’ or ‘non-core.’ ”). Thus, in this case, this Court will first determine, sua sponte, whether it has subject matter jurisdiction over this proceeding.
In order to determine whether this Court has subject matter jurisdiction over this proceeding, it must be determined whether this proceeding falls within purview of a bankruptcy court’s authority as established by the Judicial Code. 28 U.S.C. § 1 et seq. The Plaintiff-debtors state in the Complaint that “^jurisdiction over this action as a core proceeding is proper pursuant to 28 U.S.C. § 157.” Pis’ Compl. ¶ 3. Section 157 of the Judicial Code provides in relevant part as follows:
(a) Each district court may provide that any or all cases under title 11 and any or all proceedings arising under title 11 or arising in or related to a case under title 11 shall be referred to the bankruptcy judges for the district.
(b)(1) Bankruptcy judges may hear and determine all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11, referred under subsection (a) of this section, and may enter appropriate orders and judgments, subject to review under section 158 of this title.
# sfc
(c)(1) A bankruptcy judge may hear a proceeding that is not a core proceeding but that is otherwise related to a case under title 11. In such proceeding, the bankruptcy judge shall submit proposed findings of fact and conclusions of law to the district court, and any final order or judgment shall be entered by the district judge after considering the bankruptcy judge’s proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected.
(2) Notwithstanding the provisions of paragraph (1) of this subsection, the district court, with the consent of all the parties to the proceeding, may refer a proceeding related to a case under title 11 to a bankruptcy judge to hear and determine and to enter appropriate orders and judgments, subject to review under section 158 of this title.
28 U.S.C. § 157. Clearly, a bankruptcy judge’s jurisdiction over bankruptcy cases and proceedings is not limitless. See In re Bissonnet Investments LLC, 320 F.3d 520, 525 (5th Cir.2003) (“All federal courts are courts of limited jurisdiction. A bankruptcy court’s jurisdiction is especially circumscribed and wholly ‘grounded in, and limited by, statute.’ ”) (citing Celotex Corp. v. Edwards, 514 U.S. 300, 307, 115 S.Ct. 1493, 131 L.Ed.2d 403 (1995)). Specifically, a bankruptcy judge has jurisdiction only over those core proceedings “arising under title 11,” or proceedings “arising in a case under title 11,” or proceedings that are not core but are “otherwise related to a case under title 11.” 28 U.S.C. § 157.
*691The Code does not define these terms, however, several courts, including the Seventh Circuit Court of Appeals has attempted to define these terms. “According to the Seventh Circuit, ‘a proceeding is core under section 157 if it invokes a substantive right provided by title 11 or if it is a proceeding that, by its nature, could arise only in the context of a bankruptcy case.’ ” In re Emerald Acquisition Corp., 170 B.R. 632, 639-40 (Bankr.N.D.Ill.1994) (citing Diamond Mortgage Corp. of Illinois v. Sugar, 913 F.2d 1233, 1239 (7th Cir.1990)). Furthermore, “[a] proceeding ‘arises under’ title 11 if a party is claiming a right or remedy created by one of the specific sections of title 11.” Id. at 640. “A proceeding ‘arises in’ a title 11 case if it relates to those administrative matters that arise only in bankruptcy cases.” Id. “A proceeding ‘relates to’ the bankruptcy if it affects the amount of property available for distribution or the allocation of property among creditors.” Id.
The Fifth Circuit, in its often-cited opinion, Matter of Wood, 825 F.2d 90, 93 (5th Cir.1987) (citing Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir.1984)), held that:
For the purpose of determining whether a particular matter falls within bankruptcy jurisdiction, it is not necessary to distinguish between proceedings “arising under”, “arising in a case under”, or “related to a case under”, title 11. These references operate conjunc-tively to define the scope of jurisdiction. Therefore, it is necessary only to determine whether a matter is at least “related to” the bankruptcy. The [Bankruptcy Amendments and Federal Judgeship] Act [of 1984] does not definite “related” matters. Courts have articulated various definitions of “related”, but the definition of the Court of Appeals for the Third Circuit appears to have the most support: “whether the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy.”
Thus, pursuant to the Wood opinion, in order to determine whether a bankruptcy court has subject matter jurisdiction, it must preliminarily determine whether it has at least “related to” jurisdiction. The Wood Court further provided that a bankruptcy court only proceeds to consider and distinguish between proceedings “arising in,” “arising under,” or “related to” title 11 after it has established that at the very minimum, the outcome of the proceeding could conceivably effect the bankruptcy estate. Id. at 94.
In this case, in order to determine whether this proceeding is properly before this Court, it must be determined whether the outcome of the Plaintiff-debtors’ Complaint could have any conceivable effect on the bankruptcy estate. At first blush, it would seem that this proceeding is at least “related to” the Plaintiff-debtors’ Chapter 7 case, for, if this Court were to declare a lien against the Plaintiff-debtors as invalid, there could be a large effect on the his bankruptcy estate. Further, as the Plaintiff-debtors state in their Complaint, Section 157(K) specifically provides that “determinations of the validity, extent, or priority of liens” is a core proceeding.
However, an examination of the Plaintiff-debtors’ Chapter 7 case and Complaint, as well as the Agreement in question, reveals that the proceeding in issue is not “related to” and will have no conceivable effect on the Plaintiff-debtors’ bankruptcy estate. In this case, the Plaintiff-debtors noted in paragraph 6 of the Complaint, that “the Trustee has abandoned in writing” the Plaintiff-debtors’ personal injury/consortium claims.1 Since the filing of *692the Complaint, the Trustee has filed a report of no assets and no distribution. Given his abandonment, this Court’s determination of whether the Agreement is valid or invalid will have no effect on the bankruptcy estate. 11 U.S.C. § 554. See, e.g., In re Smith, 313 B.R. 785, 793 (Bankr.N.D.Ind.2004) (noting that where property has been abandoned by the Chapter 7 Trustee under § 554, this “ipso facto means that the property has no value as an administrable asset to a Chapter 7 Trustee”). Thus, although the Plaintiff-debtors may rightfully have standing to pursue this Complaint, In re Ring, 138 Fed.Appx. 834, 837, 2005 WL 1526462, *2 (7th Cir.2005) (“the claim may revert back to the debtor if the trustee chooses to abandon it as estate property”), since any result of this Complaint will have no conceivable effect on the bankruptcy estate, the Complaint is not properly before this Court. See In re Schwarzwalder, 242 B.R. 734 (Bankr.M.D.Fla.1999); In re Conway, 1994 WL 617253 (Bankr.E.D.Cal.1994).
It is also important to consider the Plaintiff-debtors’ contention that this Court has jurisdiction over this proceeding under 28 U.S.C. § 157(K), which pertains to determinations regarding liens. The Bankruptcy Code defines a “lien” as a “charge against or interest in property to secure payment of a debt or performance of an obligation.” 11 U.S.C. § 101(37). “There are three categories of liens, which are mutually exclusive: (1) security interests; (2) judicial liens; and (3) statutory liens.” In re Thompson, 240 B.R. 776, 781 (10th Cir. BAP 1999). The Bankruptcy Code defines “security interest” as “lien created by an agreement.” 11 U.S.C. § 101(51). The Code defines “judicial lien” as “lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding.” 11 U.S.C. § 101(36). The Code then defines “statutory lien” as “lien arising solely by force of a statute on specified circumstances or conditions, or lien of distress for rent, whether or not statutory, but does not include security interest or judicial lien....” 11 U.S.C. § 101(53). In determining which type of lien may be present, we must look at “ ‘the origin of the creditor’s interest rather than the means of enforcement....’” In re Thompson, 240 B.R. at 781 (citing In re Sanders, 61 B.R. 381, 383 (Bankr.D.Kan.1986)). Based on the facts of this case, it is clear that the alleged lien is neither a judicial lien or a statutory lien; thus, the Agreement will only be considered a “lien” if it was created by agreement. However, a consideration of the Agreement reveals that it does not convey a “lien” to the Defendant, regardless of the fact that the Plaintiff-debtors refer to the interest conveyed to the Defendant as a “lien.” In In re Petry, 66 B.R. 61, 62 (Bankr.N.D.Ohio 1986), the court determined whether the assignment of the future proceeds of a personal injury claim to a hospital-creditor passed on a property right or merely a right to be paid. In its analysis, the Petry Court noted that “[t]he general rule is that an assignment passes title to the proceeds or thing assigned at the time it is made.” Id. at 62-63. In holding that the assignment did not constitute a lien, the Court provided that “[t]his assignment is not a lien but a transfer of title. It does not create a security interest for the simple reason that it does not secure payment, but it is the payment of the obligation.” Id. at 63. In this case, if it is assumed that the Agreement was valid only for purposes of determining whether the assignment constituted a lien, it is clear that this Court would similarly find that the Agreement would not have created a lien as a “security *693interest” because it does not secure a payment, instead, the assignment itself serves as the payment of the obligation.
Accordingly, this Court concludes that it lacks subject matter jurisdiction over this proceeding. This conclusion is consistent with prior case law in which “Courts have consistently held that, if a controversy does not involve property in which the debtor’s estate asserts an interest, and the resolution of the claim will not affect the administration of the estate, then the bankruptcy court has no subject matter jurisdiction to adjudicate the claim.” In re World Wines, Ltd., 77 B.R. 653, 655-56 (Bankr.N.D.Ill.1987). Because this Court finds that it lacks subject matter jurisdiction over the proceeding at issue, it is clear that this Court cannot proceed to analyze the parties’ substantive issue and arguments.
This Opinion constitutes this Court’s findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052. A separate Order will be entered.
ORDER
For the reasons stated in an Opinion entered this day, IT IS HEREBY ORDERED that the Plaintiff-debtors’ Complaint is dismissed for lack of jurisdiction, such dismissal shall not bar the Plaintiff-debtors from bringing an action in another court with jurisdiction.
. Earlier in the Chapter 7 case, the Trustee had employed an attorney to pursue the per*692sonal injury case for the benefit of the Plaintiff-debtors' creditors. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493750/ | ORDER ON SLATKIN TRUSTEE’S MOTION TO AMEND PLEADINGS TO CONFORM TO EVIDENCE (DOC. NO. 144)
ALEXANDER L. PASKAY, Bankruptcy Judge.
THE MATTER under consideration in this Chapter 7 case of Robert Laing (Debt- or) is a Motion filed by R. Todd Neilson, Trustee of the Estate of Reed E. Slatkin (Trustee) to Amend Pleadings to Conform to Evidence in the above captioned adversary proceeding.
In his Motion, Neilson contends that he adequately put the Debtor on notice, not only in his original objection to the exemptions filed in the general case file, but also in Count I of his complaint filed against the Debtor where he challenged the Debt- or’s right to claim as exempt the following assets: CSFB IRA Rollover $15,552.76; Salomon Smith Barney IRA Rollover $204,365.00; USL Capital Annuity FBO Lang $1,210,322.00.
The Motion is challenged by the Debtor who contends that neither the objection filed in the general case file nor the allegations in Count I of the Complaint adequately put forth sufficient facts needed to overcome the presumptive right of a Debt- or to claim these accounts as exempt under the applicable statutes of the State of Florida.
The Court heard argument of counsel and has considered the relevant portion of the record and finds that while it is true that Neilson filed in the general case file a Motion for Extension of Time to File an Objection to Debtor’s Claim of Exemptions, or Alternatively, Objection to Debt- or’s Claim of Exemptions. There is no question that this Motion was woefully lacking the specificity required to put the Debtor on notice on the basis of the objection. However, Neilson also contends that at the trial there was sufficient evidence presented on the issue of the Debtor’s right to claim the exemption of the assets involved. In Count I of his Complaint, in Paragraph 35, he specifically identified the assets which are claimed by the Debtor and which Neilsen was challenging. While this is true, the only basis pled for the objection of these accounts was in Paragraph 37 in which Neilson alleged that: “The Slatkin Trustee, however, has been unable to verify whether these accounts are ‘qualified’ retirement accounts as required by Florida Statutes § 222.21(2)(a). Further, the Slatkin Trustee has been unable to determine whether any of these alleged retirement accounts were operated in compliance with ERISA.”
While courts generally do consider favorably motions for permission to amend the pleadings after the trial to conform to the evidence, provided the issue was tried, this record would not warrant or justify to *761grant the Motion for the following reasons: The evidentiary proceeding was focused entirely on the Objections to the Debtor’s homestead claim and there was no evidence presented whatsoever that these accounts were not qualified as retirement accounts as required by Fla. Stat. 222.21(2)(a). Further, there was no evidence presented that these accounts were not operated by the Debtor in conformity with the requirements of ERISA.
Based on the foregoing, this Court is satisfied that the Motion is not well taken and should be denied.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Slatkin Trustee’s Motion to Amend Pleadings to Conform to Evidence be, and the same is hereby, denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493751/ | MEMORANDUM OPINION
ROBERT F. HERSHNER, JR., Chief Judge.
Charles C. Crumley, Chapter 11 Trustee (hereafter “Trustee”), filed on February 22, 2005, his Trustee’s Motion for Summary Judgment on the Eight Omnibus Objections to Allowance of Claims. Respondents filed a response on March 14, 2005.1 The Court, having considered the record, the stipulations of facts, the affidavits, and the arguments of counsel, now publishes this memorandum opinion.
The material facts are set forth in a prior decision by the Court.2 In that decision the Court stated, in part:
Thomaston Mills, Inc., Debtor, was a textile manufacturer. Debtor operated a number of textile mills. Debtor established a severance plan for its “exempt salaried employees.” The effective date of the severance plan was November 1, 2000. The purpose of the severance plan was to provide severance benefits *782to exempt salaried employees whose employment may be involuntarily terminated due to permanent layoff, unsatisfactory job performance, or following a “change in control.”
Debtor was having financial problems when the severance plan was established. Respondents argue that Debtor established the severance plan in order to retain its key employees.
Debtor continued to have financial problems. Debtor’s Board of Directors voted on June 14, 2001, to terminate the severance plan effective that date. Debtor, on June 14, 2001, sent a notice advising all of its employees that Debtor was permanently closing its textile mills. The notice advised that the severance plan was terminated effective June 14, 2001. The notice also advised that most of Debtor’s employees would be terminated on June 16, 2001. Respondents were terminated after June 14, 2001.
Debtor filed a petition under Chapter 11 of the Bankruptcy Code on June 19, 2001. Debtor has liquidated most of its assets and will not reorganize as a going concern. The Court entered an order on March 18, 2002, approving the appointment of Charles C. Crumley as Chapter 11 Trustee.
Respondents have each filed a proof of claim asserting a claim for severance pay under the severance plan. Trustee filed an objection to the proofs of claim. Trustee contends that the claims are for severance pay accruing after the severance plan was terminated. Trustee contends that Respondents’ claims should be disallowed.
The severance plan provides that Debtor may, prior to a change in control, permanently suspend severance benefits or terminate the severance plan. Trustee and Respondents disagree on whether the vote by Debtor’s Board of Directors to terminate the severance plan was effective. Trustee and Respondents have asked the Court to decide this threshold legal issue before the factual merits of each claim by Respondents is presented.
301 B.R. at 919-20.
The Court, in its prior decision, held that Debtor’s severance plan was terminated on June 14, 2001. The Court also held that Respondents had no vested interests under the severance plan before it was terminated.3 301 B.R. at 925.
The Court, having decided the threshold legal issue, is now asked to decide the factual merits of Respondents’ claims.
Trustee and Respondents filed a second stipulation of facts on December 15, 2004. Docket No. 714. The stipulation states that Respondents received their full salary through and including their respective termination dates. Respondents did not execute General Release and Stipulation Agreement^] as required by the severance plan. Thirty-two of the Respondents were terminated on or after June 15, 2001. Two of the Respondents were terminated prior to June 14, 2004.
Respondents assert that they were not requested to sign general releases. Respondents assert that they are willing to sign general releases.
*783In their response to Trustee’s motion for summary judgment, Respondents argue that it was unjust and unfair for Debtor to terminate the severance plan on the eve of bankruptcy. The Court considered these arguments in its prior decision. The Court is persuaded that the thirty-two Respondents who were terminated on or after June 15, 2001, are not entitled to severance pay. The Court is persuaded that Trustee’s motion for summary judgment should be granted as to these thirty-two Respondents.
The second stipulation of facts shows that John I. Pope, Jr. was terminated on February 28, 2001, and that Prentice M. Robinson was terminated on March 9, 2001. Mr. Pope and Mr. Robinson were terminated before Debtor terminated the severance plan on June 14, 2001. Mr. Pope and Mr. Robinson assert that they are willing to execute general releases as required by the severance plan.4 The Court is persuaded that Mr. Pope and Mr. Robinson are entitled to benefits under the severance plan.
Mr. Pope and Mr. Robinson were terminated more than ninety days before the date Debtor filed for bankruptcy or the date Debtor ceased doing business. Therefore their claims for severance pay are not entitled to priority under 11 U.S.C.A. § 507(a)(3)(A). 4 Collier on Bankruptcy ¶ 507.05[5][b] (15th ed. rev. 2004) (severance benefits will not qualify for priority if employee was terminated before the ninety day period before the bankruptcy filing because the benefits were not earned within the ninety day period).
The Court is persuaded that the claims for severance pay of Mr. Pope and Mr. Robinson are non-priority unsecured claims.
An order in accordance with this memorandum opinion shall be entered this date.
. Respondents are thirty-four former employees of Thomaston Mills, Inc. Respondents are Andrew K. Austin, Jr., Robert L. Blount, El-more Cobbs, Carolyn Green, John I. Pope, Jr., Dianne McKinley, Sharon E. Ryals, Eric F. Wornum, Walter L. Brown, Jr., Jeffery A. Carson, Jerry W. Chastain, Tony F. Chastain, Bobby D. Fenley, Charles Fields, Merrill George, Melvin Graddick, William Barry Hancock, Jimmy W. Hall, David Mark Harris, Charles M. Johnson, Karen Jones, Thelma Jones, Robert Nelson Kay, Gregory Marshall, Theo Mills, Melvin L. Pressley, George A. Pruett, Prentice M. Robinson, Gary M. Shu-mate, Carl P. Trice, Frank O. Wiggins, Glenn L. Wilder, Donald S. Voyles, and Paul D'An-dries.
. In re Thomaston Mills, Inc., 301 B.R. 918 (Bankr.M.D.Ga.2003).
. The Court’s prior decision was published on December 5, 2003. Trustee and Respondents filed a second stipulation of facts, Docket No. 714, on December 15, 2004. The second stipulation shows that two of the Respondents, John I. Pope, Jr. and Prentice M. Robinson, were terminated before Debtor's severance plan was terminated. The Court is persuaded that Mr. Pope's and Mr. Robinson’s entitlement to severance pay arose before the plan was terminated.
. The Court notes that the employer rather than the employee customarily provides such documents. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493752/ | MEMORANDUM OPINION
ROBERT F. HERSHNER, JR., Chief Judge.
Jennifer Johnson, Movant, filed on April 12, 2005, an Objection to Claim and Motion for Sanctions.1 Century Bank & Trust, Respondent, filed a response on May 6, 2005. Movant’s objection and motion came on for hearing on May 18, 2005. The Court, having considered the evidence presented and the arguments of counsel, now publishes this memorandum opinion.
Movant executed a promissory note dated May 14, 2001, in favor of Respondent. The principal amount of the obligation was $262,620. Movant was to repay the principal plus interest at 9.25 percent per annum by making a single payment of $268,693.09 on August 12, 2001. The promissory note provided for a five percent late charge if “any periodic payment” was not made within fifteen days after its due date. Movant’s obligation was secured by a deed to secure debt on Lot 2, Granite Cove Subdivision, Greene County, Georgia (hereafter the “Granite Cove obligation”).
Three months later Movant executed a promissory note dated August 12, 2001, in favor of Respondent. The principal amount of the obligation was $35,894.49. Movant was to repay the principal plus interest at 8.75 percent per annum on February 10, 2002. The promissory note provided for a default rate of interest of 16 percent if the obligation was not timely paid in full. Movant’s obligation was secured by a second priority deed to secure debt on Lot 51, Reynolds Plantation, Greene County, Georgia (hereafter the “Reynolds Plantation obligation”). Chevy Chase Bank, FSB, holds the first priority deed to secure debt. Movant’s residence is located on the Reynolds Plantation property. The Reynolds Plantation property also secured, by cross-collateralization, the Granite Cove obligation.
Movant had financial problems and filed a petition under Chapter 13 of the Bankruptcy Code on March 25, 2002. The Court entered an order on August 26, 2002, confirming Movant’s Chapter 13 plan. The confirmed plan provided that Movant was to pay the Reynolds Plantation obligation in full, plus interest at 8.75 percent, by making fifty-five monthly payments of $846 through her Chapter 13 plan. The confirmed plan listed the amount of the Reynolds Plantation obligation as $38,197. The confirmed plan also provided that Movant was to sell the Granite Cove property. Respondent was to receive the net proceeds of the sale at closing.
Respondent filed a proof of claim asserting a secured claim of $38,197 on the Reynolds Plantation obligation. Respondent did not file a proof of claim on the Granite Cove obligation.
A buyer was found for the Granite Cove property. The closing occurred on January 30, 2003. Respondent received the net proceeds of $251,732.40.
Respondent contends that, at the time of the closing, Movant owed $319,757.362 on the Granite Cove obligation. Respondent contends that, after applying the net pro*786ceeds, there was a deficiency of $68,024.96 on the Granite Cove obligation. Movant’s confirmed Chapter 13 plan made no provision for dealing with a deficiency.
Respondent’s president, E. David McMillian, attended the closing on the Granite Cove property. Immediately after the closing, Mr. McMillian had Movant sign a promissory note in favor of Respondent. The principal amount of the obligation was $109,132.81. The interest rate was 8.00 percent per annum. The $109,132.81 amount calculated by Respondent includes the deficiency on the Granite Cove obligation of $68,024.96, the balance on the Reynolds Plantation obligation of $40,552.85 and administrative fees and recording fees of $555. Movant was to repay the obligation by making fifty-nine monthly payments of $911.47 and by making a balloon payment of $97,184.17 on January 28, 2008. Respondent was receiving $846 per month through Movant’s Chapter 13 plan. Therefore, Respondent only required Movant to pay $65.47 per month directly to Respondent.3 The promissory note provided that the obligation was secured by a deed to secure debt on the Reynolds Plantation property. Movant’s bankruptcy counsel was not present at the closing and was not aware that Movant had executed the new promissory note.
Movant received a payment coupon book and made several monthly payments of $65.47 to Respondent. Movant and her husband separated in March 2004. They later divorced. Movant testified that she cannot make her Chapter 13 plan payments and meet her other financial obligations.
Bank South agreed to refinance Mov-ant’s residence, the Reynolds Plantation property. Movant filed on April 12, 2005, a Motion to Obtain Secured Credit and a Motion for PosNConfirmation Modification of Plan. The Court has entered orders granting these motions. Movant proposes to use the refinancing proceeds to pay in full the obligations secured by the Reynolds Plantation property. Movant and Respondent disagree on the amount that Movant owes to Respondent.
Respondent contends that Movant owes $105,898.97. Movant contends that she owes $88,628.85.4 Respondent seeks to recover $17,270.12 more than the amount Movant contends that she owes. The amount in dispute includes a late charge of $13,439.65 on the Granite Cove obligation and “default interest” of 16 percent on the Reynolds Plantation obligation.
Late Charge
The Granite Cove obligation provided for a five percent late charge if “any periodic payment” was not made within fifteen days after its due date. Movant was to repay the obligation by making a single payment of $268,693.09 on August 12, 2001. Movant failed to make this payment.5 Respondent contends that it is entitled to a late charge of $13,439.65.6 Mr. McMillian testified that Respondent decided to collect the late charge postconfirmation when it appeared that Movant would be able to sell the Granite Cove property. Movant contends that a single payment for *787the full amount of the obligation is not a “periodic payment.”
Section 3 (A) of the Granite Cove promissory note provides:
3. Payments
(A) Periodic Payments
I will pay principal and interest by making periodic payments when scheduled:
□ I will make . payments of $ . each on the . of each . beginning on
[3 I will make payments as follows:
ONE PAYMENT OF 268,693.09 DUE ON AUGUST 12, 2001
□ In addition to the payments described above, I will pay a “Balloon Payment” of $ . on .The Note Holder will deliver or mail to me notice prior to maturity that the Balloon Payment is due. This notice will state the Balloon Payment amount and the date that it is due.
(emphasis added).
“In construing a contract words generally bear their usual and common significance. If the terms used are clear and unambiguous they are to be taken and understood in their plain, ordinary, and popular sense. Dictionaries supply the plain, ordinary and popular sense.” Henderson v. Henderson, 152 Ga.App. 846, 264 S.E.2d 299, 301 (1979). See Market Place Shopping Center v. Basic Business Alternatives, Inc., 213 Ga.App. 722, 445 S.E.2d 824, 825-26 (1994).
Black’s Law Dictionary defines lump-sum payment and periodic payment as follows:
lump-sum payment. A payment of a large amount all at once, as opposed to smaller payments over time. Cf. Periodic payment.
periodic payment. One of a series of payments made over time instead of a one-time payment for the full amount. Cf. lump-sum payment.
Black’s Law Dictionary 1165 (8th ed 2004).
The Court is persuaded that the usual and common understanding of “periodic payment” does not include the making of a single payment for the full amount.
Respondent urges the Court to look to the promissory note for the meaning of “periodic payment.” The heading of Section 3(A) is “Periodic Payments.” Respondent contends that a single payment called for under this heading is a periodic payment.
Under Georgia law, the goal in construing a contract is to ascertain the intent of the parties. In doing so, the court must consider the contract as a whole. SGE Mortgage Funding Corp. v. Accent Mortgage Services, Inc. (In re SGE Mortgage Funding Corp.), 298 B.R. 854, 860 (Bankr.M.D.Ga.2003) (Laney, J.)
When “construction of a contract is doubtful, it is to be construed most strongly against the party who prepared it.” Kennedy v. Brand Banking Co., 245 Ga. 496, 266 S.E.2d 154, 157 (1980).
Respondent prepared the promissory note which called for Movant to make a single payment of the full amount. The promissory note states that Respondent was entitled to a late charge if Movant missed a periodic payment. Periodic payment means one of a series of payments made over time instead of a single payment for the full amount. Since the promissory note did not provide for periodic payments, Movant could not have missed a periodic payment. The Court is not per*788suaded that Respondent is entitled to a late charge.
Default Rate of Interest
Respondent contends that it is entitled to “default interest” of 16 percent on the Reynolds Plantation obligation. Respondent seeks in excess of $3,000 in default interest. At the hearing on May 18, 2005, neither Respondent’s president nor its counsel could explain how Respondent calculated the default interest.
The provisions of a confirmed Chapter 13 plan are binding on the debtor and the creditors. 11 U.S.C.A. § 1327(a) (West 2004).7 Respondent filed a proof of claim on the Reynolds Plantation obligation in the amount of $38,197. This is the same amount that is to be paid in full through Movant’s confirmed Chapter 13 plan. The interest rate is set forth in the Chapter 13 plan. The Court is persuaded that Respondent is bound by the provisions of Movant’s confirmed Chapter 13 plan. The Court is not persuaded that Respondent is entitled to a default rate of interest.
Automatic Stay Violation
Movant contends that Respondent violated the automatic stay of the Bankruptcy Code8 by having Movant sign a new promissory note immediately after the closing on the Granite Cove property. The new promissory note included the balance owed on the Reynolds Plantation obligation. The Reynolds Plantation obligation is being paid through Movant’s confirmed Chapter 13 plan. Respondent has not received any payments on the Reynolds Plantation obligation outside of the Chapter 13 plan.
The new promissory note also included the balance owed on the Granite Cove obligation. Movant’s confirmed Chapter 13 plan made no provision for dealing with this obligation. The Granite Cove obligation was cross-collateralized by the Reynolds Plantation property.
Movant’s bankruptcy counsel was not present at the closing on the Granite Cove property. Movant did not advise her bankruptcy counsel that she had executed the new promissory note.
The Court is not persuaded that Respondent willfully violated the automatic stay or the provisions of the confirmed Chapter 13 plan. The confirmed plan made no provision for dealing with the deficiency on the Granite Cove obligation, which was cross-collateralized by the Reynolds Plantation property. Respondent has not received any payments outside of the Chapter 13 plan on the Reynolds Plantation obligation. The Court is not persuaded that Movant is entitled to any damages.
An order in accordance with this memorandum opinion will be entered this date.
. Movant also filed on April 12, 2005, a Motion to Obtain Secured Credit and a Motion for Post-Confirmation Modification of Plan. The Court has entered orders granting these motions.
. This amount included principal and interest of $302,771.31; a late charge of $13,439.65; actual attorney fees of $1,546.00; appraisal fee of $300.00; and insurance premiums of $1,700.40.
. $911.47 minus $846 = $65.47.
. Movant's contends that she owes $65,749.21 on the Granite Cove deficiency and $22,879.64 on the Reynolds Plantation obligation.
. Movant paid part of the obligation when the Granite Cove property was sold on January 30, 2003.
. $268,693.09 x 5% = $13,434.65. The Court notes a difference of $5.00 in the amount that Respondent seeks.
. Section 1327(a) provides:
§ 1327. Effect of confirmation
(a) The provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted, or has rejected the plan.
11 U.S.C.A. § 1327(a) (West 2004).
. 11 U.S.C.A § 362 (West 2004). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493754/ | MEMORANDUM OPINION
ROBERT F. HERSHNER, Jr., Chief Bankruptcy Judge.
Pinnacle Bank, N.A. fik/a First National Bank In Elberton, Movant, filed on April 5, 2005, a motion for relief from the automatic stay. Walter W. Kelley, Standing Chapter 12 Trustee, filed a response on April 15, 2005. Jimmy C. Brown a/k/a Amber Creek Farm and Christy G. Brown, Respondents, filed a response on April 18, 2005. Movant’s motion came on for hearing on April 18, 2005. The Court, having considered the record and the arguments of counsel, now publishes this memorandum opinion.
*917Respondents executed a promissory note dated November 27, 2000, in favor of Movant. The principal amount of the obligation was $580,000. Respondents are to make quarterly payments of $19,354.53 over a term of fifteen years. The final payment is due on March 27, 2016. Respondents, to secure their obligation, executed in favor of Movant a deed to secure debt, a security agreement, and a financing statement.
Respondents own and operate a poultry farm. Respondents and Columbia Farms, Inc. entered into a Broiler Growing Agreement. Pursuant to the agreement, Columbia Farms places flocks of poultry on Respondents’ farm. Respondents grow the poultry for eight weeks. Columbia Farms then picks up the poultry and pays Respondents in accordance with their agreement. The payment is called a production settlement. Columbia Farms, at all relevant times, owns the poultry. Movant has no security interest in the poultry.
Respondents and Movant executed a document entitled an Assignment which is dated February 15, 2002.1 The Assignment authorizes and directs Columbia Farms to deduct $12,266.40 per flock from any and all production settlements owed to Respondents by Columbia Farms. The funds so deducted are to be jointly payable to Respondents and Movant. The Assignment provides in part:
All parties hereto acknowledge that Columbia Farms will deduct the funds as set out herein above solely as an accommodation to [Respondents and Movant].
Notice: Columbia Farms has made no obligation, commitment, understanding or representation to extend the terms of the existing Breeder Contract Agreement with [Respondents] beyond the existing flock or place any subsequent flocks on [Respondents’] farm.
Respondents filed a petition under Chapter 12 of the Bankruptcy Code on December 20, 2004. A hearing on confirmation of Respondent’s proposed Chapter 12 plan is set for May 16, 2005. Respondents continue to operate their poultry business as debtors-in-possession.
After Respondents filed for bankruptcy relief Columbia Farms placed a flock of poultry on Respondents’ farm. Columbia Farms is scheduled to pick up the flock on April 18, 2005. Columbia Farms is expected to issue a production settlement payment within the next week. Movant contends that it is entitled to $12,266.40 of the payment amount. Movant contends that the Assignment divested Respondents of their rights and interest in the $12,266.40. Movant contends that the $12,266.40 is not property of the bankruptcy estate and is not protected by the automatic stay of the Bankruptcy Code.
Respondents contend that they are entitled to the $12,266.40 and that the funds are needed to fund their Chapter 12 plan. Respondents contend the Assignment was merely an accommodation. Respondents’ counsel will hold in trust the $12,266.40 pending order of the Court.
Federal law determines whether an interest is property of the bankruptcy estate. The nature and existence of the interest is determined by state law. Witko v. Menotte (In re Witko), 374 F.3d 1040, 1043 (11th Cir.2004).
Property subject to a valid assignment does not become property of the bankruptcy estate. In re Flanders, 45 B.R. 222, 224 (Bankr.M.D.Ga.1984).
*918An assignment is an absolute, unconditional, and complete transfer of all rights, title, and interest in property. An assignment results in total relinquishment of any control over the property. Allianz Life Insurance Co. of North America v. Riedl, 264 Ga. 395, 444 S.E.2d 736, 738 (1994).
“[An] assignment can be inferred from the totality of the circumstances.... ” Forest Commodity Corp. v. Lone Star Industries, Inc., 255 Ga.App. 244, 564 S.E.2d 755, 758 (2002), cert. denied.
“Any language, however informal, will be sufficient to constitute a legal assignment, if it shows the intention of the owner of the right to transfer it instantly, so that it will be the property of the transferee.” First State Bank v. Hall Flooring Co., 103 Ga.App. 270, 118 S.E.2d 856, 857 (1961).
“An assignment is a contract and, in order to be valid, must possess the same requisites (parties, subject matter, mutual assent, consideration) as any other contract.” Bank of Cave Spring v. Gold Kist, Inc., 173 Ga.App. 679, 327 S.E.2d 800, 802 (1985).
In First State Bank v. Hall Flooring Company,2 B subcontracted certain work to C. After the work was completed, B wrote a letter to X stating that B would make payment for C’s work jointly payable to C and X. X later contended the letter was an assignment of the obligation that B owed to C.
The Georgia Court of Appeals disagreed and stated in part:
The sole question presented for decision is whether the letter from B to X, in which B agreed to make payment jointly to C and X (such arrangement being acceptable to C), was a legal assignment of C’s chose in action.
118 S.E.2d at 857.
The court also stated:
The purported assignment in the present case did not show an intention to transfer the fund immediately since the payment was to be made jointly to the purported assignor and assignee without any distinction being shown as to their separate interest in such fund, and for such reason the paper could not constitute either an equitable or legal assignment and the judgment of the trial court so holding was not error.
118 S.E.2d at 858.
In Piedmont Southern Life Insurance Co. v. Gunter,3 Gunter sought to recover medical expenses allegedly due under his health insurance policy. The doctor and hospital that provided the medical services sought to intervene contending that Gun-ter had assigned the insurance benefits to them. Gunter had signed a form which stated in part:
“Assignment of insurance benefits: I hereby authorize payment directly to the above named surgeon [or hospital] of the Group Surgical [or hospital] Benefits herein specified and otherwise payable to me but not to exceed the charge stated above [or the hospital’s regular charges]. I understand I am financially responsible to the surgeon [or hospital] for charges not covered by this assignment.”
132 S.E.2d at 531.
The Georgia Court of Appeals held that Gunter had not assigned the insurance benefits to the doctor and hospital. The court stated in part:
*919The [health insurance company] objected to the intervention at the trial on the ground that these writings gave the [doctor and hospital] no right upon which an intervention could be based. This objection was valid. Though the word “assignment” is used, the writings “disclosed no intention on the part of the plaintiff [Gunter] to sell or assign the indebtedness, and none on the part of the alleged assignee to purchase the same; and, hence, the evidence failed to show any legal or equitable assignment of the claim in controversy.” Didschuneit & Sons v. Enochs Lumber & Mfg. Co., 42 Ga.App. 527, 156 S.E. 720; accord Burke v. Steel, 40 Ga. 217. “ * * * A mere communication to the holder of the fund (the obligor), containing no words of present assignment and merely authorizing and directing him to pay to a third party, may properly bear the interpretation that it is a mere power of attorney to the obligor himself, empowering him to effectuate a transfer by his own subsequent act.” 4 Corbin on Contracts 425, § 862.
132 S.E.2d at 531.
See Erika, Inc. v. Blue Cross and Blue Shield of Alabama, 496 F.Supp. 786, 789 (N.D.Ala.1980). (communication containing no words of a present assignment and merely authorizing and directing payment to a third party is not an assignment.)
Turning to the case at bar, the Court is persuaded that the Assignment is merely an authorization directing Columbia Farms to deduct $12,266.40 from each production settlement. The body of the document does not contain words of a present assignment. The Assignment does not show an intention to transfer any right, title, or interest in the $12,266.40. The funds so deducted are to be jointly payable to Respondents and Movant. Respondents did not relinquish total control over the funds.
The Court is persuaded that Respondents did not assign to Movant the $12,666.40 and that the funds are property of the bankruptcy estate.
An order in accordance with this memorandum opinion shall be entered this date.
. The Assignment is a "generic form” provided by Columbia Farms.
. 103 Ga.App. 270, 118 S.E.2d 856 (1961).
. 108 Ga.App. 236, 132 S.E.2d 527 (1963). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493755/ | MEMORANDUM OPINION
ROBERT F. HERSHNER, JR., Chief Judge.
Wells Fargo Financial Leasing, Inc. (“Wells Fargo”)1 filed on December 3, 2003, a motion for relief from the automat*921ic stay.2 Brian T. Alexander, Debtor, filed on February 24, 2005, a Motion to Use Cash Collateral. Debtor and Wells Fargo submitted a joint stipulation of facts on May 6, 2005. The Court, having considered the stipulation of facts and the arguments of counsel, now publishes this memorandum opinion.
Debtor is a family farmer engaged in chicken farming. Wells Fargo financed Debtor’s farming operation. Wells Fargo holds a first priority security interest in Debtor’s four chicken broiler houses, associated equipment, and certain real property located in Franklin County, Georgia.
On August 7, 2003, fire destroyed three of Debtor’s chicken houses. The remaining chicken house is inoperable. The fire was caused by arson.3 The chicken houses were covered by a fire insurance policy issued by Georgia Farm Bureau Mutual Insurance Company. Wells Fargo was shown as the Mortgagee/Loss Payee on the policy.4
Debtor defaulted on his obligations to Wells Fargo. Wells Fargo, through its counsel, sent Debtor a notice dated August 28, 2003, stating that Wells Fargo was beginning foreclosure proceedings. The foreclosure was scheduled for October 7, 2003. Debtor filed a petition under Chapter 13 of the Bankruptcy Code on October 6, 2003. The bankruptcy filing stayed the foreclosure. Debtor’s Chapter 13 case was converted to a Chapter 12 case on February 27, 2004. Wells Fargo does not dispute that Debtor is eligible for relief under Chapter 12.
Debtor made a claim under the fire insurance policy with Georgia Farm Bureau. In July 2004, Georgia Farm Bureau requested certain information to help it investigate the loss and to help determine the identity of the person responsible for setting the fire. Georgia Farm Bureau was not obligated to pay Debtor’s claim if the fire was intentionally set by Debtor. Georgia Farm Bureau could deny Debtor’s claim if Debtor failed to provide information or to cooperate with an investigation. Debtor did not provide the requested information.
In February 2005, Georgia Farm Bureau formally denied Debtor’s claim based upon his breach of the policy provisions requiring Debtor to provide information and to cooperate.5 Georgia Farm Bureau reached no conclusion regarding the identity of the person responsible for intentionally setting the fire.
The fire insurance policy provided in part that denial of an insured’s (Debtor’s) claim would not apply to a valid claim of the mortgagee.6 Wells Fargo made a claim as the mortgagee under the policy.
Georgia Farm Bureau, by letter dated February 14, 2005, acknowledged and agreed to pay Wells Fargo’s claim even though Debtor’s claim was denied.7 Georgia Farm Bureau has agreed to pay Wells Fargo $423,250 as mortgagee under the policy. Wells Fargo will hold in trust the funds pending further order of this Court.
Debtor has not made any payments on his obligations to Wells Fargo since filing *922for bankruptcy relief. The current post-petition arrearage and payments due Wells Fargo total $73,020. Wells Fargo filed a proof of claim for $1,415,499.99. On December 19, 2004, Wells Fargo’s appraiser determined that, in his opinion, the value of the collateral “as is” was $275,000.
Debtor concedes that Wells Fargo is undersecured. Debtor also concedes that “without the insurance proceeds [Debtor’s Chapter 12] case is simply not feasible.”8
Debtor contends that the insurance proceeds held by Wells Fargo are cash collateral. 11 U.S.C.A. § 363(a) (West 2004). Debtor wants to use the insurance proceeds to rebuild his chicken houses and to replace his equipment. Debtor proposes to grant Wells Fargo replacement liens on the rebuilt chicken houses and on the equipment. 11 U.S.C.A. § 1205(b)(2) (West 2004).
Wells Fargo contends that the insurance proceeds are not cash collateral. Wells Fargo wants relief from the automatic stay to repossess or foreclose on its collateral.
The fire insurance policy provides in part:
6. Mortgage Clause.
The word mortgagee includes trustee and loss payee.
[A] If a mortgagee is named in this policy, any loss payable will be paid to the mortgagee and you [Debtor], as interests appear. If more than one mortgagee is named, the order of payment will be the same as the order of precedence of the mortgagees.
[B] If we deny your [Debtor’s] claim, that denial will not apply to a valid claim of the mortgagee, ....
If we pay the mortgagee for any loss and deny payment to you [Debtor]:
a. We are subrogated to all the rights of the mortgagee granted under the mortgage on the property; or
Subrogation will not impair the right of the mortgagee to recover the full amount of the mortgagee’s claim.
Exhibit B, Section 6 Mortgage Clause, Policy Page 6 of 7.
“It is well established that money payable as the proceeds of a fire policy taken out before bankruptcy for the debt- or’s benefit does not arise from property, but from a personal contract between insurer and insured.” 5 Collier on Bankruptcy, ¶ 541.10 (15th ed. rev.2005).
In Decatur Federal Savings & Loan Assoc. v. York Insurance Co.9 the Georgia Court of Appeals stated in part:
Insurance polices regularly have one of two sorts of mortgagee payment clauses. Where the loss is paid to the loss payee named as its interest may appear this constitutes a simple or open-mortgage clause under which the mortgagee is a mere appointee of the fund whose right of recovery is not greater than that of the mortgagor. Conversely, where the loss payable clause contains language stipulating that, as to the mortgagee, the insurance shall not be invalidated by any act or neglect of the mortgagor or owner of the property, the effect of such language, referred to as the New York standard, or union mortgage clause is to create a separate and *923distinct contract on the mortgagee’s interest and give to it an independent status. Thus, under the standard clause, the mortgagee may frequently recover although the insured owner could not.
250 S.E.2d at 526.
Simple Mortgage Clause
Under a “simple mortgage clause,” an “open mortgage clause,” or a “loss payee clause” the mortgagee is not protected if the insured does something, such as committing fraud, to invalidate the policy. Black’s Law Dictionary 1034 (8th ed.2004). The clause makes the mortgagee merely an appointee to collect the insurance money due the insured. The mortgagee must claim in the right of the insured, not in the mortgagee’s own right. Insurance Co. of North America v. Gulf Oil Corp., 106 Ga.App. 382, 127 S.E.2d 43, 45 (1962). “[T]he policy remains one between the [insurance] company and the owner [the insured], with a right of collection vested in the mortgagee by appointment.” Id. at 46.
Standard Mortgage Clause
Section 6 [B] of the fire insurance policy is known as a “standard mortgage clause,” a “union mortgage clause,” or a “New York standard clause.” Under this clause the mortgagee is protected even if the insured does something to invalidate the mortgage. Southern General Insurance Co. v. Key, 197 Ga.App. 290, 398 S.E.2d 237, 238 (1990) cert. denied.; Fortson v. Cotton States Mutual Insurance Co., 168 Ga.App. 155, 308 S.E.2d 382, 383 (1983) cert. denied. This clause creates a separate and distinct contract between the mortgagee and the insurance company. American Central Insurance Co. v. Lee, 273 Ga. 880, 548 S.E.2d 338, 340 (2001). East Tennessee Mortgage Co. v. United States Fidelity and Guaranty Co., 268 Ga. 536, 491 S.E.2d 333, 336 (1997).
“The standard mortgage clause in a fire insurance policy creates a separate contract between the insurer and the mortgagee in which the owner has no interest.” Murphy v. Aetna Insurance Co., 96 A.D.2d 99, 101, 468 N.Y.S.2d 265, 267 (4th Dept.1983) (emphasis added). See 4 Couch on Insurance § 65:36(3d) (2004).
Turning to the case at bar, Georgia Farm Bureau agreed to pay Wells Fargo’s claim even though Debtor’s claim was denied. The Court is persuaded that Wells Fargo’s claim was paid pursuant to a standard mortgage clause. This clause created a separate and distinct contract between Wells Fargo and Georgia Farm Bureau. Wells Fargo was claiming in its own right as mortgagee under Section 6[B] of the fire insurance policy. The Court is persuaded that Debtor has no interest in the insurance proceeds paid to Wells Fargo. The Court will deny Debt- or’s Motion to Use Cash Collateral.
Debtor concedes that Wells Fargo is undersecured and that Debtor’s Chapter 12 case is not feasible without the insurance proceeds. The Court will grant Wells Fargo’s motion for relief from the automatic stay. 11 U.S.C.A. § 362(d) (West 2004).
An order in accordance with this memorandum opinion shall be entered this date.
. Wells Fargo is the successor in interest to Telmark LLC. The Court will refer to Wells Fargo throughout this memorandum opinion.
. Wells Fargo's motion for relief was continued by agreement of Counsel while the fire insurance claim was pending.
. At a hearing on February 25, 2005, Counsel for Wells Fargo and Debtor stated that there was no dispute that the fire was caused by arson.
. Exhibit B, Declarations Page 11.
. Exhibits C and D.
. Exhibit B, Section 6 Mortgage Clause, Policy Page 6 of 7.
. Exhibit D.
. Brief in Support of Motion to Use Cash Collateral and in Opposition to Motion For Relief From Automatic Stay, p. 4-5, Docket No. 77.
. 147 Ga.App. 797, 250 S.E.2d 524 (1978). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493756/ | MEMORANDUM OPINION
MARK W. VAUGHN, Chief Judge.
The Court has before it a motion filed by Defendant ASR Acqusition Corp. (“ASR”) seeking to dismiss the above-captioned adversary proceeding commenced by Robert Wolfe Associates, P.C. (the “Plaintiff’). ASR filed a memorandum in support of its motion. The Plaintiff filed its opposition to ASR’s motion in open court at the hearing held on December 2, 2004. After hearing both parties’ arguments, the Court took this matter under advisement. For the reasons set out below, ASR’s motion to dismiss is granted in part and denied in part.
Jurisdiction
This Court has jurisdiction of the subject matter and the parties pursuant to 28 U.S.C. §§ 1334 and 157(a) and the “Standing Order of Referral of Title 11 Proceedings to the United States Bankruptcy Court for the District of New Hampshire,” dated January 18, 1994 (DiClerico, C.J.). This is a core proceeding in accordance with 28 U.S.C. § 157(b).
*40
Background
Bob Desmond (the “Debtor”) filed a voluntary petition under Chapter 11 of the Bankruptcy Code with this Court on November 13, 2003. The Plaintiff is a law firm that provided legal services to the Debtor prepetition, and it obtained a judgment against the Debtor at Suffolk County Superior Court on September 14, 2001, in the amount of $145,986, plus interest and costs. On June 14, 2002, the Plaintiff obtained an attachment on the estate of the Debtor located at 11 Laurel Road, Brook-line, Massachusetts (“Laurel Property”), to secure the judgment.
ASR is a Massachusetts corporation engaged in the business of lending and investing money. Between September 1989 and June 2001, ASR lent the Debtor and his business in excess of $6,000,000. The Debtor repaid part of the obligations, including payments made between October 31, 2001, and February 26, 2004, totaling approximately $1,700,000. The parties dispute the amount of the outstanding balance due. On January 29, 2004, ASR filed a proof of claim in the amount of $3,173,851.40. (Claim No. 6).
On or about June 23, 2002, the Debtor promised to grant the Plaintiff a second mortgage on the Debtor’s farm in Strawberry Hill (“Strawberry Farm”) if the Plaintiff would discharge his attachment on the Laurel Property. The Plaintiff argues that the Debtor and ASR represented to it that the attachment jeopardized the pending sale of the Laurel Property and that ASR was owed $1,650,000 by the Debtor before the receipt of the sale proceeds. The Debtor and ASR deny that they made such representations. The Debtor also represented to the Plaintiff that the first mortgage on the Strawberry Farm was held by ASR, and the value of ASR’s mortgage would be reduced to $1,000,000 when ASR received its share of the sale proceeds from the Laurel Property. The Plaintiff agreed to the substitution of collateral, and it discharged its attachment on the Laurel Property on June 27, 2002. But, thereafter, the Debtor refused to grant the Plaintiff a note and mortgage on the Strawberry Farm. Alleging that it was defrauded by the representations made by the Debtor and ASR, the Plaintiff brought an adversary proceeding in this Court on May 25, 2004.
Discussion
The Plaintiffs complaint contains four counts, all of which ASR seeks to dismiss in its motion. In ruling on a motion to dismiss under Rule 12(b)(6), which is made applicable to adversary proceedings by Federal Rule of Bankruptcy Procedure 7012(b), the Court “must accept as true the well-pleaded factual allegations of the complaint, draw all reasonable inferences therefrom in the plaintiffs favor, and determine if the complaint, so read, limns facts sufficient to justify recovery on any cognizable theory.” LaChapelle v. Berkshire Life Ins. Co., 142 F.3d 507, 508 (1st Cir.1998); see also Alternative Energy, Inc. v. St. Paul Fire and Marine Ins. Co., 267 F.3d 30, 33 (1st Cir.2001); TAG/ICIB Serv., Inc. v. Pan American Grain Co., 215 F.3d 172, 175 (1st Cir.2000).
The Court will first address the issue of Count II, Re-characterization. Count II alleges that the loans of ASR should be re-characterized as an equity interest in the assets of the Debtor. ASR argues that the loans which it advanced to the Debtor may not be re-characterized as equity because one cannot have an ownership interest in an individual. The Plaintiff concedes that Count II seeking re-characterization should be dismissed. Accordingly, Count II is dismissed.
Count I alleges that the actions of ASR were inequitable and resulted in injury to *41the Plaintiff and the general unsecured creditors of the Debtor, thus, the claim of ASR should be equitably subordinated to the claim of the Plaintiff. ASR contends that equitable subordination is typically applied to “insiders,” but the Plaintiff fails to set forth any allegations establishing ASR’s insider status. The Plaintiff also fails to allege any facts to show that ASR exerted complete control over the Debtor. Furthermore, the Plaintiff has not pled any specific facts alleging ASR’s misrepresentations other than ASR’s alleged misrepresentation to the Plaintiff of the amounts the Debtor owed ASR.
While most cases addressing equitable subordination under § 510(c)1 involve either technical insiders within the meaning of § 101, including persons in control or fiduciaries of the debtor, equitable subordination of unrelated third-party claims is contemplated by the courts. Lawrence P. King et. al., Collier on Bankruptcy ¶ 510.05[4] (15th rev. ed. 2003). If the creditor is not an insider, then fraud or misrepresentations are the most frequent justifications for equitable subordination. Capitol Bank & Trust Co. v. 604 Columbus Ave. Realty Trust (In re 604 Columbus Ave. Realty Trust), 968 F.2d 1332, 1361 (1st Cir.1992).
The Court agrees with ASR that the Plaintiff has not pled the facts necessary to establish the “insider” status of ASR. However, the Court finds that the Plaintiffs complaint sufficiently alleges ASR’s misconduct as a non-insider creditor. As reviewed above, the Plaintiff alleges that ASR and the Debtor both represented to the Plaintiff that ASR was owed $1,650,000 by the Debtor before the receipt of proceeds from the sale of the Laurel Property and that this representation was false. (2nd Amended Compl. ¶ 14.) The Plaintiff also claims that it discharged the attachment on the Laurel Property in reliance of the Defendants’ representation. Id. at ¶¶ 14-16. Therefore, if the Court accepts the allegations of the complaint as true, and draws all reasonable inference therefrom in the Plaintiffs favor, the Plaintiffs complaint contains facts sufficient to justify its recovery based on ASR’s fraud and/or misrepresentation.
Count III asserts that the claims of ASR are unenforceable within the meaning of § 502(b)(1) due to lack of consideration. It also alleges that the claims of ASR are fraudulent and in violation of state and federal law. ASR argues that this count should be dismissed since its claims are fully supported by consideration. The Court does not agree with ASR. Section 502(b)(1) requires dis-allowance of a claim to the extent that “such claim is unenforceable against the debtor and property of the debtor, under any agreement or applicable law for a reason other than because such claim is contingent or unmatured.” The legislative history of § 502(b)(1) indicates that disallowance is required if the claim is unenforceable as against the debtor for any reason such as usury, unconseionability or the failure of consideration. H.R. Rep. No. 95-595, 95th Cong., 1st Sess. 352 (1977); S. Rep. No. 95-989, 95th Cong., 2d Sess. 62 (1978). The Plaintiffs complaint extensively detailed both the repayment of the ASR loans and the monies paid to ASR. If the Plaintiffs allegation is true that ASR is repaid in excess of any monies owed, then there is no longer consideration for the claims. Also, throughout the complaint, the Plaintiff provides details of ASR’s conduct, which the Plaintiff believes is fraudulent. Accordingly, *42ASR’s request to dismiss Count III is denied.
Finally, Count IV alleges that ASR has been unjustly enriched and overpaid by the Debtor by more than $2,000,000. ASR argues that the Plaintiff lacks standing to pursue its claim for restitution since the Debtor in this case had already brought an adversary proceeding against ASR, Bob Desmond v. ASR Acquisition Corp., Adv. No. 04-1107-MWV, making similar allegations against ASR. ASR’s request to dismiss this count is not timely. On July 1, 2004, prior to ASR’s filing of this motion, this Court granted leave to the Plaintiff to recover property for the benefit of the estate of the Debtor consistent with § 503(b)(3) and (b)(4) upon the Plaintiffs motion to amend its complaint. (Ct.Doc. 15.) ASR has not timely sought to reconsider the order. Thus, the Court denies ASR’s request to dismiss Count IV.
Conclusion
For the reasons outlined above, the Court grants ASR’s motion to dismiss Count II of the Plaintiffs complaint and denies ASR’s request to dismiss Counts I, III and IV. This opinion constitutes the Court’s findings and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052. The Court will issue a separate order consistent with this opinion.
. Unless otherwise noted, all statutory section references herein are to the Bankruptcy Reform Act of 1978, as amended, 11 U.S.C. §§ 101, et seq. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493757/ | MEMORANDUM OPINION
MARK W. VAUGHN, Chief Judge.
The Court has before it two motions filed by the United States Trustee. The first motion sought alternative remedies, *43including the expansion of the examiner’s powers, conversion to Chapter 7, or the appointment of a Chapter 11 trustee. Hearings were held on that motion on March 31, 2005, May 2, 2005, and June 24, 2005, after which the Court took the matter under advisement. On July 24, 2005, the United States Trustee filed another motion seeking conversion of the case to Chapter 7. The Court heard this motion on August 15, 2005.
Jurisdiction
This Court has jurisdiction of the subject matter and the parties pursuant to 28 U.S.C. §§ 1334 and 157(a) and the “Standing Order of Referral of Title 11 Proceedings to the United States Bankruptcy Court for the District of New Hampshire,” dated January 18, 1994 (DiClerico, C.J.). This is a core proceeding in accordance with 28 U.S.C. § 157(b).
Facts
This case was filed on November 13, 2003. The Debtor’s main assets consist of real property located in Orford, New Hampshire, and Fairlee, Vermont. The nature and the amount of liens on the Orford property are the subject of litigation pending in this Court. The Debtor’s other assets consists of causes of action concerning Weaver Cove, LLC. As a result of an earlier motion to convert brought by the United States Trustee, the Court appointed an examiner on June 25, 2004. The Debtor has filed a plan and disclosure statement, to which there were numerous objections, and which is currently pending before this Court. The plan is largely dependent on the Debtor’s success in his litigation.
The most recent motion to convert was triggered by the United States Trustee’s receipt of a notice of cancellation of insurance on the Orford property. On at least three prior occasions, cancellation had been threatened. At the hearing on August 15, 2005, the Debtor produced a binder effective through August 28, 2005, and a check for partial payment drawn on an account of the Debtor’s son dated that same day, August 15, 2005. Throughout the course of this Chapter 11, the Debtor has been unemployed, having no earned income and apparently surviving on loans or gifts. At least one of these “lenders,” Stonestreet Construction, LLC, has filed a claim for an administrative expense in the amount of $75,000, which the Debtor alleges is unenforceable even though he signed a note for that amount. At the last hearing, the United States Trustee produced a check from 142 Destra Realty Corp. signed by the Debtor, apparently for his membership in the New York Yacht Club. It is undisputed that the Debtor has paid no quarterly fees to the United States Trustee since the start of this case. The debtor has also been continually late in filing quarterly reports with the United States Trustee. Debtor’s counsel has filed an interim application seeking fees in the amount of $196,089 and reimbursement of expenses in the amount of $9,117.81, and there are no funds on hand to pay them. Finally, as the Court indicated at the August 15, 2005, hearing, the Debtor has largely ignored the requirements imposed on a debtor in Chapter 11 unless it was for his benefit alone.
Discussion
The United States Trustee has brought this last motion under 11 U.S.C. § 1112(b)(1), (2), (3) and (10):
Except as provided in subsection (c) of this section, on request of a party in interest or the United States trustee or bankruptcy administrator, and after notice and a hearing, the court may convert a case under this chapter to a case *44under chapter 7 of this title or may dismiss a case under this chapter, whichever is in the best interest of creditors and the estate, for cause, including—
(1) continuing loss to or diminution of the estate and absence of a reasonable likelihood of rehabilitation;
(2) inability to effectuate a plan;
(3) unreasonable delay by the debt- or that is prejudicial to creditors;
(10) nonpayment of any fees or charges required under chapter 123 of title 28.
11 U.S.C. § 1112(b)(1), (2), (3) and (10).
Up to now, the Court has been hesitant to increase the powers of the examiner because the Court believes there is little or no statutory support for such an examiner, and the proper remedy, if required, is to provide for a Chapter 11 trustee. However, the Court is further of the impression that, in an individual Chapter 11 case, to have a functioning Chapter 11 trustee is an impossible task.
The Court finds that cause exists to convert the case under 11 U.S.C. § 1112(b)(1), (2) and (3) since the estate is apparently administratively insolvent, the Debtor has not been able to effectuate a plan where there is a reasonable likelihood of confirmation, and continued delay in Chapter 11 is and will be prejudicial to creditors. The Court further finds that based on the Debtor’s failure to pay any fees to the United States Trustee for almost two years, conversion is justified under 11 U.S.C. § 1112(b)(10).
Based on all of the above, the Court grants the motion to convert the case to Chapter 7. The United States Trustee shall appoint a Chapter 7 trustee forthwith who will hopefully make an early determination as to whether this case should even stay in Chapter 7 or be dismissed.
Conclusion
This opinion constitutes the Court’s findings and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052. The Court will issue a separate order consistent with this opinion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493758/ | MEMORANDUM OF DECISION
KRECHEVSKY, Bankruptcy Judge.
I.
The matter before the court is a Chapter 7 trustee’s “Objection to Debtor’s Claim of Exemption” (“the objection”) involving the debtor’s asserted homestead exemption in realty in which he did not live. The parties have submitted the matter on briefs alone, and the following background is based upon the briefs and the debtor’s filed bankruptcy petition, as amended (“the petition”).
II.
Shane Reed (“the debtor”) filed the petition on March 3, 2005 at 9:49 A.M.1 with the clerk of the bankruptcy court. In the petition, the debtor listed a one-half interest in realty known as 7 Penfield Avenue, Ellington, Connecticut (“the realty”). The petition, in amended Schedule C, claims an exemption in the realty, pursuant to Bankruptcy Code § 522(d)(1), in the amount of $16,000.2 The petition lists the debtor’s residence address as 46 Beech Road, En-field, Connecticut, and indicates his “wife” owns the other one-half interest in the realty.
The debtor’s wife, Jennifer A. Reed, (“Jennifer”), on October 27, 2004, had instituted, pro se, a marriage dissolution action in the Connecticut Superior Court (“the state court”). She listed her address as 7 Penfield Avenue, Ellington, Connecticut. The debtor appeared pro se in that action. After the filing of the petition, the debtor, together with Jennifer, proceeded to the state court where they executed and filed a “Dissolution of Marriage Agreement” (“the Agreement”), dated March 3, 2005. The Agreement, in ¶ 9, entitled “As To Division Of Property”, stated: “Shane will receive half the equity in the amount of $16,000.00 in the home located at 7 Penfield Ave. no sooner than November 1, 2005.” The state court, thereupon, entered a judgment which dissolved the marriage.
III.
Anthony S. Novak, Esq., the trustee of the debtor’s estate (“the trustee”), on April 5, 2005, filed his objection to the debtor’s *46claim of exemptions, asserting that the debtor is not “eligible” to exempt the realty “as said real estate is not the principal residence of the debtor.” (Objection at 2). In his brief, the trustee further argues that the failure of the debtor to disclose his entitlement “to a $16,000 property settlement from his ex-wife” should be cause for the court to deny the debtor the claimed exemption. (Trustee’s Brief at 6).
The debtor’s brief emphasizes the state-court marriage dissolution judgment came after the filing of the bankruptcy petition; that Jennifer, at the time of the filing of the bankruptcy petition, qualified as the debtor’s dependent residing in the realty, and that “the property settlement is not property of the estate.” (Debtor’s Brief at 3).
IV.
Bankruptcy Code § 522(d)(1), in relevant part, provides:
The following property may be exempted ...
(1) the debtor’s aggregate interest, not to exceed $18,450 in value, in real property ... that the debtor or a dependent of the debtor uses as a residence ....
Section 522(a)(1) defines: “dependent” to include a “spouse, whether or not actually dependent.”
Section 301 states: “A voluntary case under a chapter of this title is commenced by the filing with the bankruptcy court of a petition under such chapter by an entity that may be a debtor under such chapter. The commencement of a voluntary case under a chapter of the title constitutes an order for relief under such chapter.”
V.
Bankruptcy Code provisions become effective upon the filing of a petition — that is, at the time on the day that the petition is filed. Cf. In re Burgos, 263 B.R. 698 (Bankr.D.Conn.2001) (Shiff, J.). (Automatic stay became effective on the time of day petition filed). Accordingly, when the debtor filed his petition, the debtor was then entitled to an exemption in the realty, as Jennifer qualified as a dependent, whether or not actually a dependent, who used the realty as a residence.
The court interprets ¶ 9 of the Agreement to mean that the debtor is to receive $16,000 when he conveys his one-half interest in the realty to Jennifer. This is not a basis to deny the debtor his claimed exemption.
VI.
The trustee’s objection is without foundation and is hereby overruled. It is SO ORDERED.
JUDGMENT
The court, having issued a Memorandum of Decision of even date, it is
ORDERED and ADJUDGED that the trustee’s objection to the debtor’s claim of exemption in real property located at 7 Penfield Avenue, Ellington, Connecticut be overruled.
. According to the petition, the debtor and his attorney executed the petition on February 25, 2005.
. In amended Schedule A, the petition states the full value of the realty to be $189,000, subject to two mortgages totaling $155,589.80. Both amended Schedules A and C were filed subsequent to the trustee's objection. See Fed. R. Bank. P. 1009(a). (Petition “may be amended by the debtor as a matter of course at any time before the case is closed.”) | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493759/ | MEMORANDUM OPINION AND DECISION
RICHARD L. SPEER, Bankruptcy Judge.
This cause comes before the Court after a Hearing on the Motion of National City Bank to Approve a Postpetition Setoff. Bunting Bearings, LLC, having assumed the Debtor’s outstanding obligations to the Movant, disputes the liability giving rise to the setoff. On National City Bank’s right to setoff, the Debtor took no position. After considering the Parties’ arguments made at the Hearing and by brief, the Court, for the reasons set forth herein, finds that the Motion of National City Bank has merit.
BACKGROUND FACTS
The background giving rise to the Parties’ dispute began in 1997. In that year, the Debtor was the recipient of a favorable loan arrangement, with the proceeds for the loan stemming from the sale of Industrial Revenue Bonds by the county government. As security to the bondholder(s), National City Bank (“National City”) issued for the Debtor’s benefit a letter-of-credit. In return, National City was given a security interest in a significant portion of the Debtor’s assets. With this transaction, the Debtor and National City executed a Reimbursement Agreement, substantively setting forth that the Debtor would reimburse National City for all of its reasonable costs and expenses, including legal fees, associated with the Ietter-of-credit. (Reimbursement Agreement, § 13).
Subsequently, in 2002, the Debtor filed a petition for relief under Chapter 11 of the Bankruptcy Code. During the administration of its case, Bunting Bearings (“Bunting”), a company formed for the specific purpose of consummating a sale of substantially all of the Debtor’s assets under 11 U.S.C. § 363 (and hence its namesake with the Debtor), offered to purchase from the estate the bulk of the Debtor’s assets. And importantly here, so as to obtain the consent of National City to the transaction, Bunting also agreed to assume the Debt- or’s liabilities to National City. In more specific terms, a Purchase Agreement was enacted, memorializing the terms of the sale, and set forth that Bunting was to assume the Debtor’s “obligations under the Industrial RevemmBond ... financing and the Letter of Credit issued by National City Bank with respect thereto.” (Purchase Agreement, § 3.1(d)). The transaction was consummated at or around May 11, 2004, at which time Bunting posted sufficient funds to fully satisfy all of its potential liabilities on the bonds and letter-of-credit. On July 1, 2004, National City formally discharged Bunting’s obligation on these liabilities, thereby contemporaneously terminating the accretion of any further fees or other charges.
Following the sale, National City filed with the Court its Motion To Approve *316Setoff. In its Motion, National City acknowledged a debt owing to the Debtor— and thus by extension to Bunting — in the amount $27,994.74. This amount was derived from a refund due Bunting in the amount of $6,049.35 for one month’s letter-of-credit fees paid after July 1, 2004; and $21,945.39 for the overpayment of interest on the Revenue Bonds.
Against this debt, National City seeks an offset in the amount of $36,031.16,1 thereby leaving it a claim against Bunting in the amount $8,036.42. This charge stems primarily from legal fees it incurred on account of the Debtor’s pending bankruptcy case, but also includes costs for title work and a remarketing fee. Bunting entirely disputes National City’s entitlement to these fees, thus taking the position that National City holds no right of setoff.
DISCUSSION
This Court is asked to determine the extent to which, if any, National City has a right of setoff against Bunting. Pursuant to 28 U.S.C. § 157(b)(2)(L), and the retention of jurisdiction articles, as set forth in both the Debtor’s third amended confirmed plan of reorganization, (¶ 12.4(c)), and the Order Approving Sale of Assets Free and Clear, (¶¶ 11, S), this is a core proceeding over which this Court has the jurisdictional authority to enter final judgments and orders.
In general terms, setoff represents the right which one party has against another to use his claim in full or partial satisfaction of what he owes to the other. Baker v. Nat’l City Bank, 511 F.2d 1016, 1018 (6th Cir.1975). Here, National City seeks to apply this legal doctrine so as to offset a debt it has to Bunting in the amount of $27,994.74 against a debt it claims it is owed by Bunting in the amount of $36,031.16. As overall authority for this action, National City relies on the following relevant language of two provisions set forth in its Reimbursement Agreement with the Debtor:
[T]he Company agrees to pay to the Bank a Commitment Fee with respect to the issuance and maintenance of the Letter of Credit from the Date of Issuance to and including the Termination Date. (...) If the Termination Date shall occur prior to the Stated Expiration Date ... the Company shall have no obligation to pay a Commitment Fee after the Termination Date. The Company shall not be entitled to a rebate of any portion of the Commitment Fee paid to the Bank. (Section 2(a)).
To the extent permitted by law, the Company hereby indemnifies and holds harmless the Bank from and against any and all claims, damages, losses, liabilities, reasonable costs and expenses whatsoever (including reasonable attorney’s fees) which the Bank may incur ... by reason of or in connection with the execution and delivery or transfer of, or payment or failure to pay under, the Letter of Credit[.] (Section 13).
In opposition to National City’s right of setoff under these two provisions, Bunting raises what can be distilled down to essentially two points of opposition. First, Bunting stated in its supplemental brief to the Court: “No Letter of Credit fees should have been charged after [National City] had in its possession sufficient funds to discharge all obligations under the [Industrial Revenue] Bonds.” (Doc. No. 1040, at pgs. 1-2). In other terms, Bunting argues that, after the May 11, 2004 sale of *317the Debtor’s assets and liabilities, National City improperly kept the meter running. Therefore, according to Bunting, it is due from National City an additional amount of $10,328.67, representing those fees paid for the letter-of-credit from May 11, 2004,— the date on which the National City received as a part of the sale of the Debtor’s assets sufficient funds to fully satisfy the Bond and letter-of-credit obligations — to July 1, 2004, — the date on which Bunting’s obligation under these liabilities was actually discharged by National City. (Doc. No. 1040, at pgs., 1-2).
Bunting’s second argument against National City’s right to setoff holds that those fees for which it seeks reimbursement is tantamount to a double-recovery. In Bunting’s view, this situation arises because during the pendency of the Debtor’s bankruptcy case, National City twice increased its letter-of-credit fees, which, under its understanding of the situation, were meant to cover those costs associated with the Debtor’s bankruptcy filing, including legal fees. But now, contrary to this understanding, National City has also assessed approximately $36,000.00 in additional fees, the majority of which are to likewise cover those legal costs it incurred during the pendency of the Debtor’s bankruptcy. National City, on the other hand, argues that the two charges are separate and independent, with the assessment of the letter-of-credit fees being imposed simply to compensate it for the increase in risk associated with financing a debtor in bankruptcy; not, as is the case with the other fees, to reimburse it for the actual costs associated with the Debtor’s bankruptcy.
Based upon these arguments, two points are discernable: Bunting does not challenge that, under its agreement to purchase the Debtor’s assets, it was required to assume the Debtor’s outstanding obligations to National City. Rather, Bunting contests National City’s interpretation as to the breadth of its assumed liabilities under the Reimbursement Agreement executed by the Debtor. Resolution of the issues raised by the Parties is thus necessarily one of contractual interpretation.
In matters of contractual interpretation, the primary goal is to give effect to the intent of the parties as expressed in the language of the agreement. Aultman Hosp. Assn. v. Community Mut. Ins. Co., 46 Ohio St.3d 51, 53, 544 N.E.2d 920 (1989). No express language, however, was cited to in this matter supporting Bunting’s first point of opposition: that the accumulation of fees owed to National City on the letter-of-credit should have ceased at the time of the § 363 sale of the Debtor’s assets. And it is the general rule that the absence of such a provision from the Parties’ contract indicates an intention to exclude it, rather than an intention to include it. Morrison v. Fleck, 120 Ohio App.3d 307, 312-13, 697 N.E.2d 1064 (9th Dist.1997). Still, terms may be implied into a contract. See Id. And in this regard, Bunting’s argument necessarily hinges on the implicit assumption that once the sale of the Debtor’s assets took place, the respective rights and liabilities of the Parties would be frozen in place.
For a term to be implied into a contract, its operation cannot go contrary to the express terms of the contract, and the omission must appear to be the result of sheer inadvertence or because the term was too obvious to need expression. Hamilton Ins. Serv., Inc. v. Nationwide Ins. Cos., 86 Ohio St.3d 270, 714 N.E.2d 898 (1999); 17 Am. Jur.2d, Contracts § 369 (2004). When the Parties’ Reimbursement Agreement is looked at under this standard, the application of the term ‘termination date’ as contained paragraph (a) of section (2) stands out as key.
*318Section (2)(a) of the Reimbursement Agreement, as assumed by Bunting, states that the “Company agrees to pay to [National City] a Commitment Fee with respect to the issuance and maintenance of the Letter of Credit from the Date of Issuance to and including the Termination Date.” And that “[t]he Company shall not be entitled to a rebate of any portion of the Commitment Fee paid to the Bank.”(Section 2(a)). In very certain terms then, this contractual language affords National City the right to allow the accrual of fees on the letter-of-credit up until the ‘termination date’ is triggered. But, as to a triggering mechanism for the ‘termination date,’ nothing in the Agreement necessarily requires (or was otherwise brought to the Court’s attention) that the term’s applicability would, from a timing standpoint, be directly correlated with the exact moment funds were tendered to fully satisfy the debt owed to National City. And, with an executory contract, the law does not automatically impose such a duty.2
Also added into the mix is this additional facet: When purchasing the Debtor’s assets, Bunting was required to post funds with National City in an amount sufficient to cover all of the Debt- or’s potential liabilities, both present and future. Consequently, with its full knowledge, Bunting’s deposit included fees and other charges that would accrue on the bonds and letter-of-credit beyond the actual date of the § 363 sale of the Debtor’s assets; but which now, only after the sale, does Bunting deem to be inappropriate. As such, Bunting’s position has an air of inconsistency, being that its objection could have been (and probably should have been) raised contemporaneously with the sale of the Debtor’s assets. In this way, the doctrine of waiver cannot be overlooked — defined in the contractual context as the voluntary relinquishment of a known right or an act showing impliedly or expressly that the party agreed to rely on something other than the strict letter of its agreement. State ex rel. Hess v. Akron, 132 Ohio St. 305, 307, 7 N.E.2d 411, 413 (1937); Vocke v. Third Nat’l. Bank & Trust Co., 28 Ohio Misc. 58, 77, 267 N.E.2d 606, 617 (1971).
For both these reasons then, the Court is simply not persuaded that Bunting’s first point in opposition has merit. Consequently, as argued by National City, Bunting is not entitled to the return of those fees paid on the letter-of-credit after the sale of the Debtor’s assets took place; but is instead liable for such fees up until July 1, 2004. Also, for essentially these same reasons, plus those additional ones set forth below, the Court finds that Bunting’s second point of opposition cannot be sustained.
Bunting’s second argument against National City’s right to setoff holds that the $36,031.16 in legal fees it seeks to recover should be disallowed because it is tantamount to a double-recovery. According to Bunting, this condition arises because it was agreed that such costs were to be included in the additional fees already assessed for issuing the letter-of-credit — ■ which it also notes were increased twice during the course of the Debtor’s bankruptcy — and not assessed as a separate charge. Thus, in Bunting’s words, “[t]he relief requested by [National City] in its Motion will result in a further windfall to [National City].” (Doc. No. 1040, at pg. 2).
*319However, as touched upon earlier, it is the position of National City that its assessment of legal costs is not related to those fees charged for the issuance of the letter-of-credit. Rather, the purpose for its increase in the letter-of-credit fees was to compensate it for “the increased risk associated with issuing a letter-of-credit fee for the benefit of a bankrupt company.” (Doc. No. 1041, Aff. of John Klee, ¶ 7). While its assessment of legal fees and other related costs was meant to indemnify it for its actual out-of-pocket expenses associated with the Debtor’s bankruptcy. (Doc. No. 1041, at pg. 4). In putting forth this reading of the Reimbursement Agreement, National City points to the separate and independent nature of those sections in the Reimbursement Agreement affording it the right to assess these separate charges. That is, according to National City, those fees charged for the letter-of-credit cannot be equated, nor included with those cost assessed for legal fees (and other related costs such as the remarketing fee).
As an initial point of reference, it is the general rule in Ohio that a litigant is not entitled to be reimbursed for their legal fees and expenses; each side must instead bear their own costs. Krasny-Kaplan Corp. v. Flo-Tork, Inc., 66 Ohio St.3d 75, 77, 609 N.E.2d 152, 153-154 (1993). Certain limited exceptions, however, do exist to this rule — one of which, as is set forth in the Reimbursement Agreement, is when the parties agree contractually to allocate such fees and expenses to one party. Practically speaking then, resolution of Bunting’s second point of contention is again necessarily one of contractual interpretation.
Also lying at the foundation in matters involving contractual interpretation is the tenet that agreements “must be read as a whole” with an eye toward achieving the objective the contract was meant to secure. Prudential Ins. Co. v. Corporate Circle, 103 Ohio App.3d 93, 98, 658 N.E.2d 1066, 1069 (1995). Reading an agreement as a whole, in turn, requires giving, wherever possible, effect to every provision. Id. Consequently, unless it would lead to a result which is manifestly against the intent of the parties, different provisions of a contract are to be interpreted consistently with the other. Expanded Metal Fireproofing Co. v. Noel Constr. Co., 87 Ohio St. 428, 434, 101 N.E. 348 (1913).
When put into practice, these tenets simply cannot be squared with Bunting’s overall position: that National City has already been compensated for its legal costs through having assessed its letter-of-credit fees pursuant to Article 2(a) of the Reimbursement Agreement. As shown below, the Parties’ Reimbursement Agreement both compartmentalizes and structurally separates the assessment of fees on the letter-of-credit versus its right to recover the legal costs it incurs in direct connection with the letter-of-credit. In-terpretatively then, Bunting’s position, besides rendering National City’s right to recover attorney fees under Article 13 essentially superfluous, would also require that this Court read into Article 2(a) something that is not even audibly evidenced.
In the Reimbursement Agreement assumed by Bunting, National City’s right to charge fees on its letter-of-credit is set forth in Section 2(a), with this section being entitled, “Commitment Fee; Amounts Payable in Respect of Drawing; Other Fees.” Nowhere in section 2(a), however, is anything mentioned about legal fees. Instead, the topic of legal fees is directly handled in section 13 of the Agreement. This section, entitled aptly “Indemnification,” confers upon National City the right to be indemnified for “reasonable costs and *320expenses” “including reasonable attorney’s fees” which it may incur in connection with the letter-of-credit. Neither of these specific sections cross-reference or otherwise make applicable the other.
With this structure then, all the arrows squarely point to National City having the right to assess, as separate and independent charges, fees on its letter-of-credit as well as the right to be indemnified for its legal (and other related) costs. Yet, Bunting’s position is not completely confined to the four corners of the Reimbursement Agreement. Indeed, the main thrust of its position that National City’s legal costs were to be subsumed into (as opposed to separated from) those fees it assessed on the letter-of-credit, centers on the existence of a subsequent oral understanding to that effect. In support thereof, Bunting submitted to the Court two affidavits from persons who were involved with the Debtor’s Reimbursement Agreement. (Doc. No. 1040, Affs. of H. Roberts and T-Kwiatkowski). Conversely, National City denies the existence of any such understanding, offering its own affidavit in support. (Doc. No. 1041, Aff. of John Klee).
As Bunting puts forth, parties to a contract are always free to modify their original agreement. And so long as it otherwise meets the essential elements of a binding contract, an oral modification is binding even against a prior written contract. Richland Builders, Inc. v. Thome, 88 Ohio App. 520, 527, 100 N.E.2d 433 (1950). Still, as is often the case when parties are performing under the terms of an executory contract, communications take place between the parties concerning the details of their performance under the contract. And thereafter, when a dispute arises over the contract, such discussions are then used, as Bunting does here, as a basis to argue that a modification occurred as to the terms of the original written contract.
Yet, even under the best of circumstances, witnesses to the same event often vary widely on their account of events, despite having observed the same thing. But with mutual assent forming the basis of any contractual arrangement, any claim as to the oral modification to the express and unambiguous terms of a prior written contract must be initially approached with skepticism. All the more so when the attendant circumstances or other corroborating evidence does not support the existence of any subsequent modification. In this way, Ohio law provides that parol is inadmissible to vary the terms of an unambiguous written contract, absent an allegation of fraud. Ed Schory & Sons, Inc. v. Society Nat’l. Bank, 75 Ohio St.3d 433, 662 N.E.2d 1074 (1996). And thus with respect to later modifications, the Ohio Supreme Court has admonished “[c]ourts [to] move slowly and carefully when the claim is made that a party has waived the terms of a written contract and agreed to different terms by parole[J” White Co. v. Canton Transp. Co., 131 Ohio St. 190, 198, 2 N.E.2d 501 (1936).
In light, therefore, of the attendant problems associated with oral modifications, the party advocating for the modification carries the burden of proving its existence. See, e.g., Synergy Mechanical Contractors v. Kirk Williams Co., Ohio App., 10th Dist. Case No. 98AP-431, 1998 WL 938592, *7 (1998). In this matter, however, the only direct evidence before this Court concerning the existence of any modification as to National City’s rights under the Reimbursement Agreement are the conflicting affidavits submitted by the Parties. As a practicable matter then, the evidentiary value of these competing affidavits is negated. As a result, Bunting’s *321burden to establish the existence of a modification as to the terms of its assumed Reimbursement Agreement is dependent upon additional corroborating evidence or other attendant circumstances which would tend to support the existence of such a subsequent agreement. But here, this burden has not been met, with the facts tending to show that no modification was ever effectuated.
First, and as already explained, Bunting’s claim as to the modification of the Reimbursement Agreement was not raised until after the sale of the Debtor’s assets occurred — despite Bunting apparently having access at the time of the sale to all the factual issues which it now raises in this matter. As such, Bunting’s course of conduct, as the assignee of the Debtor’s putative modification, does not align itself with its claim that National City had assented to its rights under the Reimbursement being modified.
Second, it cannot be ignored that the Parties’ Reimbursement Agreement contained a written-modification provision, stating in relevant part: “No amendment, waiver, modification, or release of any provision ... shall be effective, irrespective of any course of dealing ... unless the same shall be in writing.” (Section 9). And while such clauses are not always enforceable, its existence does further diminish the likelihood that National City agreed to any modification of its rights under the Reimbursement Agreement.
Finally, Bunting’s overall equitable argument on this matter is not well-taken. Bunting’s position here is that National City unfairly took advantage of the Debt- or, and thus by extension itself, through charging higher fees based upon a risk that simply did not exist because National City’s secured interest in the Debtor’s assets was fully collateralized. On this position, Bunting points out that by increasing its letter-of-credit fees, National City received a total of $77,937.68, far more than the actual cost of its legal expenses and other related costs which now total just over $36,000.00. (Doc. No., 1040, at pgs. 2-3). And on a certain level, the Court does agree with this statement: assessing additional fees against a company at a time when it is least able to assume such costs does not seem exactly fair.
Yet, it is not a court’s job to rewrite a contract so as to alleviate a party of their bad bargain. Northern Buckeye Educational Council Group Health Benefits Plan v. Lawson, 103 Ohio St.3d 188, 193, 814 N.E.2d 1210 (2004). As stated by the Ohio Supreme Court:
Cases of contractual interpretation should not be decided on the basis of what is ‘just’ or equitable. This concept is applicable even where a party has made a bad bargain, contracted away all his rights, and has been left in the position of doing the work while another may benefit from the work. Where various written documents exist, it is the court’s duty to interpret their meaning, and reach a decision by using the usual tools of contractual interpretation (e.g., the written documents, the intent of the parties, and the acts of the parties) and not by a determination of what is fair, equitable, or just.
Ervin v. Garner, 25 Ohio St.2d 231, 239-240, 54 0.0.2d 361, 267 N.E.2d 769 (1971).
But, in this matter, nothing indicates that, by assessing additional fees and other costs, National City’s was acting beyond the scope of its contractual rights; nor was Bunting under any compulsion to assume the Debtor’s Reimbursement Agreement; and finally no allegations of fraud have been made. Accordingly, while Bunting may be subject to contractual conditions which, on a completely equitable basis *322would not be allowed, the Court will not act to undo the terms of the bargain struck by the Parties.
For the reasons thus heretofore explained, the Court is not persuaded by those arguments raised by Bunting against National City’s Motion for Setoff. Therefore, in full, National City’s Motion shall be Approved. In reaching the conclusions found herein, the Court has considered all of the evidence, exhibits and arguments of counsel, regardless of whether or not they are specifically referred to in this Opinion.
Accordingly, it is
ORDERED that the Motion of National City Bank to Approve Setoff, be, and is hereby, GRANTED.
. On this amount, slightly different figures were presented to the Court, both as a total and after summing the individual components of the debt. This figure, however, will be used as it appears to be the most accurate and up-to-date.
. For a complete discussion on this subject, see 28 Williston on Contracts, § 72:45 (4th ed.). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493760/ | DECISION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause is before the Court after a Hearing on the Objection by the Creditor, Toledo Fire Fighters Federal Credit Union, to the Debtors’ Motion for an Order directing the Turnover of Monies. Subsequent to the Hearing, each of the Parties submitted briefs in support of their respective positions. The Court has now had the opportunity to review the arguments raised both at the Hearing and in these Briefs, together with the applicable law, and based upon this review, the Court, for the reasons explained in this Decision, finds that the Debtor’s Motion should be Denied.
The factual information giving rise to this controversy is not substantially in dispute. On August 27, 2004, the Debtors filed a petition in this Court for relief under Chapter 7 of the United States Bankruptcy Code. In their petition, the Debtors set forth that it was their intention to reaffirm on a secured debt to the Creditor, Toledo Fire Fighters Credit Union. The underlying collateral for this debt was an automobile owned by the Debtors.
On the petition date, the Debtors owed $4,724.97 on their automobile loan with the Creditor. And at this same time, the Debtors also had two other obligations with the Creditor: $814.49 stemming from an overdraft; and $5,559.02 incurred on a *329Visa account the Debtors maintained with the Creditor. Prior to the petition date, these obligations had been cross-collateral-ized with the Debtors’ auto loan.
So as to facilitate their stated intention to reaffirm on their auto loan, the Debtors continued to make postpetition payments to the Creditor. This was accomplished through the use of an automated debit account the Debtors maintained with the Creditor. But, prior to any formal reaffirmation agreement being executed, the Creditor informed the Debtors that it would only agree to the reaffirmation of the auto loan on the condition that the Debtors also reaffirm on those two other debts cross-collateralized with its auto loan. The Debtors refused, thereafter surrendering their automobile to the Creditor. Based then upon this turn of events, the Creditor returned those postpetition funds it had received on account of the two cross-collateralized accounts; but it declined to return those funds paid solely on account of the auto loan. The Debtors, by way of their Motion for Turnover, now seek to have the Creditor return these funds.
DISCUSSION
The Debtors’ action for a return of those funds paid postpetition to the Creditor is one for turnover. As an initial point of order, however, a Chapter 7 debtor generally has no standing to bring an action for turnover. Section 542,1 the general provision in the Bankruptcy Code governing turnover, confers this right upon the trustee; and then only to the extent that it pertains to estate property. Schieffler v. Pulaski Bank & Trust (In re Molitor), 183 B.R. 547, 554 (Bankr.E.D.Ark.1995) (actions for the turnover of property of the estate inherently concern the issue of whether property is property of the bankruptcy estate); In re Gunthorpe, 280 B.R. 893, 895-96 (Bankr.S.D.Ala.2001) (turnover under § 542 is limited to estate property).
Although in certain limited circumstances, a Chapter 7 debtor may be afforded with the status of a bankruptcy trustee — for example, under delimitated conditions, § 522(h) allows a debtor to exercise a trustee’s avoiding powers — such circumstances are not applicable here. And going a step further, it is highly questionable whether the property sought by the Debtors is even estate property, and thus the proper subject for turnover, as presumably those funds paid to the Creditor stem entirely from wages earned post-petition whose character then will fall entirely outside the scope of property of the estate. 11 U.S.C. § 541(a); In re Hellums, 772 F.2d 379, 381 (7th Cir.1985) (wages earned postpetition are not property of the estate). Yet, this lack of ability to bring an action for turnover does not mean that no remedy is available to the Debtors.
At the commencement of a bankruptcy case, a stay arises under § 362(a) which, simply put, enjoins any and all collection efforts against the debtor. Thus while the stay is in effect, any contact between a creditor and a debtor is potentially suspect. This is true notwithstanding the absence of any effect on the debtor’s bankruptcy estate — the stay covers not only acts taken against estate property, but also affords a debtor protections when, as *330in the current situation, a creditor seeks to apply nonestate assets as satisfaction for a prepetition debt. 11 U.S.C. § 362(a)(5)/ (6).
Just as important, actions taken in violation of the stay are invalid; and so as to provide an enforcement mechanism, a debtor is afforded with a private right of action to seek redress for a stay violation. 11 U.S.C. § 362(h); compare § 524 (providing no private right of action for a violation of the discharge injunction). Among other things, the potential remedies available to a debtor when they have been harmed by a stay violation include exactly that which is sought by the Debtors in this matter: the return of the assets transferred. Easley v. Pettibone Michigan Corp., 990 F.2d 905, 909 (6th Cir.1993).
Given therefore the stay’s overall operative legal structure, together with the lack of standing afforded to a debtor with respect to an action for turnover, the Debtors’ action in seeking redress for their postpetition remuneration of a prepetition debt must necessarily be one for a violation of the automatic stay as set forth in 11 U.S.C. § 362(a), and not an action for turnover. And in light of the principle that matters should be decided on their substantive merits and not procedural technicalities, and so as to also afford judicial expediency to the matters raised by the Debtors, this controversy will be treated as an action for a violation of the automatic stay pursuant to this Court’s authority under 11 U.S.C. § 105(a), together with Bankruptcy Rules 7015 and 9014. Pursuant to 28 U.S.C. § 157, a determination regarding the applicability of the stay, including a violation thereof, is deemed a core proceeding over which this Court has been conferred with the jurisdictional authority to enter final orders. 28 U.S.C. § 1334.
Having addressed the foregoing procedural point of order, the substantive issue now before the Court can be framed as this: whether a stay violation occurs when postpetition payments are made on a col-lateralized debt which, although stated by the debtor in their petition as a debt to be reaffirmed, was not ultimately reaffirmed? As now explained, the answer to this question is neither yes or no, but is rather dependent upon the particular factual circumstances of each case.
As already discussed, the automatic stay enjoins a creditor from attempting to recover on a prepetition debt, notwithstanding that the source of the payment comes entirely from a debtor’s nonestate assets. Yet, as is also the situation at hand, when the reaffirmation of a debt is added into the mix, the absolute prohibitions of the automatic stay do no apply. As taken from the decision of the Sixth Circuit Court of Appeals in Pertuso v. Ford Motor Credit Co.:
Courts considering § 362 claims have recognized that, taken to its logical extreme, this section could be read as prohibiting all contacts between creditors and debtors, including contacts regarding reaffirmation agreements. Such a reading would obviously undermine § 524(c), which permits reaffirmation agreements. The Seventh Circuit has concluded that § 362 is not automatically violated by sending a reaffirmation letter to a debtor, and we agree with that conclusion. Something more than mere contact must be alleged in order to state a claim under § 362.
233 F.3d 417, 423 (6th Cir.2000) (internal quotations and citations omitted). Recently, this Court restated this holding in these short terms: mere “contact between a debtor and creditor will not run afoul with § 362(a) so long as the contact is limited to *331the reaffirmation process of § 524(c).” Jacobs v. Honda Federal Credit Union (In re Jacobs), 321 B.R. 451, 453 (Bankr.N.D.Ohio 2004).
Although the factual circumstances presented in Pertuso were slightly different— Pertuso involved a creditor sending a proposed reaffirmation agreement — nothing would suggest that the Sixth Circuit’s holding was so limited. The reasoning behind the Pertuso decision was simply one of practicality: that for a debt to be reaffirmed, some contact between a debtor and the creditor is necessary. And the same applies to the instant situation where, in anticipation to the reaffirmation of a debt, a creditor accepts postpetition payments for its collateral. The reasoning for this is simple: a creditor cannot be compelled to enter into a reaffirmation agreement, thus making a debtor’s continued payment on the obligation a likely necessary inducement for the creditor’s consent. Furthermore, if a debtor is not current on their obligation, a creditor is fully within their right to seek relief from the stay, thereby frustrating the reaffirmation process.
Just the same, a creditor, under the guise of the reaffirmation process, is not afforded carte blanche immunity for its actions as it relates to the automatic stay. One of the purposes of the stay is to prevent creditor overreach. Chambers v. GreenPoint Credit (In re Chambers), 324 B.R. 326, 329-30 (Bankr.N.D.Ohio 2005). And in direct recognition of this, the Court in Pertuso held that acts taken during the reaffirmation process may still constitute a stay violation if such acts, (1) could reasonably be expected to have a significant impact on the debtor’s determination as to whether to repay, and (2) are contrary to what a reasonable person would consider to be fair under the circumstances. Pertuso, 233 F.3d at 423.
In this matter, the Debtors’ argument in support of a stay violation hinges on the Creditor engaging in a practice known as “linkage.” In short, ‘linkage’ occurs when a creditor conditions the reaffirmation of one claim to another. Jacobs v. Honda Fed. Cr. Union (In re Jacobs), 321 B.R. 451, 454 (Bankr.N.D.Ohio 2004). Usually a creditor will employ ‘linkage,’ this case being no exception, in the situation where one debt is secured — making reaffirmation necessary for the debtor to retain the collateral- and the other debt is unsecured — making reaffirmation unnecessary as the debt would be otherwise discharged. And looked at under this lens, there is simply no getting around the fact that ‘linkage’ will present a debtor with a “Hobson’s choice:” forego the use of needed collateral; or pay significantly more for the collateral than what otherwise would be reasonably required. Thus, ‘linkage’ will most likely satisfy the first condition of the Pertuso test, as the need to retain encumbered property can be reasonably expected to have a significant impact on a debtor’s determination as to whether to repay the debt.
But in switching focus, this Court has previously held that the practice of ‘linkage’ does not constitute a per se violation of the automatic stay, pointing out:
reaffirmation agreements are, for all practicable purposes, new contracts; creditors, or debtor’s for that matter, are free to propose any new terms to the agreement. Thus, to adopt the Debtors’ position potentially leads this Court down the slippery slope whereby any terms in a reaffirmation agreement which deviate from the parties’ original agreement, and which do not otherwise inure to the benefit of the debtor, would have to be viewed as coercive in nature.
*332In re Jacobs, 321 at 455. This lack of any per se violation for ‘linkage’ is where the second portion of the Pertuso test takes on importance.
The second prong of the Pertuso test requires that, to establish a stay violation in the reaffirmation context, it must be shown that the creditor’s actions are “contrary to what a reasonable person would consider to be fair under the circumstances.” In opposition to the fairness of the Creditor’s actions, the Debtors’ position centers around two points. First, at the time they filed their bankruptcy petition, they had no knowledge that the Creditor would attempt to link the reaffirmation of its secured claim to its unsecured claims. Second, their payments to the Creditor were not voluntary because they were done through an automated deposit/withdraw system. Based, however, upon the weight of the following considerations, the Court is not convinced that these two considerations lead to the conclusion that anything would be inherently unfair in allowing the Creditor to retain those postpe-tition payments made by the Debtor.
First, from just a simple equity standpoint, during the time the Debtors made their monthly payments to the Creditor, the Debtors retained the use of their car. Practically speaking then, the relief requested by the Debtors asks that this Court provide them, at the Creditor’s expense, the use of a car for free — effectively affording the Debtors a windfall. Principles of equity and fairness, of course, abhor such an outcome. Also with respect to just the Debtors’ second position concerning the Creditor’s continued billing, it has not gone unnoticed that the Creditor has since returned that portion of the funds it received on account of its two cross-collat-eralized obligations. Therefore, it cannot be said that the Creditor sought to unfairly take advantage of its attempt to link its debts. Similarly, the Debtors were presumably free at anytime to put a stop to the Creditor making automated withdraws from their account.
Secondly, with regards to notions of fairness, the Court is hesitant to punish the Creditor for what amounts to a misstatement by the Debtors regarding their reaffirmation of their automobile loan. Pursuant to § 521(2)(A), a Chapter 7 consumer-debtor, as a condition to obtaining the relief afforded by the Bankruptcy Code, is required to file a statement of their intent regarding their disposition of secured property, including whether they intended to reaffirm the debt or whether they will instead surrender the collateral. The purpose of this section is straightforward: to afford a creditor notice as to what action may be necessary to protect its interest in its collateral, including whether seeking relief from the stay would be an appropriate course of action. In re Price, 370 F.3d 362 (3rd Cir.2004). And while a debtor’s failure to perform their statement of intent does not alone terminate the effect of the automatic stay, the notice function served by § 521(2)(A) means that a creditor can hardly be faulted for taking reasonable measures — including as here, the acceptance of payment — in reliance upon a debt- or’s stated intention. See In re Powell, 223 B.R. 225, 231-32 (Bankr.N.D.Ala.1998).
Finally, as it regards the issue of fairness, the structure and aims of the Bankruptcy Code cannot be ignored. It has never been the policy of the Bankruptcy Code to prevent Debtors from voluntarily agreeing to repay their debts. Section 524(f) of the Code encapsulates this policy by providing, “[njothing ... prevents a debtor from voluntarily repaying any debt.” And while this section is not technically applicable in this case, applying only upon discharge, its principle still is: *333debtors should be encouraged to pay their debts. In re Harrell, 318 B.R. 692, 696 (Bankr.E.D.Ark.2005) (Congressional policy favoring Chapter 13 whereby debtors repay their debts).
Therefore, in conclusion, since both parts of the Pertuso test must be met before a creditor’s actions during the reaffirmation process may be deemed to have resulted in a § 362(a) stay violation, and since the second part of this test has not been established in this matter, the Debtors’ action to have the Creditor return those funds paid on their auto debt postpe-tition cannot be sustained.
In reaching the conclusions found herein, the Court has considered all of the evidence, exhibits and arguments of counsel, regardless of whether or not they are specifically referred to in this Decision.
Accordingly, it is
ORDERED that the Motion of the Debtors, Jerry and Dawn Freeman, for the Turnover of Monies, be, and is hereby, DENIED.
. In their Motion, the Debtors cited to 11 U.S.C. § 543 as authority for their Motion for Turnover. This section, however, deals solely with ''custodians,” which under the definition set forth in 11 U.S.C. § 101(11) will only involve a third-person appointed under non-bankruptcy law to manage a debtor’s assets. For example, an assignment for the benefit of creditors. § 101(11)(C). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493761/ | DECISION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
Before this Court is the Motion of the Defendant, RFC Banking Company, f/k/a/ the Peoples Banking Company, for a Protective Order pertaining to the Notice of Deposition filed by the Plaintiffs, Per-Co., Ltd and Perry Farms, Inc. According to the Defendant, the Deposition Notice is overbroad, and seeks to insert issues into this litigation which are irrelevant. Based thereon, the Defendant requests this specific relief:
for protection regarding the breadth of testimony requested by Plaintiffs in their Arbitrary Noticed Deposition of Peoples Banking Company, limiting the testimony of Peoples to transactions and negotiations which occurred after 2002, and restricting the inquiry to exclude the Business Manager transactions.
(Doc. No. 83, at pg. 7).
DISCUSSION
The movant for a protective order carries the burden to establish its right thereto. In re FirstEnergy Shareholder Derivative Lit., 219 F.R.D. 584, 587 (N.D.Ohio 2004). Here, the Defendant, RFC Banking Company, f/k/a/ the Peoples Banking Company (hereinafter “Peoples”), has raised two legal grounds, addressed in order below, in support of its Motion for a protective order: (1) relevancy; and (2) overbreadth.
Relevancy, like with evidentiary issues, is the foundation upon which all matters pertaining to a party’s right to discovery lie. Consequently, matters which are found to be irrelevant are excluded from the scope of discovery; no protective order is actually needed. In this matter, Peoples puts forth that the information sought by the Plaintiffs would not help in the prosecution of their action, and is thus irrelevant, because (1) it inappropriately seeks to impute culpability to the Defendant, and (2) involves matters that took place prior to the time the Plaintiffs became involved in the transactions which are at issue.
Rule 26(b)(1) of the Federal Rules of Civil Procedure, made applicable to this proceeding by Bankruptcy Rule 7026, sets forth the parameters for relevancy, providing that the “[p]arties may obtain discovery regarding any matter, not privileged, that is relevant .... to the claim or defense of any party .... ” (emphasis added). Thus, two strictures are placed upon the scope of relevant evidence: (1) although relevant, discovery may not include matters which are privileged; and (2) relevant evidence is limited to issues related to the “the claim or defense” of the parties. It is *350the latter limitation which is at issue in this matter.
Principally, claims and defenses are to be raised in the parties’ pleadings, with the Rules of Procedure providing that a party is required, to the extent applicable, to make a “short and plain statement of the claim” and their “defenses to each claim asserted ...Fed.R.CivP 8(a)/(b). By conditioning relevancy therefore on the claim and/or defense of a party, any controversy regarding its existence must necessarily focus on those claims and defenses raised by the parties in their pleadings. Thompson v. H.U.D., 219 F.R.D. 93, 97 (D.Md.2008) (fact must be germane to a claim or defense alleged in the pleading for information concerning it to be a proper subject of discovery).
In this matter, the Plaintiffs’ Complaint seeks a declaratory judgment that the company, Great Lakes Factors, Inc., is not an alter ego of the company, Great Lakes Funding. And, in the alternative, the Plaintiffs assert a claim having, as its averments, the indicia of an equitable right of subordination against Peoples pursuant to 11 U.S.C. § 510(c). (The Defendant filed a counterclaim, seeking, inter alia, that it be deemed to have a first and best interest in all of the assets, accounts and otherwise, of Great Lake Factors.)
With respect to the first, the alter ego doctrine allows a litigant to disregard the corporate form so as to reach assets otherwise unattainable. Flynn v. Greg Anthony Constr. Co., Inc., 95 Fed.Appx. 726, 733 (6th Cir.2003) Under this doctrine, the primary issue is whether two business entities — here this being the two entities using the namesake, Great Lakes — are “fundamentally indistinguishable” from the other. Belvedere Condominium Unit Owners’Ass’n v. R.E. Roark Co., Inc., 67 Ohio St.3d 274, 288-89, 617 N.E.2d 1075, 1077 (1993). An alter ego claim thus places its focus on the putatively alike business entities and away from any acts conducted by a creditor. Accord, Kalb, Voorhis & Co. v. American Financial Corp., 8 F.3d 130, 133 (2nd Cir.1993) (although applied in a different context, pari delicto defense is generally not available in an alter ego action). The exact opposite, however, is true with respect to a claim for equitable subordination under § 510(c) which looks directly to the propriety of the creditor’s conduct. This distinction is crucial.
Those discovery requests which are controverted in this matter, — the testimony regarding transactions and negotiations which occurred between Great Lakes Funding and Peoples prior to 2002, and the Business Manager Program — are admittedly aimed entirely at obtaining information regarding whether Peoples engaged in any inequitable conduct that then led to those losses the Plaintiffs incurred. Thus, with the focus of their discovery requests placed entirely on the propriety of Peoples’ actions, relevancy must be keyed solely to the Plaintiffs’ claim for equitable subordination under § 510(c); not a determination as to whether the alter ego doctrine is applicable in this matter.
In United States Abatement Corp. v. Mobil Exploration & Producing, U.S., Inc. (In re United States Abatement Corp.), the Fifth Circuit explained the doctrine of equitable subordination under § 510(c) as follows:
Equitable subordination is a remedial, not penal, measure which is used only sparingly. This court has established a three-prong test to identify those situations in which equitable subordination is permitted: (1) the claimant must have engaged in some type of inequitable conduct; (2) the conduct must have resulted in injury to the creditors or conferred an *351unfair advantage on the claimant; and (3) the invocation of equitable subordination must not be inconsistent with the provisions of the Bankruptcy Code.
While our three-pronged test appears to be quite broad, we have largely confined equitable subordination to three general paradigms: (1) when a fiduciary of the debtor misuses his position to the disadvantage of other creditors; (2) when a third party controls the debtor to the disadvantage of other creditors; and (3) when a third party actually defrauds other creditors.
39 F.3d 556, 561 (5th Cir.1994). See also In re AutoStyle Plastics, Inc., 269 F.3d 726, 744-45 (6th Cir.2001) (adopting the three-part test). As it regards this structure of a claim under § 510(c), the Plaintiffs put forth that the underlying purpose for their particular discovery requests is to obtain information regarding Peoples’ knowledge of matters such as this: What were Great Lakes Funding’s assets; where did the assets originate; what was the value of the assets; and what was Great Lakes Funding’s borrowing base in its transactions with Peoples? (Doc. No. 85, at pg. 6).
Functionally, these informational objectives serve a legitimate discovery purpose. For example, the attainment of this information could answer questions such as whether Great Lakes Funding was under-capitalized when Peoples extended credit, a factor which may be considered in an analysis under § 510(c). See In re AutoS-tyle Plastics, Inc., 269 F.3d 726, 747 (6th Cir.2001) (although not dispositive, under-capitalization is relevant to an action for equitable subordination.). Looked at then under this light, the Court, on irrelevancy grounds, is unable to reconcile such informational objectives, with Peoples’ discovery objections.
In greater detail, relevancy for discovery purposes is applied broadly, following the definition afforded in the Federal Rules of Evidence which sets forth that relevant evidence encompasses any “evidence having any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence.” Fed.R.Evid. 401; Eggleston v. Chicago Journeymen Plumbers’ Local Union No., 130, 657 F.2d 890, 905 (7th Cir.1981), cert. denied, 455 U.S. 1017, 102 S.Ct. 1710, 72 L.Ed.2d 134 (1982). And under this comprehensive definitional umbrella, Peoples’ initial discovery objection, seeking the exclusion of testimony regarding transactions and negotiations that took place prior to 2002, simply does not stand up to scrutiny. Rather, such evidence carries with it the real potential to shed light on the nature of the relationship between Great Lakes Funding and Peoples, thereby directly affecting the likelihood of the Plaintiffs’ success on their claim for equitable subordination under § 510(c).
The mere fact, as argued by Peoples, that those transactions and negotiations that transpired prior to 2002 are irrelevant simply because the Plaintiffs had no relationship with any of the Defendants prior to this date does not make sense in isolation. Numerous types of actions, a claim of equitable subordination being no exception, will turn on events that transpired before a plaintiff had any connection to the defendant(s). The establishment of a claim for fraud, for example, will in many instances turn on actions taken by the misfeasor leading up to the actual transactions) constituting the fraudulent act. Stated in legal terms, all the elements of a cause of action — e.g., duty, breach, causation, and damages — do not necessarily have to take place simultaneously, but may develop over the course of time. Things, *352however, get a little more murky on the issue of relevancy with regards to the other evidence against which Peoples’ lodged its discovery objection, that regarding their Business Manager Program.
The nature Business Manager Program of Peoples was explained to the Court as follows:
The Business Manager is a packaged
software program sold to small banks. It provided software that produced the documents necessary for asset based lending, allowing small banks to enter into the asset based lending market.
(Doc. No. 83, at pg. 4). As for how access to this Program would further their informational objectives, no firm reasons were offered to the Court, and none are readily apparent. Yet, even in giving them the benefit of the doubt, the link between this Program and the type of information sought by the Plaintiffs to support their claim for equitable subordination is tenuous at best. In fact, it is fair to conclude that the Plaintiffs’ entire basis for seeking such information is founded upon nothing more than a hunch.
Still, operating on a hunch does not denote that the information sought by the Plaintiffs is irrelevant for discovery purposes; the Rules pertaining to discovery make it clear that “[Relevant information need not be admissible at the trial” to be discoverable, so long as “the discovery appears reasonably calculated to lead to the discovery of admissible evidence.” Fed.R.CivP. 26(b)(1). Nevertheless, under Rules 26(b)(2) and 26(c), courts are provided with abundant resources to pare down discovery requests which, although technically relevant, are unreasonably burdensome and overbroad. Thompson v. United States Dep’t of Hous. & Urban Dev., 219 F.R.D. 93, 101 (D.Md.2003). As was explained in the case of Rowlin v. Alabama:
courts have the duty to pare down over-broad discovery requests under Rule 26(b)(2), which provides that information may sometimes be withheld, even if relevant. The court should consider the totality of the circumstances, weighing the value of the material sought against the burden of providing it, discounted by society’s interest in furthering the truth-seeking function.
200 F.R.D. 459, 461 (M.D.Ala.2001). And here, as argued by Peoples under its second legal basis for a protective order, the Court finds that, while not necessarily irrelevant, the Plaintiffs’ discovery requests regarding the Business Manager Program are both overbroad and burdensome, and therefore should be restricted.
On this matter, the Court observes that without reasonable limitations placed on the litigation process, parties could engage in an endless cycle of discovery, frustrating the policy goal of resolving private disputes in a timely manner. And, the seeds of this concern are beginning to develop here. In particular, the logic the Plaintiffs’ employ in seeking the discovery of the Business Manager Program would also allow them to seek the discovery of just about anything Peoples possesses, (person, place or thing), so long as a connection, no matter how nebulous, could be drawn between Peoples and that of Great Lakes Funding. In the absence of very compelling circumstances, the discovery process was never intended to cast such a wide net.
Consequently, unless the Plaintiffs can later articulate, with a great degree of specificity, exactly the type of information that they expect to obtain through the discovery of People’s Business Manager Program, (e.g., such as may appear after conducting its deposition), the Plaintiffs will not be permitted to go on a fishing *353expedition. Thus a protective order will issue and remain in effect regarding the Business Manager Program unless later ordered otherwise by this Court. But for those reasons also explained, no such order will apply so as exclude testimony of transactions and negotiations that occurred prior to 2002.
In reaching the conclusions found herein, the Court has considered all of the evidence, exhibits and arguments of counsel, regardless of whether or not they are specifically referred to in this Decision.
Accordingly, it is
ORDERED that the Motion of the Defendant, RFC Banking Company, f/k/a/ the Peoples Banking Company, for a Protective Order pertaining to the Notice of Deposition filed by the Plaintiffs, Per-Co., Ltd. and Perry Farms, Inc., be, and is hereby, GRANTED IN PART; AND DENIED IN PART.
It is FURTHER ORDERED that, pursuant to Federal Rule of Civil Procedure 26(b)(2)/(c), a protective is issued with respect to those discovery requests sought by the Plaintiffs regarding the Business Manager Program. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493762/ | Memorandum Decision and Order Re Complaint and Trustee’s Objection to Homestead
WILLIAM L. EDMONDS, Bankruptcy Judge.
The Chapter 7 trustee objects to the debtors’ claims of exemption in their homestead. Hearing on this matter was held on May 18, 2005 in Fort Dodge. The matter was joined with final trial of the trustee’s complaint against the debtors and G.R.D. Investments, L.L.C. (“G.R.D.”) seeking to avoid transfers alleged to be preferential or fraudulent transfers. Defendants G.R.D., Larry Schaefer, and Elaine Schaefer were represented by attorney Dale L. Putnam. Attorney Eric W. Lam appeared for plaintiff David A. Sergeant, Chapter 7 trustee.
The court has jurisdiction over these matters under 28 U.S.C. §§ 1334(a), 1334(b), and 157(a) and the District Court’s order of reference. This is a core proceeding under 28 U.S.C. §§ 157(b)(2)(B), (F) and (H).
Findings of Fact
Larry Schaefer and Elaine Schaefer filed a voluntary Chapter 7 petition on October 20, 2003. G.R.D. is an Iowa Code Chapter 490A domestic limited liability company. Larry and Elaine Schaefer are the managers of G.R.D. Their sons Ray Schaefer and Dean Schaefer are members of the company.
In 1996, Land O’Lakes sued Larry for breach of a grain contract. On or about March 11, 1998, Land O’Lakes obtained a judgment against him in the amount of $127,125.00 plus interest.
Land O’Lakes commenced a fraudulent transfer action in the United States District for the Eastern District of Oklahoma against Larry and Elaine. On October 25, 1999, Land O’Lakes obtained a judgment in the Oklahoma litigation against Elaine in the amount of $161,749.19. This amount represented the judgment against Larry plus accrued interest and costs. See Exhibit 140 at 6.
On October 29, 1999, only Elaine filed a Chapter 11 petition in the United States Bankruptcy Court for the Northern District of Iowa. On October 12, 2000, the court dismissed the case as filed in bad faith. The court found the “case was filed primarily for the purpose of helping Larry Schaefer to evade or to delay payment of his judgment obligation to Land O’Lakes.” In re Schaefer, No. 99-02868M, slip op. at 16 (Bankr.N.D.Iowa Oct. 12, 2000).
On October 23, 2000, Elaine filed a motion to stay the October 12 order dismissing her Chapter 11 case. On October 27, 2000, the court denied the motion for stay. Elaine appealed the dismissal order to the United States District Court for the Northern District of Iowa. On or about *406March 6, 2001, the United States District Court dismissed Elaine’s appeal.
G.R.D. was formed on January 11, 2001, with the assistance and advice of attorney Putnam. The company’s Articles of Organization were filed with the Iowa Secretary of State on January 12, 2001. The Articles name Larry and Elaine Schaefer as the managers of G.R.D. Since the formation of G.R.D., no one other than Larry and Elaine has been a manager of the company.
Also on January 11, 2001, a “Managers Employment Agreement” was executed, providing as follows:
Comes now, Ray Schaefer and Dean Schaefer, and Larry and Elaine Schae-fer and hereby enter into the following Managers Employment Agreement:
1. In consideration of Larry and Elaine Schaefer conveying their real estate, except for their homestead, into the entity known as G.R.D. Investments, L.L.C., subject to the debt against said property, we do hereby agree to employ Larry and Elaine Schaefer as managers of G.R.D. Investments, L.L.C....
2. Larry and Elaine Schaefer agree to perform their duties as set forth in the Operating Agreement for G.R.D. Investments, L.L.C., Article V.
Exhibit 128. For their employment Larry and Elaine are each to receive a salary of $20,000 per year, payable “bi-monthly,” with increases of $1,000 each year of the contract. The term of the employment agreement is fifteen years. The agreement provides further that “G.R.D. Investments, L.L.C., shall provide health insurance” for Larry and Elaine. Id., ¶ 1(A)-(F). The document was signed by Ray and Dean Schaefer without any indication that they were acting on behalf of G.R.D.
On January 16 and 17, 2001, Larry and Elaine Schaefer transferred all their real property holdings, except 40 acres claimed as their homestead, to G.R.D. by quit claim deed. The property transferred is described as follows:
Exhibit No. Address Short Legal Description
76 1106 South Shore Dr. Lot One in E.L.Callahan’s Addition to Clear Lake, Iowa
77 504 Hwy. 18 East L’S 17-18-19 EXC COM AT SECOR L 19 TH S 8951]4'W 164.4' ALONG S LINE E L 19
78 1108 South Shore Dr. Lot Two of E.L.Callahan’sAddition to Clear Lake, Iowa
79 1409 7th Ave. North TRACT 1 DESC AS A TRACT OF LANDSE14 SW% COMM AT S/4 COR SEC 7TH W165
80 520 Hwy. 18 East L 12 RICHARD BURDENS ADD EXC N195.8’ OF El/2 & EXC N 200’ OFW1/2 & EXC HWY
81 15274 Pascal Street L 3 BL 1 P M PARK
82 109 N. 3rd Street S 24' OF N 59' L’S 10,11,12 & W 8' OF N 35' L 10 BL 10ROCKWELL
83 Farm SW NW 28-95-20NE NE 29-95-20SE NW 28-95-20NE NW 28-95-20
84 27 Plaza Drive BEG AT NE COR L 4 BL 3FIELDSTONE 1st ADD TH S 8950'19" W 214' TO NW COR L 4TH S
85 25 Plaza Drive1 L 4 BL 3 FIELDSTONE 1st ADD EXCBEG AT NE COR L 4 BL 2 TH S 8950 '19" W 214' TO NW COR
*407After the transfer of the real estate via the quit claim deeds, Larry and Elaine retained only 40 acres they claimed as their homestead, and no other real estate interests. The homestead property is described as the Northwest Quarter of the Northwest Quarter of Section 28 in Township 95 North of Range 20 West of the 5th P.M., Cerro Gordo County, Iowa.
The quit claim deeds for the parcels identified in Exhibits 76 to 85 were recorded on or about January 25, 2001. See Exhibit S.
The farm ground transferred to G.R.D. was approximately 160 acres of land in Cerro Gordo County. At the time of the transfer, the land was being farmed by Dean Schaefer. After that, it was farmed by Ray Schaefer. Exhibit 69, deposition pages 27-29.
During January 2001, the debtors also transferred 120 acres of real estate in Oklahoma to G.R.D. There was no evidence offered to identify this property further or to show its value. In 2004, the Oklahoma land was being leased to Glenn Schaefer, another of Larry and Elaine’s sons. Exhibit 69, deposition pages 79-80.
Before the January 2001 quit claim deeds were executed and tendered to G.R.D., Larry and Elaine managed the Iowa real property described in the deeds. After the quit claim deeds were executed and tendered to G.R.D., Larry and Elaine continued to manage the same real estate. Larry’s and Elaine’s duties under the manager’s Employment Agreement include collecting rent, showing the rental properties, and maintaining the properties. Ray Schaefer said the agreement obligates him to pay his parents for the term of the agreement, regardless of whether they are able to do the work. They could perform the agreement, he said, by hiring others to do the work.
On January 11, 2001, the same date G.R.D. was formed and the Managers Employment Agreement was executed, Ray and Dean Schaefer certified their adoption of an operating agreement for G.R.D. (the “Operating Agreement”). Exhibit 26. Ray and Dean Schaefer were named members of the company. Since the date of formation of the company, there have been no other members of G.R.D.
The Operating Agreement requires each member to make an initial capital contribution to the company. Id. at ¶ 8.1. Schedule A to the Operating Agreement indicates that Dean Schaefer and Ray Schaefer, as members of G.R.D., each made a 50 % share of initial capital contribution. Larry and Elaine Schaefer are identified on Schedule A as managers. The document then states: “Capital Contribution is comprised of the following real estate and any structures constructed thereon: See attached Quit Claim Deeds.” The deeds referred to are the same as those identified in Exhibits 76 to 85 by which Larry and Elaine Schaefer transferred their property to G.R.D. on January 16 and 17, 2001.
In depositions, Ray and Dean each stated that he had made a cash contribution to the company in the amount of $25,000 to $30,000. Exhibit 102, deposition page 8; Exhibit 103, deposition pages 8-9. There was no evidence at trial that either Ray or Dean made a cash contribution to G.R.D. There was no explanation of the inconsistency between the deposition testimony and Schedule A to the Operating Agree*408ment. The court finds that neither Ray-nor Dean made a cash capital contribution to the company at the time it was formed. Their later contributions to the business of G.R.D., including guarantees of company debt, will be discussed below.
Pursuant to the Operating Agreement, the purpose of the company is the purchase, sale and rental of real estate. Exhibit 26, Art. III. The agreement provides that the business and affairs of G.R.D. are to be managed by its managers. “Each manager shall participate in the direction, management and control of the business of the Company to the best of his or her ability.” Id., Art. V at ¶ 5.1. By executing the Operating Agreement, Ray and Dean Schaefer made “written consent to the election” of Larry and Elaine Schaefer as managers of G.R.D. Id. at ¶ 5.2 & Schedule A.
The Operating Agreement gives the managers broad powers to act on behalf of the company, including the authority to acquire property; borrow money; purchase property insurance; hold and own property in the name of the company; make investments; sell assets; execute documents including deeds of trust, security agreements, financing statements, and documents for the acquisition, mortgage or disposition of the company’s property; employ accountants, legal counsel, managing agents or other experts and to compensate them from company funds; enter into contracts; declare and pay distributions to the members; make charitable donations; purchase insurance on the life of members, managers, or employees; participate in other associations; and perform “all other acts as may be necessary or appropriate to the conduct of the Company’s business.” Id. at ¶ 5.3.
The managers of G.R.D. also have the power to fix their own salaries, subject to member approval, and appoint themselves as officers of the company. Id. at ¶¶ 5.10, 5.11. The managers are to maintain the company’s books. Id. at ¶ 6.3. Managers are responsible for the filing of the company’s tax returns, and they are authorized to make all elections permitted to be made by the company under state and federal law. Id. at ¶¶ 9.7, 9.8.
The Operating Agreement of G.R.D. assigns a distinctly different role to members.
Unless authorized to do so by this Operating Agreement or by a Manager or Managers of the Company, no Member, agent or employee of the Company shall have any power or authority to bind the Company in any way, to pledge its credit or to render it liable pecuniarily for any purpose.
Id. at ¶ 5.3, last subparagraph.
Members have the right to inspect the company’s books. Id. at ¶ 6.3. Member approval is required to dissolve the company or to sell all or substantially all of the assets of the company. Id. at ¶ 6.6(a), (c). Members are not liable for debts or losses of the company beyond their capital contribution. Id. at ¶ 6.1.
At the time of the transfers, Larry and Elaine did not calculate either the value of the real property they transferred to G.R.D. or the value of the employment agreement they made with their sons. During the course of the litigation of this adversary proceeding, plaintiff requested Larry and Elaine Schaefer to provide the market value as of January 16, 2001 of each parcel of Iowa real property transferred to G.R.D., the amount of debt that was a lien against each such parcel as of that date, and the consideration for the transfer of each parcel. In March 2004, Larry and Elaine Schaefer provided the following figures:
*409Exhibit
No. Address Value Lien
76 1106 S. Shore Dr. $ 41,850 $ 37,955
77 504 Hwy 18 E. 75,859 104,854
78 1108 S. Shore Dr. 63,150 54,320
79 1409 7th Ave N. 156,981 162,500
80 520 Hwy 18 E. 152,183 0.00
81 15274 Pascal St. 43,890 31,250
82 109 N. 3rd, Rockwell 4,794 0.00
83 160 acre farm 109,856 182,900
84 27 Plaza Drive 121,683 78,797
85 25 Plaza Drive n/a n/a
Totals $770,246 $652,576
See Exhibit 104. The debt encumbering the 160 acres of farmland was also secured by a lien on the 40-acre homestead. The lien values provided by Schaefers were mortgage and contract balances. In January 2001, at least some of the property was encumbered by delinquent real estate taxes of about $35,000. One parcel was subject to a mechanic’s lien for about $25,000.
Larry and Elaine stated that the “consideration for all of the property was the debt assumption, payment of the outstanding real estate taxes, and the employment contract. Further consideration was that GRD was taking the property subject to the judgment on behalf of Land O’ Lakes against Larry & Elaine Schaefer.” Exhibit 104.
Although plaintiff had sought to discover the market value of the transferred property, Larry and Elaine Schaefer provided the values they had given to the county recorder for calculation of the transfer tax. The values provided by the Schaefers represent assessment values for years prior to 2001. Three of the figures are assessments from 1994. See Exhibit S.
When the January 2001 quit claim deeds were recorded, Schaefers declared a value for each parcel for the Cerro Gordo County Recorder. Part III of the declaration of value form was to be completed by the county assessor. The form for the assessor’s data states: “Note: Assessed value shown must be as of January 1 of the year in which the sale occurred.” Exhibit S.
Appraisals were made of several of the properties that Larry and Elaine transferred to G.R.D. in January 2001. An appraisal dated January 26, 2005 stated the market value of the 160-acre farm as of January 16, 20012 was $351,000. Exhibit 105. Reports dated January 31, 2005 made the following appraisals of market value as of January 16, 2001: 520 Hwy. 18 East, $160,000; 504 Hwy. 18 East, $165,000; 27 Plaza Drive, $108,000; 1409 7th Ave. North, $257,500. Exhibit 106. The property at 1409 7th Ave. North is an eight-unit apartment building. Id., Part IV at 10.
On March 15, 2003, Larry prepared a financial statement of G.R.D. and executed the document as manager. Exhibit 139. By that date, G.R.D. had sold the property at 27 Plaza Drive. See Exhibit 106, Part III at 33.
The 2001 assessed values from Exhibit S, appraised values from Exhibits 105 and 106, and financial statement values from Exhibit 139 are as follows:
3/15/03 Fin’l Stmt Ex. 2001 No. Address Assessment
75,000 76 1106 S. Shore Dr. 62,050 ,,c$
250,000 77 504 Hwy 18 E. 186,600 o o O rH
100,000 78 1108 S. Shore Dr. 75,910
350,000 79 1409 7th Ave N. 247,530 o o LO CvJ
220,000 80 520 Hwy 18 E. 159,840 o o C£> 1 — 4
50,000 81 15274 Pascal St. 47,460
10,000 82 109 3rd. St. Rockwell 5,330 s'
*410160 acre farm 121,940 351,000 448,000 CO
27 Plaza Drive 134,890 108,000 n/a ^
25 Plaza Drive 9,900 n/a n/a LQ
The court finds that the 2001 assessed values, other than for the farmland, and the appraisal values are reasonable estimates of the value of the property as of January 2001. The assessor’s value of the farmland, equivalent to about $762 per acre, is not an indicator of fair market value. The average value of Cerro Gordo County farmland in 2001 was more than $2,000 per acre. Map 1: 2001 and 2000 Iowa Land Values, at htt p://www.extension.iastate.edu/emms/lvs2001/. The appraisal value is the equivalent of $2,194 per acre. Therefore, the court will disregard the assessed value and rely on the appraised value for the value of the farmland. The total value of the Iowa property transferred to G.R.D. in January 2001 was between $1,232,020 and $1,290,640.
Total contract and mortgage debt against the property was approximately $652,576. A mechanic’s lien for about $25,000 and delinquent real estate taxes of about $35,000 also existed as encumbrances on the property. The court finds there was total equity in the property of roughly $500,000 to $575,000.
In June 2004, certified public accountant James R. Potter calculated the net present value of the employment agreement as of January 11, 2001, the date of the contract. Using a 5.54% discount rate, Potter determined that the total value of the contract was $867,163. Exhibit R. This figure represents wages valued at $518,288, health insurance benefits of $312,466, and “self-employment tax savings” of $36,409. Id. Potter assumed an “18.7% annual increase in health insurance premiums for the years 2005 through 2015 ... based on the average actual increases for the years from 2001 to 2004.” Id.
The defendants’ position is that assumption” of the debt against the property quit claimed to G.R.D. was part of the consideration for the property. The property was transferred by quit claim deed, subject to all existing liens. G.R.D. took over the payment of the mortgage and contract debts and paid the delinquent real property taxes. The company did not agree to become liable for the Land O’Lakes judgment debt.
In January 2001, there was no written agreement requiring G.R.D. to refinance the debt against the property it had acquired from Larry and Elaine. In 2003 G.R.D. borrowed money from Hancock County Bank & Trust, now known as Liberty Bank, to refinance the debt, thus eliminating Larry and Elaine’s personal liability on the mortgages and contracts. Exhibits F, G.
In January 2001, Ray and Dean had not agreed to become personally liable for the debt encumbering the property quit claimed to G.R.D. On January 17, 2003, Ray and Dean guaranteed all existing and future obligations of G.R.D. owed to Liberty Bank. Exhibit H.
Larry Schaefer prepared financial statements as manager of G.R.D. in March 2003 and May 2004. Exhibits 139, H. On August 2, 2001, G.R.D. sold the 27 Plaza Drive property to Leslie Nelson. Larry and Elaine Schaefer executed the warranty deed as managers of G.R.D. In May 2002, Larry and Elaine requested from Clear Lake Bank & Trust an extension of the loan on the property at 1106 South Drive. Exhibit 150. On September 16, 2003, attorney Dale Putnam wrote to Cer-ro Gordo County officials regarding the property at 15274 Pascal Street, referring to it as the property of Larry Schaefer. *411Exhibit 131. The evidence shows that after the January 2001 transfers, Larry and Elaine Schaefer were conducting the business and affairs of G.R.D. consistently with their authority under Article V of the operating agreement.
On several occasions, Ray and Dean Schaefer executed notes and mortgage documents as “managers” of G.R.D. The documents were prepared by the bank. The designation was in error. Ray and Dean are not managers of G.R.D.
On July 3, 2003, attorney Dale Putnam gave a title opinion to Hancock County Bank & Trust in Garner, Iowa, regarding the 160-acre farm that was transferred to G.R.D. Exhibit 132. Putnam found “good and merchantable title” in G.R.D., “subject to a contract of record to Elaine Schae-fer.... ” It was not explained how Elaine acquired a contract interest in the farmland years after Larry and Elaine supposedly quit farming.
On or about July 23, 2001, Land O’Lakes filed a complaint in the United States District Court for the Northern District of Iowa to enforce its claims against the 160 acres of farmland in Cerro Gordo County, notwithstanding the transfer to G.R.D. Exhibit 140. There were settlement discussions in 2002. An initial proposal was that Larry and Elaine would pay about $100,000 through installment payments. G.R.D. did not agree to lend the money to fund the settlement payments that would have been due under this proposal.
In May 2003, Larry, Elaine, Ray and Dean Schaefer and G.R.D. settled all claims between them and Land O’Lakes. Exhibit 141. Larry and Elaine executed the settlement document as individuals and on behalf of G.R.D. as its managers. The settlement provided that Larry and Elaine Schaefer would pay Land O’Lakes $85,000. This sum was tendered on or about May 12,2003. Exhibit 136.
G.R.D. borrowed $275,000 on May 1, 2003. The note accrues interest at a variable rate. Exhibit F, Loan No. 41600082. G.R.D. loaned $85,000 of that money to Larry and Elaine to fund the settlement with Land O’Lakes and used the rest to refinance debt. On April 2, 2003, Larry and Elaine executed a promissory note for $85,000. The note provided that interest would accrue from May 1, 2004 at 6%. Payments are to be made annually based on a 30-year amortization. Exhibit 130. The note was secured by a mortgage, also dated and recorded April 2, 2003, in their 40-acre homestead. Exhibit 135. As of the date of trial, Larry and Elaine had made no payments on the note. G.R.D. has not taken action to foreclose the mortgage.
Question 10 of the bankruptcy statement of financial affairs form asks debtors to list “all other property, other than property transferred in the ordinary course of the business or financial affairs of the debtor, transferred either absolutely or as security within one year immediately preceding the commencement of [the] case.” The question is not limited to transfers to insiders. Larry and Elaine did not disclose the mortgage to G.R.D. in response to Question 10 in their statement of financial affairs. Their Schedule D disclosed that Schaefers owed secured debt of $85,000 to G.R.D. and that the debt was incurred in April 2003.
On January 31, 2001, after the transfer of property to G.R.D., Larry and Elaine Schaefer were both judgment debtors of Land O’Lakes in the amount of at least $161,749.19. The Schaefers continued to be liable for $652,576 of mortgage and contract debt secured by real property, as shown in Exhibit 104. In addition, the following debts listed in their amended *412Schedule F were jointly owed by Schaefers as of January 31, 2001:
First National Bank of Omaha $ 3,267
Wells Fargo Bank 9,588
James S. Matthews, Jr. 24,705
North Central FS, Inc 86,705
Visa 10,000
Mercy Medical Center-North 2,286
Jim Drege & Associates 5,000
Newman Law Office 12,000
Heartland Asphalt, Inc. 6,600
Total $159,151
On January 31, 2001, Larry and Elaine Schaefer owed total debt of approximately $973,476.
Schaefers state they owned the following property as of that date:
Homestead (exempt)
Equipment $ 90,000
Employment agreement with G.R.D 867,163
Life insurance (exempt) Furniture 3,000
Cash in bank 5,000
Rent of 30 acres 4,500
Life insurance stock 30,000
Land O’Lakes stock 5,600
Nursing home stock 1,000
Golf course stock 400
Total $1,006,663
This stipulated total figure includes furniture valued by Larry at $3,000. The court will assume the furniture would not have been exempt. The value Schaefers assign to the employment agreement with G.R.D. is the value calculated by CPA Potter. There was no evidence to describe or value individual pieces of the farm equipment. The court assumes none of the property was encumbered by a lien.
On April 1, 2003, just prior to the date on which Schaefers gave G.R.D. a mortgage on their homestead, they owned their exempt homestead, exempt vehicles, nursing home stock valued at $1,000, golf course stock valued at $400, and the employment contract to manage G.R.D.’s property.
On April 1, 2003, they owed the Land O’Lakes judgments and the same $159,151 of joint general unsecured debt that they owed in January 2001.
Larry and Elaine Schaefer testified that their last year of farming was 1997. They rented their farmland to their sons in subsequent years. Their 1997 federal income tax return shows a loss of $28,047 from farming that year. Exhibit 142. They reported a loss of $102,534 from farming for tax year 1998. Exhibit 143. On their 2002 return, Larry and Elaine Schaefer reported a loss of $101,129 from farming. Exhibit 144. Their 2002 farm expenses included an item of $85,000 for “Grain Settlement Costs.” Id., Schedule F. This item was the sum paid in May 2003 to settle claims with Land O’Lakes. Larry Schaefer said it was a mistake to deduct it as an expense for the 2002 tax year. As of the date of trial, an amended return had not been filed. On their 2003 income tax return, Schaefers reported a loss of $19,326 from farming. Exhibit P.
G.R.D.’s 2001 federal Return of Partnership Income balance sheet showed $3,005 due to employees as a current liability, but no “other liabilities.” Exhibit I, Schedule L, lines 17, 20. The 2002 return showed $4,927 currently owed to employees, but no longer-term liabilities owed them. Exhibit J, Schedule L, lines 17, 20. The balance sheet in G.R.D.’s 2003 income tax return showed no liabilities of any type owed to employees. A debt of $77,400 “due from employees” was listed as an asset. Exhibit K, Schedule L, lines 13, 17, 20. Financial statements prepared in 2003 and 2004 did not list G.R.D.’s obligation under the January 2001 employment agreement as a liability. Exhibits H and 139.
When Larry and Elaine Schaefer filed their bankruptcy schedules in October 2003, the only debt listed as owing to G.R.D. was the $85,000 home mortgage debt. Exhibit 200. Schaefers did not list their employment contract as an asset on their bankruptcy schedules.
*413
DISCUSSION
Plaintiff objects to the debtors’ claims of exemption in their homestead. He also seeks to avoid transfers under various theories. The complaint also alleged that debtors were not entitled to discharges under § 727. Plaintiff bears the burden of proof on all issues. See Kaler v. Craig (In re Craig), 144 F.3d 587, 590 (8th Cir.1998) (fraudulent transfer under § 548); Benson v. Richardson, 537 N.W.2d 748, 756 (Iowa 1995)(§ 544, incorporating Iowa law of fraudulent transfer); 11 U.S.C. § 547(g)(preference); Fed. R.Bankr.P. 4003(c) (exemptions).
Objections to Discharge
The complaint in Adv. No. 04-9053 was filed March 30, 2004. Plaintiff alleged in paragraphs 39 and 40 of the complaint that debtors had transferred property within a year prior to the date of the filing of their petition with the intent to hinder, delay or defraud creditors. The complaint prayed that debtors be denied their discharges.
On April 7, 2004, plaintiff amended his complaint to add a ground for denial of discharge relating to farm rent. Docket no. 4. On July 29, 2004, plaintiff again amended the complaint to add a ground for denial of discharge relating to a tax refund. Docket no. 21.
On May 13, 2005, the parties filed a stipulated dismissal of portions of the complaint, including the objections to the debtors’ discharges, which were designated Counts Y, VII, and VIII. Docket no. 57. On May 19, 2005, the stipulated dismissal of the objection to discharge was noticed to all creditors and parties in interest as required by Fed.R.Bankr.P. 7041. No objections were filed. Plaintiffs claims objecting to the debtors’ discharges should be dismissed.
Objection to Homestead Exemption
In their schedule of real property, debtors listed an interest in 40 acres valued at $100,000 and subject to a secured claim of $85,000. They claimed a homestead exemption of $15,000 pursuant to Iowa Code Chapter 561. On March 30, 2004, the trustee timely objected to debtors’ claims of exemption in their homestead on several grounds. Docket no. 52.
On May 13, 2005, the trustee withdrew his allegations that debtors did not actually reside in and occupy the claimed homestead as their home and that G.R.D. is an alter ego of the debtors. Docket no. 122. The trustee stated his intention to pursue his objection to the homestead to the extent of pre-acquisition debt. See Iowa Code § 561.21(1). The trustee said he would also proceed at trial on his allegations that the home mortgage was either a preference or a fraudulent transfer.
Debtors claim they established their present homestead in 1988. Docket no. 55. At trial, the trustee did not attempt to show that debtors acquired their homestead at a later date or that debtors incurred any debt prior to 1988. Debtors’ amended Schedule F does not show any debts incurred prior to 1988. Exhibit 200A. The court concludes that the trustee has not shown there is any debt pre-exist-ing Schaefers’ acquisition of their homestead.
Moreover, the trustee’s avoidance powers cannot defeat the Schaefers’ homestead exemption. Assuming the trustee avoided the April 2003 mortgage either as a preference or as a fraudulent transfer, the mortgage would be preserved for the benefit of the estate. 11 U.S.C. § 551. Because the mortgage was a voluntary transfer, Schaefers would not be able to exempt any such property recovered by the trustee. 11 U.S.C. § 522(g). Avoidance of the mortgage, however, would not *414defeat the debtors’ claim of exemption in the equity in their home. Debtors would retain the homestead subject to a mortgage held by the trustee. Schaefers’ homestead exemption claim appears to be limited to their equity in the property. Therefore, plaintiff has not shown that the exemption was not properly claimed.
Preferential Transfer
Plaintiff alleges in Count IX of the complaint, as amended May 9, 2005 (docket no. 53), that the April 2003 mortgage to G.R.D. to secure the loan of $85,000 was a preferential transfer that the trustee may avoid under § 547 of the Bankruptcy Code. This section provides that—
the trustee may avoid any transfer of an interest of the debtor in property—
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made—
(A) on or within 90 days before the date of the filing of the petition; or
(B) between ninety days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider; and
(5) that enables such creditor to receive more than such creditor would receive if—
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title.
11 U.S.C. § 547(b). The parties have stipulated that if plaintiff establishes that G.R.D. is an “insider,” he has proven the preferential effect element of § 547(b)(5). Docket no. 58.
Plaintiff argues the mortgage is avoidable under a theory of recovery enunciated in Levit v. Ingersoll Rand Financial Corp. (In re V.N. Deprizio Construction Co.), 874 F.2d 1186 (7th Cir.1989), commonly known as the “Deprizio” case. The Depri-zio case involved “outside creditors,” which were financial institutions that had loaned money to the debtor, and “inside creditors,” who were officers of the debtor who had guaranteed the loans. In Deprizio, Judge Easterbrook readily concluded that a payment to an outside creditor is a transfer “for the benefit of’ a guarantor that may constitute a preference. Id. at 1194; see also id. at 1190 (stating the trustee’s argument). The holding of De-prizio was that a transfer for the benefit of an inside creditor is recoverable from the outside creditor, even when the payment was made between 90 days and one year before the date of the filing of the petition. Congress statutorily overruled the Depri-zio line of cases in 1994 by adding subsection 550(c) to the Code. See generally 5 Collier on Bankruptcy ¶ 550.04 (15th ed. rev.2005).
Because plaintiff in this case is not attempting to recover the payment of $85,000 to Land O’Lakes, the Deprizio analysis is unnecessary. The mortgage to G.R.D. should be reviewed under a straightforward application of § 547.
Plaintiff argues that the mortgage was given on account of antecedent debt because G.R.D. had agreed sometime in 2002 to fund a settlement with Land O’Lakes. Larry and Elaine claimed a farm expense deduction for the $85,000 on their 2002 federal income tax return. The evidence did not disclose when the tax returns were filed. Exhibits 144 and O are unsigned and undated. The returns could have been filed after the money was paid to Land O’Lakes in May 2003.
*415During settlement discussions in 2002, the parties proposed that Larry and Elaine would make installment payments to Land O’Lakes. Larry Schaefer and Ray Schaefer both denied that G.R.D. had agreed to fund the payments. The evidence shows that Land O’Lakes agreed in 2003 to accept a lower amount paid in a lump sum.
Plaintiff has not shown that the mortgage was given on account of antecedent debt. Larry and Elaine gave G.R.D. a mortgage on their homestead on or about April 2, 2003. G.R.D. borrowed money on May 1, 2003. Exhibit F, loan no. 41600082. G.R.D. loaned $85,000 of that money to Larry and Elaine to fund the settlement with Land O’Lakes. A check in that amount was made on attorney Putnam’s trust fund account on May 12, 2003. Exhibit 136. The court concludes that plaintiffs claim to avoid the mortgage to G.R.D. as a preferential transfer should be dismissed.
Avoidance of April 2003 Mortgage as Fraudulent Transfer
Plaintiff contends the April 2003 mortgage to G.R.D. is avoidable pursuant to § 548 of the Bankruptcy Code, which provides:
The trustee may avoid any transfer of an interest of the debtor in property ... that was made ... on or within one year before the date of the filing of the petition, if the debtor voluntarily or involuntarily- — •
(A) made such transfer ... with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made ... indebted; or
(B)(i) received less than a reasonably equivalent value in exchange for such transfer ... and
(ü)(I) was insolvent on the date that such transfer was made ... or became insolvent as a result of such transfer....
11 U.S.C. § 548(a)(1).
Under Iowa common law, the transfer of an interest in an exempt homestead could not be avoided as a fraudulent transfer. See Benson v. Richardson, 537 N.W.2d 748, 757 (Iowa 1995) (“debtors have a legal right to convey exempt property regardless of their motive”); Note, Rights of Creditors in Property Conveyed in Consideration of Future Support, 45 Iowa L.Rev. 546, 553 & n. 31 (1960) (conveyance must be of nonexempt property to be fraudulent as to creditors). If property is already beyond the reach of creditors, it is difficult to imagine a transfer of the property that operates to the prejudice of the rights of creditors. See Benson v. Richardson, 537 N.W.2d at 756 (defining “fraudulent conveyance”).
Nevertheless, Bankruptcy Code § 548 applies to “any transfer of an interest of the debtor in property” without distinction between exempt and nonexempt property. The court will examine plaintiffs arguments that the grant of the home mortgage in April 2003 was a fraudulent transfer under § 548.
Plaintiff argues unpersuasively that the mortgage to G.R.D. was constructively fraudulent because Larry and Elaine received less than reasonably equivalent value in exchange for the mortgage. See 11 U.S.C. § 548(a)(1)(B). His argument quibbles with the settlement with Land O’Lakes. The question, however, is whether there was equivalent value between the loan of $85,000 and the mortgage given to G.R.D. in return. The court finds there was.
Plaintiff argues also that the mortgage was a transfer made with actual intent to hinder, delay or defraud creditors. See 11 *416U.S.C. § 548(a)(1)(A). He cites Brown v. Third National Bank (In re Sherman), 67 F.3d 1348 (8th Cir.1995), for its discussion of the proof of actual intent to defraud. Fraud is most often shown by circumstantial evidence that gives rise to an inference of fraudulent intent. Id. at 1353. Plaintiff argues the transaction contained several indicia of fraudulent intent, or “badges of fraud.” See docket no. 60, brief at 15-16.
In April 2003, when Larry and Elaine made the mortgage transaction, they were under financial pressure. Land O’Lakes had two judgments against them and had filed a third lawsuit. Schaefers decided to settle all the claims between themselves and Land O’Lakes, which agreed to accept $85,000 in settlement. Schaefers’ sons Ray and Dean, who were also defendants in the lawsuit, were willing to lend the money to them through a loan made by G.R.D. Larry and Elaine would have had difficulty obtaining financing elsewhere. Ray and Dean loaned their parents money under more favorable terms than a commercial lender would have made. They have been advised not to take action to enforce the mortgage while the bankruptcy case is pending. The mortgage was recorded, and the secured debt to G.R.D. was listed in debtors’ bankruptcy Schedule D. The court concludes that the transfer of the mortgage, given to secure debt incurred to pay off a major creditor, was not a transfer made with intent to hinder, delay or defraud creditors.
Avoidance of January 2001 Transfers as Fraudulent Transfers
The transfers of the quit claim deeds in January 2001 are outside the one-year reach-back period of § 548(a)(1). Plaintiff seeks to avoid the 2001 transfers through the trustee’s avoidance powers in § 544(b)(1). That section provides that—
the trustee may avoid any transfer of an interest of the debtor in property or any obligation incurred by the debtor that is avoidable under applicable law by a creditor holding an unsecured claim that is allowable under section 502 of this title.
11 U.S.C. § 544(b)(1). The “applicable law” in this case is Iowa’s enactment of the Uniform Fraudulent Transfer Act.
The Iowa UFTA, codified in Iowa Code Chapter 684, determines the extent of plaintiffs rights. Thus, plaintiff may bring an avoidance action within five years of the date of the transfers. Iowa Code § 684.9; see also 684.7 (remedies of creditors). Two categories of fraudulent transfers made avoidable under the Iowa UFTA are those made with actual intent to hinder, delay or defraud creditors and those made for less than reasonably equivalent value. Iowa Code §§ 684.4, 684.5. Plaintiff must prove each of the elements of a fraudulent transfer by clear and convincing evidence. Benson v. Richardson, 537 N.W.2d 748, 756 (Iowa 1995).
A threshold issue is whether the trustee has standing to pursue an avoidance action under § 544(b)(1). The trustee must show the existence of an actual unsecured creditor holding an allowable unsecured claim who could bring the avoidance action under Iowa fraudulent transfer law. Williams v. Marlar (In re Marlar), 252 B.R. 743, 754 (8th Cir. BAP 2000), aff'd, 267 F.3d 749 (8th Cir.2001); Ries v. Wintz Properties, Inc. (In re Wintz Companies), 230 B.R. 848, 858-59 (8th Cir. BAP 1999).
Iowa Code § 684.5 permits avoidance of a fraudulent transfer by a creditor whose claim arose before the transfer was made. Section 684.4 permits avoidance of a transfer that is fraudulent as to a creditor, “whether the creditor’s claim arose before or after the transfer was made.... ” Defendants have not challenged the trustee’s *417standing to bring claims under § 544(b)(1). The court finds that Schaefers’ amended bankruptcy Schedule F identifies several creditors whose claims arose prior to 2001, establishing plaintiffs standing to bring claims under either § 684.4 or § 684.5. Exhibit 200A.
A transfer avoidable under § 544(b)(1) may be avoided to the extent necessary to benefit the estate. The trustee is not limited by the amount of debt owed the creditor whose rights are being asserted. 5 Collier on Bankruptcy ¶ 544.09[5](15th ed. rev.2005)(citing Moore v. Bay, 284 U.S. 4, 52 S.Ct. 3, 76 L.Ed. 133 (1931)).
Plaintiff claims that the January 2001 transfers of real property to G.R.D. were fraudulent because they were made for less than reasonably equivalent value. Iowa Code § 684.5(1) provides:
A transfer made or obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.
Schaefers contend that they did not became insolvent as a result of the January 2001 transfers and that they received more than reasonably equivalent value in exchange for the property transferred. Their arguments are based on the valuation of the employment agreement with G.R.D. at $867,163.
For purposes of Iowa fraudulent transfer law, a debtor is insolvent “if the sum of the debtor’s debts is greater than all of the debtor’s assets, at a fair valuation.” Iowa Code § 684.2(1); see also First National Bank in Fairfield v. Frescoln Farms, Ltd., 430 N.W.2d 432, 436 (Iowa 1988) (adopting UFTA’s definition prior to its enactment by Iowa legislature). Property to be included in the solvency calculation is property that constitutes an “asset” under the UFTA. Frescoln Farms, 430 N.W.2d at 436.
An asset is “property of a debtor,” but does not include property “to the extent it is encumbered by a valid lien [or] to the extent it is generally exempt under non-bankruptcy law.” Iowa Code § 684.1(2). In adopting the UFTA test for insolvency, the Iowa Supreme Court stated:
Solvency that is based on exempt property is no better than insolvency to a creditor, because the property is not available without affirmative action by the debtor. If a creditor cannot reach the property through some sort of legal process, we hold that the property cannot be used to show solvency.... We adopt [the UFTA] definition because it assures that a\ “solvency” supported by such “assets” will have some meaning to a creditor, as the property can be reached through the legal process. Under this approach, creditors will not have to rely on a solvency that they “cannot employ in the payment of the debts of an unwilling debtor.”
Frescoln Farms, 430 N.W.2d at 436-37 (quoting 37 C.J.S. Fraudulent Conveyances § 105).
Larry and Elaine Schaefer have taken the position in their bankruptcy case that G.R.D. is their employer and that payments made to them by G.R.D. are exempt wages. Exhibit 200, Schedules C, I. They have not listed their right to payments under the employment agreement as an item of personal property. Exhibits 200, 200A, Schedule B.
*418The company has taken the same position. In financial statements prepared by Larry Schaefer, G.R.D. has not treated its obligation under the employment agreement as a long-term Lability. Exhibits H and 139. See also Exhibits I, J, Schedule L (G.R.D. tax return balance sheet shows current wages as only liability).
Solvency is to be determined as of the date of the transfer alleged to be fraudulent. Frescoln Farms, 430 N.W.2d at 437. Approximately January 25, 2001, the date of recording the quit claim deeds, is the relevant date for determining whether Schaefers became insolvent as a result of the transfers. On that date, a creditor’s ability to reach the Schaefers’ interest in the contract with G.R.D., as an employment contract, would have been severely limited. Because the parties chose to structure the transfer as an exchange of real property for guaranteed wages, the employment agreement would not be available to a creditor to the extent it was made exempt by Iowa’s garnishment limitation statutes. See Iowa Code §§ 537.5105, 642.21 (limiting amount of debtor’s paycheck creditor may garnish, limiting amount of wages creditor may garnish in calendar year); In re hish, 303 B.R. 380 (Bankr.N.D.Iowa 2003) (discussing wage exemption statutes). Assuming Schaefers each received a paycheck twice a month and had income withheld at the rate of 15%, a creditor would have been able to garnish approximately $177 from each paycheck (($20,000 + 24 15%) (25%)). Moreover, based on Schaefers’ annual salary, a creditor would be limited to garnishing $800 per year from each debtor. Iowa Code § 642.21(l)(b).
For purposes of determining whether Schaefers became insolvent as a result of the transfers under Iowa Code § 684.5, the value of the employment agreement was negligible. The total value of Schae-fers’ other assets in January 2001 was approximately $140,000. Their total debt was at least $973,476. Plaintiff has shown by clear and convincing evidence that Schaefers were made insolvent by the transfers of real property to G.R.D. in January 2001.
The employment agreement’s lack of real value to creditors also prevents Schae-fers from showing that they received reasonably equivalent value in exchange for the transfer of the real property. The Iowa UFTA defines “value” as follows:
Value is given for a transfer or an obligation if, in exchange for the transfer or obligation, property is transferred or an antecedent debt is secured or satisfied, but value does not include an unperformed promise made otherwise than in the ordinary course of the promisor’s business to furnish support to the debtor or another person.
Iowa Code § 684.3(1). This text is identical to § 3(a) of the Uniform Fraudulent Transfer Act.
The Bankruptcy Appellate Panel of the Eighth Circuit recently discussed the meaning of “value” and “reasonably equivalent value” under the Arkansas UFTA. Williams v. Marlar (In re Marlar), 252 B.R. 743, 759-61 (8th Cir. BAP 2000), aff'd, 267 F.3d 749 (8th Cir.2001). The court quoted Comment 2 to § 3 of the Uniform Fraudulent Transfer Act:
Section 3(a) is adapted from § 548(d)(2)(A) of the Bankruptcy Code. See also § 3(a) of the Uniform Fraudulent Conveyance Act. The definition in Section 3 is not exclusive. “Value” is to be determined in light of the purpose of the Act to protect a debtor’s estate from being depleted to the prejudice of the debtor’s unsecured creditors. Consideration having no utility from a creditor’s viewpoint does not satisfy the statutory definition. The definition does not spec*419ify all the kinds of consideration that do not constitute value for the purposes of this Aet-e.gr., love and affection.
In re Marlar, 252 B.R. at 760. In affirming the Bankruptcy Appellate Panel’s decision, the Eighth Circuit noted the distinction between the consideration needed to create a binding contract and the value that will be considered “reasonably equivalent” for purposes of fraudulent transfer law. In re Marlar, 267 F.3d at 755-56. In that case, ten dollars and “love and admiration” was held not reasonably equivalent value as a matter of law.
In many cases, a debtor makes a contemporaneous transfer of property in exchange for cash or satisfaction of debt. For example, in Textron Financial Corp. v. Kruger, 545 N.W.2d 880 (Iowa App. 1996), cited by defendants, debtor Kruger gave a quit claim deed to 62.5 acres of farmland for satisfaction of $35,000 of debt. The property, which was subject to a life estate in Kruger’s mother, was valued at between $55,000 and $117,000. The question for the court was whether $35,000 was “reasonably equivalent” to the value of the property. The court held that the amount of consideration, when viewed in the context of all the circumstances of the ease, proved fraud by clear and convincing evidence. Id. at 884-85.
The transfer in Schaefers’ case did not involve a present exchange for cash or satisfaction of debt. The first issue is not whether Schaefers received a reasonable equivalence in the exchange, but whether they received any value at all within the meaning of § 684.3. An unperformed promise to provide support is the only consideration that does not constitute value as a matter of law. Iowa Code § 684.3(1). See generally, Note, Rights of Creditors in Property Conveyed in Consideration of Future Support, 45 Iowa L.Rev. 546 (1960). Whether another form of consideration constitutes value must be determined in light of the purpose of the statute, “to protect a debtor’s estate from being depleted to the prejudice of the debtor’s unsecured creditors.” In re Marlar, 252 B.R. at 760. Thus, value must confer a direct, economic benefit upon the debtor, rather than an intangible, psychological benefit. See Dietz v. St. Edward’s Catholic Church (In re Bargfrede), 117 F.3d 1078, 1080 (8th Cir.1997) (discussing reasonably equivalent value under § 548(a) and consideration under Iowa common law); see also INNK Land & Cattle Co. v. Kenkel, 546 N.W.2d 585, 588-89 (Iowa 1996) (transfer by insolvent not made for “legal consideration” or “consideration deemed valuable in law” constitutes constructive fraud under common law).
Schaefers state that in exchange for the transfer of real property they received consideration in several forms: the property was taken subject to the judgment by Land O’Lakes, the debt against the property was assumed, outstanding real estate taxes were paid, and Schaefers were given an employment agreement. Exhibit 104. It does not seem possible that G.R.D. could have done otherwise than to take the property subject to judgments. Moreover, if there is equity in encumbered property, the transferee of such property does not give value as to the transferor’s creditors by agreeing to pay off the encumbrances. First National Bank of Omaha v. First Cadco Corp., 189 Neb. 553, 203 N.W.2d 770, 779 (1973)(citing Buell v. Waite, 200 Iowa 1020, 205 N.W. 974 (1925)). G.R.D.’s later payment of encumbrances, such as mortgage payments or real estate taxes, would not reduce the prejudice to unsecured creditors, because Larry and Elaine no longer held title to the property.
*420Schaefers’ main contention is that they received value in the form of the employment agreement. CPA Potter valued the employment agreement, as of the date of the contract, at $867,163. Of that value, $36,409 is attributed to the self-employment taxes that Schaefers will not have to pay because they are now earning wages. This amount is of value only to the Schaefers; it does not constitute value under Iowa Code § 684.3.
Another component of the employment contract is the promise to pay health insurance, which Potter has valued at $312,466. The court concludes this component is an unperformed promise to provide support, within the meaning of § 684.3, that does not constitute value as a matter of law. G.R.D. has provided Schaefers with health insurance, as required by the contract. The promise is unperformed in the sense of being executory. This form of consideration given in exchange for the real property is of great value to the Schaefers, but of no value to their unsecured creditors. See Rights of Creditors in Property Conveyed in Consideration of Future Support, 45 Iowa L.Rev. at 550-52.
The value of the employment agreement attributed to wages to be paid over the term of the contract is $518,288. For the same reasons discussed above in determining insolvency, the court finds the promise to pay wages constitutes negligible value within the meaning of § 684.3(1). The agreement renders nearly all the payments to Schaefers exempt. The promise to pay Schaefers a guaranteed salary for fifteen years is another form of executory promise to furnish support. The nature of the consideration given in exchange for the transfer of real property to G.R.D. was sufficient only as between the parties. The transfer operated to the prejudice of Schaefers’ unsecured creditors. In exchange for property having equity of roughly $500,000, Schaefers received an employment agreement that had virtually no utility from a creditor’s viewpoint.
Moreover, the Schaefers’ contention that the economic value of the employment contract was value given entirely in exchange for the transfer of the real estate ignores the value of the labor which Schaefers were required to perform under the contract. Their argument balances the entire present value of the labor contract against the value of the real estate. They place no value on the work they were required to perform over the 15-year term of the agreement. This seems to me to be a fatal flaw in their argument.
Conceivably, the salaries and benefits payable to Schaefers might exceed the value of their work for G.R.D. If so, the difference in value might be assigned to the real estate. However, there was no quantitative evidence of a disproportion between the compensation package and the work to be performed. Schaefers have not shown why the present value of the compensation package is not equivalent to the present value of their work for G.R.D. They have not shown why any quantity of their compensation should be considered as consideration only for the real estate. CPA Potter, who provided the present value calculation, appears to have calculated only present value of the future stream of income and benefits. He did not testify. He provided no expert opinion as to why the value of Schaefers’ labors ought to be ignored.
The court concludes that Schae-fers made the January 2001 transfers while insolvent and received less than reasonably equivalent value in exchange. The transfers are avoidable as constructively fraudulent as to their creditors.
*421The court also concludes that the January 2001 transfers are avoidable under Iowa Code § 684.4(l)(a), which provides that a transfer is fraudulent as to creditors if it was made with “actual intent to hinder, delay or defraud any creditor of the debtor.” The Iowa UFTA lists the following examples of circumstances, or “badges of fraud,” that may give rise to an inference of fraudulent intent:
In determining actual intent under subsection 1, paragraph “a”, consideration may be given, among other factors, to any or all of the following:
a. Whether the transfer or obligation was to an insider.
b. Whether the debtor retained possession or control of the property transferred after the transfer.
c. Whether the transfer or obligation was disclosed or concealed.
d. Whether; before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit.
e. Whether the transfer was of substantially all the debtor’s assets.
f. Whether the debtor absconded.
g. Whether the debtor removed or concealed assets.
h. Whether the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred.
i. Whether the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred.
j. Whether the transfer occurred shortly before or shortly after a substantial debt was incurred.
k. Whether the debtor transferred the essential assets of the business to a lien- or who transferred the assets to an insider of the debtor.
Iowa Code § 684.4(2).
Several circumstances in this case point to fraudulent intent. Schaefers were in serious financial difficulty in January 2001. Larry and Elaine were both judgment debtors of Land O’Lakes. They were delinquent on real estate taxes. Elaine’s bankruptcy case had been dismissed in October; she was no longer protected by the automatic stay. Schaefers and their sons formed G.R.D. Larry and Elaine immediately transferred all their non-homestead real property to the company. The property was worth approximately $1.2 million; Schaefers’ equity was roughly $500,000. The transfers left them insolvent.
The court finds that G.R.D. is an insider within the meaning of the Iowa UFTA. Under Iowa Code § 684.1(7), an insider of an individual debtor includes a corporation of which the debtor is a person in control. Schaefers chose to form G.R.D. as a limited liability corporation. G.R.D.’s Operating Agreement expressly gives Larry and Elaine control of the business and financial affairs of the company. The Employment Agreement describes the duties of Larry and Elaine only by reference to Article V of the Operating Agreement. Ray Schaefer said his parents do not, in actual practice, control the business of the company. He said he would not allow this, since he is personally liable for G.R.D.’s debt. The evidence shows, however, that Ray did not personally guarantee the company’s debt until 2003. Prior to that time, Larry and Elaine exercised control consistent with their authority as managers of the company.
Even disregarding the language of the Operating Agreement, the court finds that the January 2001 transfers were made to insiders under the non-exclusive definí*422tion in Iowa Code § 684.1(7). The transaction was not an arm’s-length sale. The formation of G.R.D., the transfer of property to the company, and the agreement to employ Larry and Elaine constituted an arrangement between parents and children to provide the parents with future support. Transactions between family members are subject to close scrutiny. Benson v. Richardson, 537 N.W.2d 748, 756 (Iowa 1995).
G.R.D. did not purchase the property using a conventional promissory note and mortgage, nor did it execute a contract for deed. Instead, Larry and Elaine quit claimed the property to G.R.D. which, in turn, treated the real property as the capital contribution of sons Ray and Dean. In a separate agreement, Ray and Dean, presumably on behalf of G.R.D., agreed to employ Larry and Elaine for 15 years. The nature of the consideration, wages and health insurance, made it of negligible value to creditors. The consideration Schaefers received was not reasonably equivalent to the value of the property transferred within the meaning of Iowa’s UFTA.
Notwithstanding Schaefers’ failure to prove that any portion of the stream of benefits is not truly wages, there are aspects of the arrangement which support an inference that the intent of the agreement was to defraud creditors. The qualitative terms of the employment agreement were not based on the value of Larry and Elaine’s services in the marketplace. Larry and Elaine received identical salaries, without regard to whether they performed different tasks or worked different numbers of hours. Larry said that if he and his wife were unable to perform the physical work of managing the properties, they could hire someone else to do it. The agreement guaranteed Schaefers’ wage income at a higher level than they had ever had before, regardless of whether G.R.D. would continue to own the properties transferred to it in 2001. The agreement guaranteed health care coverage without regard to cost. The term of the contract was based on Schaefers’ desire to have regular, substantial income and guaranteed health insurance coverage until they received Social Security benefits.
Schaefers cannot have it both ways. If the value of their promise to provide labor to G.R.D. was economically equivalent to the compensation to be paid them, the compensation should not be attributed to the real estate transfer in determining whether they received reasonably equivalent value for their property (supra, p. 33). However, if it was not economically equivalent, the transfer was structured by Schae-fers to put their non-exempt property out of the reach of their creditors, and in the hands of their sons, while Schaefers were financially distressed. The court concludes that the transfers to G.R.D. were a fraudulent arrangement between Schae-fers and their sons to shield non-exempt assets from the parents’ creditors by converting them to “exempt wages.”
Schaefers argue that the 2001 quit claim deeds did not effect a transfer of all their property. They still owned $90,000 of farm equipment in addition to other property that was subject to execution. They point out that they could not have defeated the judgment liens of Land O’Lakes by transferring the property to G.R.D. Schae-fers contend that the transfers did not have the effect of hindering, delaying or defrauding their creditors, which they argue is evidence that they did not have fraudulent intent.
This argument is not persuasive. Schaefers transferred all their non-exempt real property interests. The equity in the real property was roughly 80% of the value of all Schaefers’ property that was subject to execution. The real property repre*423sented Schaefers’ most valuable assets from the viewpoint of creditors. One parcel, 520 Highway 18 East, was valued at approximately $160,000 and was unencumbered. Schaefers’ transfer of the real property to another entity completely defeated unsecured creditors’ ability to obtain a judgment lien that would automatically attach to real property. Obtaining a lien on Schaefers’ personal property would require further action. The court need not detail the other factors that could deter creditors from executing on Schaefers’ personal property, thus hindering their collection efforts.
Nor can the court say that Land O’Lakes was not prejudiced by the transfers. In July 2001, Land O’Lakes filed a complaint in United States District Court against Larry, Elaine, Ray, and Dean Schaefer and G.R.D., alleging that the January 2001 transfers to G.R.D. were fraudulent. Schaefers did not settle with Land O’Lakes until nearly two years later.
Schaefers argue alternatively that if plaintiff proves the existence of several badges of fraud in the challenged transactions, the court should nevertheless find that they acted in good faith on the advice of counsel. Schaefers’ attorney argues in his brief that advice of counsel can negate fraudulent intent, citing Floret, L.L.C. v. Sendecky (In re Sendecky), 283 B.R. 760 (8th Cir. BAP 2002), aff'd, 315 F.3d 904 (8th Cir.2003). Docket no. 61 at 4. In In re Sendecky, a creditor alleged that debtor had made a false oath when preparing his bankruptcy schedules. Debtor duplicated some claims, listed debts that were no longer collectible, and listed a debt owed his parents although they had never demanded payment. The Bankruptcy Appellate Panel cited cases for the proposition that reliance on advice of counsel can negate or excuse fraudulent intent. Id., 283 B.R. at 765.
The sense of the cases is not that a debtor will be excused from actual fraudulent intent if he has sought legal advice for the execution of a fraudulent scheme. A defense of advice of counsel may overcome an inference of fraud or willful misconduct, but the defendant must show a full disclosure of all relevant facts to the attorney and a reasonable belief that he was receiving reliable advice. See Matter of Mascolo, 505 F.2d 274, 276-77 & n. 4 (1st Cir.1974). In In re Sendecky, the bankruptcy court found that the debtor misunderstood his attorney’s advice. The court ruled against the creditor, and the Bankruptcy Appellate Panel affirmed.
Schaefers’ case more closely resembles the facts in Cuervo v. Hull (In re Snell), 240 B.R. 728 (Bankr.S.D.Ohio 1999). Snell admitted transferring several items of property to put them out of reach of a judgment creditor. He argued, however, that his actual intent to hinder and delay a creditor was excused, because his attorneys had advised him to make the transfers and prepared the documents necessary to do so. The court rejected the argument, stating that a debtor’s reliance must be in good faith, and that a finding that the debtor knew the purpose of a transfer was to hinder or delay a creditor is inconsistent with good faith. In re Snell, 240 B.R. at 730-31.
Attorney Putnam did not testify as to what information Schaefers gave him or what advice he gave them. Schaefers wanted to protect the equity in their real property from creditors. Their sons participated in the arrangement in order to give financial assistance to their parents. The court finds there was clear and convincing evidence that Schaefers knew that the transaction was structured as a transfer of real estate for an employment agreement in order to convert non-exempt equity in the property into exempt wages.
*424IT IS ORDERED that the trustee’s objection to debtors’ claims of exemption in their homestead is overruled.
IT IS FURTHER ORDERED that plaintiffs objection to debtors’ discharges under 11 U.S.C. § 727(a) is dismissed.
IT IS FURTHER ORDERED that plaintiffs claims to avoid the April 2003 mortgage on debtors’ homestead under 11 U.S.C. §§ 547(b) and 548(a) are dismissed.
IT IS FURTHER ORDERED that debtors’ transfers of real property to G.R.D. Investments, L.L.C. by quit claim deeds dated on or about January 16 and 17, 2001, are avoidable under 11 U.S.C. § 544(b)(1).
. Exhibit S contains ten forms declaring the value of property transferred to G.R.D. on January 16 and 17, 2001. Two of the parcels are identified as 25 Plaza Drive and 27 Plaza Drive, Clear Lake, Iowa. The property identified in Exhibit 84 is commonly known as 27 Plaza Drive. The property identified in Exhibit 85 has been referred to as an “unnamed parcel.” Because the parcels in Exhibits 84 and 85 together make up Lot Four in Block *407Three in Fieldstone First Addition to Clear Lake, Iowa, the court will refer to the parcel in Exhibit 85 as 25 Plaza Drive.
. The appraised value of the entire 200 acres as of January 16, 2001 was $459,000. The 40-acre homestead was valued at $108,000 as of that date. The date of 'June 16, 2001 for valuation of the 160 acres is a typographical error. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493765/ | OPINION
1
PAUL B. LINDSEY, Bankruptcy Judge.
I. Background
Safety-Kleen Corp. (the “Debtor”), along with certain of its subsidiaries, filed its Chapter 11 bankruptcy petition on June 9, 2000. Pursuant to the Modified First Amended Joint Plan of Reorganization, the Safety-Kleen Creditor Trust (the “Trustee”) was vested with authority to pursue the avoidance actions on behalf of the Debtors. This adversary proceeding was filed on May 30, 2002 by the Safety-Kleen Creditor Trust (“Plaintiff’), to avoid and recover pursuant to §§ 547(b) and 550,2 one allegedly preferential transfer in the amount of $28,846.30.3 An amended complaint was filed on January 27, 2004 and *593the defendant, Eimco Process Equipment Co. (“Eimco”) answered on February 17, 2004.
The parties completed discovery and this matter was scheduled for trial on June 29, 2005. The parties submitted their Joint Pretrial Memorandum as required under the General Order Re: Pretrial Procedures in Adversary Proceedings Set for Trial before this Court. However, because only legal issues remained to be resolved, the parties opted in lieu of trial, to present brief oral argument on the issues set forth in the Joint Pretrial Memorandum.
II. Facts
The facts surrounding the transfer were stipulated to by the parties and are therefore, not in dispute. The transfer at issue was the refund of a duplicate payment that Eimco mistakenly made to the Debtor. Eimco made its first payment for Invoice No. 59090617019 to the Debtor on August 27, 1999 in the amount of $28,846.30, and again on October 8, 1999. According to an internal email at Safety-Kleen, the Debt- or’s accounting department became aware of the mistake on or around March 27, 2000 (Eimco Exhibit 1) and began the refund process the next day. The Debtor used a standard form to process the check, which it regularly utilized to issue refunds of duplicate payments. The form was entitled “Safety-Kleen Corp. Check Request” and included a box to be checked for duplicate payments. (Eimco Exhibit 2) The refund was made by check from the Debt- or’s account on April 14, 2000.
III. Discussion
A. Elements of Section 547(b)
In order to recover on its Complaint for the allegedly preferential transfer in the amount of $28,846.30, Plaintiff must prove by a preponderance of the evidence, each element under § 547(b). Subsection (b) provides:
Except as provided in subsection (c) of this section, the trustee may avoid any transfer of an interest of the debtor in property—
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made—
(A) on or within 90 days before the date of the filing of the petition; or
(B) between 90 days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider; and
(5) that enables such creditor to receive more than such creditor would receive if—
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title.
11 U.S.C. § 547(b). The parties have stipulated that all elements except subsection (b)(2) have been satisfied. Plaintiff however, contends that it has carried its burden with respect to each subsection.4
In support of this contention, Plaintiff offered two exhibits: the April 14, 2000 *594cancelled check (No. 1892155) in the amount of $28,846.30, and Eimco’s Responses to Plaintiffs Combined First Set of Requests for Admission, Interrogatories, and Requests for Production of Documents Directed to Defendant, dated September 16, 2004 (“Responses to Discovery”). Plaintiff relies on the admissions made by Eimco in its Responses to Discovery to establish that Eimco was a creditor of the Debtor and that the transfer was made for or on account of an antecedent debt. In response to Plaintiffs Request for Admissions numbered 2, 3, and 5, Eimco admitted that it had a right to payment based upon an obligation owed to it by the Debtor at the time of the transfer, that the transfer reduced or satisfied a debt owed to it by the Debtor as of the date the transfer was made, and that it was a creditor of the Debtor at the time of the transfer. (Plaintiffs Exhibit PX2, at 2)
As further evidence for its case in chief, Plaintiff cites to In re Jan Weilert RV, Inc., 315 F.3d 1192 (9th Cir.2003), where the plaintiff had proven a prima facie case that a refund of a duplicate payment was a preferential transfer.5 Weilert involved an appeal by the defendant, Bank of the West, from the District Court which had reversed the Bankruptcy Court’s finding that the refund of a mistaken double payment with regard to a financed sale of a new vehicle was made according to ordinary business terms. The Bankruptcy Court had granted summary judgment on the § 547(b) elements for the plaintiff and on the contemporaneous exchange for new value defense for the defendant. Id., at 1195. Plaintiff therefore contends that the transfer is subject to avoidance and recovery for the benefit of the Debtor’s creditors.
Eimco’s primary argument in opposition is that the Debtor had no legal or equitable interest in the duplicate payment. Consequently, it was not property of the estate under § 541, because the mistaken payment was owed to Eimco and the Debtor had a legal obligation to return it. Furthermore, Eimco disputes that Weilert is authority for the proposition that a duplicate payment is a preference under § 547(b) because the issue on appeal was whether the payment had been made in the ordinary course of business. The Court of Appeals had no occasion to address the requirements for avoidance and recovery of a preferential transfer. Eimco also argues that the payment did not deplete the Debtors’ estate and therefore, it was not a preference, making dismissal of this action appropriate. Eimco, however, has not cited any authority with respect to its contention that the duplicate payment was not property of the estate.
Section 541 defines property of the estate as “all legal or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C. § 541(a)(1). Section 541(a)(1) is very broad and its underlying purpose is to bring into the estate all interests of the debtor, whether tangible or intangible, at the commencement of the case. 5 Collier on Bankruptcy P 541.11 (Alan N. Resnick & Henry J. Sommer eds., 15th ed. rev.). Based upon the facts as presented by the parties, it is clearly evident that the duplicative payment at issue, was held by the Debtor for at least six months and was commingled with other cash assets of the Debtor. The Debtor had an interest in *595that payment and it was, therefore, property of the estate.
As for the other requirements of § 547(b), there is no question that the transfer was made within ninety days of the petition date, that Eimco was a creditor of the Debtors, the Debtor was insolvent at the time of the transfer, that the payment was made for or on account of an antecedent debt, and Eimco received more than it would have under a hypothetical chapter 7 case and the transfer had not been made. Therefore, Plaintiff has satisfied each of the elements of § 547(b) by a preponderance of the evidence and the $28,846.00 payment is clearly a preferential transfer. However, Eimco has raised an affirmative defense under § 547(c)(2) which may preclude Plaintiff from exercising its avoidance powers and its ability to recover the preferential payment.
B. Ordinary Course of Business Defense
The ordinary course of business defense under § 547(c)(2) affords a complete defense to preference liability provided that the defendant meets the requisite elements:
The trustee may not avoid under this section a transfer—
(2) to the extent that such transfer was—
(A) in payment of a debt incurred by the debtor in the ordinary course of business or financial affairs of the debtor and the transferee;
(B) made in the ordinary course of business or financial affairs of the debtor and the transferee; and
(C) made according to ordinary business terms
11 U.S.C. § 547(c)(2). Congress enacted this subsection of § 547 in order “to leave undisturbed normal financing relations, because it does not detract from the general policy of the preference section to discourage unusual action by either the debtor or his creditors during the debtor’s slide into bankruptcy.” S.Rep. No. 989, 95th Cong., 1st Sess. 88, reprinted in 1978 U.S.Code Cong. & Admin.News 5787, 5874. “Thus, the court’s general inquiry in these preference cases is to determine whether the payments to a creditor made in the 90 days preceding a filing for bankruptcy were in response to a zealous creditor’s attempt to collect on a debt through preferential treatment ahead of other creditors, or an attempt by the debtor to maintain normal business practices in hope of staving off bankruptcy.” In re Global Tissue L.L.C., 106 Fed.Appx. 99, 2004 WL 1510091 (3rd Cir.2004).
To that end, § 547(c)(2)(A) requires this Court to examine the underlying debt for which the transfer was made and determine whether that debt was incurred in a normal or routine transaction between the parties. Subsection (B) focuses on whether the transfer itself was consistent with the past practices of the parties business dealings. And lastly, subsection (C), requires that the creditor prove that the transfer falls within the industry norm.
Plaintiff argues that Eimco has not satisfied any of the elements of § 547(c)(2) stating that neither the debt, nor the transfer, was made in the ordinary course of business or financial affairs of the Debt- or and Eimco. Plaintiff again directs the Court’s attention to Weilert where the Court of Appeals spoke of the refund of mistaken payments as “exceptional.” Weilert, 315 F.3d at 1200. Plaintiff also maintains that Eimco has not offered any evi*596dence that the transfer was ordinary in the industry and thus, has failed to establish that it was made according to ordinary business terms. Not surprisingly, Eimco disagrees, and in support of its position, also seeks to rely on Weilert because the Court found and held that the refund payment was made in the ordinary course of business.
According to the facts as admitted in the Joint Pretrial Memorandum, the Debtors were a hazardous and industrial waste services company, providing collecting, processing, recycling and disposal services with more than two hundred operating facilities throughout the United States and Canada. Eimco provided goods and services to the Debtor prior to the petition date. It appears and there is no evidence to the contrary, that the debt and the transfer were incurred in the routine and normal course of transactions between the Debtor and Eimco. Therefore, both § 547(c)(2)(A) and (B) have been satisfied.
With regard to the last prong of § 547(c)(2), Eimco relies heavily on the Weilert case in support of its defense. As stated previously, the Bankruptcy Court in Weilert held that the refund payment was made in the ordinary course of business and entered judgment in favor of the defendant, Bank of the West, as to that transfer. The Trustee was successful on appeal to the District Court, which reversed the lower court’s holding because it found that Bank of the West did not produce sufficient evidence of the industry standard. However, on further appeal to the Ninth Circuit, the Court of Appeals carved out a very limited exception to the ordinary business terms prong of § 547(c)(2)(C), stating that while evidence of the industry standard is ordinarily required, “the problem of refunds of mistaken payments is exceptional.” Weilert, 315 F.3d at 1200. The Court went on to explain its rationale for dispensing with such requirements under those circumstances:
Like all recipients of mistaken payments, Debtor was subject to a legal obligation promptly to refund the money. It fulfilled this obligation by issuing a refund check within three days, which would clearly have fallen within the ordinary range no matter what the relevant industry or practice. Here, the “ordinariness” of the Debtor’s compliance with its legal obligation is obvious, and additional evidence of industry practice could not have assisted the court in recognizing that the refund was “made according to ordinary business terms.” The law does not inflexibly demand form over substance.
Id.
Additionally, the Court established a framework for analyzing the refund of a mistaken payment in the context of subsection (C). The Court held that if a transferee could prove that (1) money was mistakenly transferred to the debtor, (2) the mistake was quickly discovered, (3) a refund was immediately requested, and (4) the refund was tendered within three days, then evidence regarding the standard in the industry would not be required for a creditor to be protected under the safe harbor of § 547(c)(2). Id.
In Weilert, Bank of the West made a payment to the debtor on January 3, 1997 and made a duplicate payment four days later. Bank of the West discovered its mistake and requested that the transfer be refunded. The debtor issued a check for the overpayment on January 10, 1997 and the check cleared on January 16, 1997.
*597Eimco argues that the while the time frames were slightly longer in this instance, the refund process was initiated the day after the duplicate payment was discovered and the check was issued within two and one-half weeks later.
IV. Decision
In this instance, it is undisputed that the transfer was a mistaken duplicate payment from Eimco to the Debtor. As soon as the mistake was discovered, the process ■ for issuing a refund was initiated. Safety-Kleen issued an internal memorandum and a check request which it regularly used for refunding duplicate payments. The refund was processed the next day and a check was issued shortly thereafter. Even though the time was more than three days here, it was still prompt enough to forego separate evidence of industry practice and fit within the exception carved out by the Ninth Circuit. This Court finds that the transfer in question was in payment of a debt incurred by Eimco in the ordinary course of business or financial affairs of the Debtor and Eimco.
Eimco has satisfied the burden of proof placed upon it by § 547(g), and therefore is entitled to judgment in its favor and against Plaintiff. The transfer is not avoidable pursuant to § 547 and therefore not recoverable by Plaintiff under § 550. Plaintiff shall take nothing by reason of its Complaint herein.
An appropriate judgment follows.
JUDGMENT
For the reasons set forth in the accompanying Opinion of even date herewith, Judgment is rendered in favor of Eimco Process Equipment Co., and against the Safety-Kleen Creditor Trust for the transfer in the amount of $28,846.30. The Safety-Kleen Creditor Trust shall take nothing by reason of its complaint.
. This opinion will constitute the findings of fact and conclusions of law of the Court required by Federal Rule of Bankruptcy Procedure 7052.
. Hereinafter, references to statutory provisions by section number alone will be to provisions of Title 11 of the United States Code unless otherwise noted.
.This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334 and 157(b)(1) and it is a core proceeding under 28 U.S.C. § 157(b)(2), (A), (B), (F) and (O). Venue is *593proper in this jurisdiction pursuant to 28 JLJ.S.C. § 1409.
. Section 547(g) provides in part, that “the trustee has the burden of proving the avoida-bility of a transfer under subsection (b) of this section.”
. The elements of § 547(b) were not on appeal in Weilert, but rather only whether the refund payment was made in the ordinary course of business. Weilert, at 1194. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493766/ | MEMORANDUM OPINION
PETER J. WALSH, Bankruptcy Judge.
In this adversary proceeding defendants Arkema, Inc., (f/k/a Atofina Chemical, Inc., and also f/k/a Elf Atochem North America, Inc.), Helen Kramer Landfill Superfund Site Group, and Ballard, Spahr, Andrews & Ingersoll, LLP, filed a motion (Adv.Doc. # 5) seeking to dismiss Count III of plaintiff Clean Harbors Environmental Services, Inc.’s (“Clean Harbors”) complaint. While the motion is filed pursuant to Federal Rule of Civil Procedure 12(b)(6),1 both parties have furnished substantial documents relating to matters outside the pleadings. Thus, pursuant to Rule 12(b)(6), the motion will be treated as a motion for summary judgment. For the reasons set forth below, the Defendants’ motion will be granted.
BACKGROUND
Introduction
On June 9, 2000, the Debtor, Safety-Kleen Corp., et al., (“Safety-Kleen”) filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code, 11 U.S.C. §§ 101 et seq. (the “Bankruptcy Code”).2 By order dated June 18, 2002, this Court approved the sale of a major portion of Safety-Kleen’s business to Clean Harbors pursuant to § 363. The current dispute involves whether, with the § 363 transaction, Clean Harbors assumed Safety-Kleen’s obligations to the Defendants.
Count I of the Complaint seeks a declaration that, pursuant to the Sale Order,3 Clean Harbors acquired the business free of such obligations. Following the sale and prior to the filing of this adversary proceeding, the Defendants sought to enforce their claim against Clean Harbors in the United States District Court for the District of New Jersey (the “New Jersey Court”). Count II seeks a declaration that those efforts violated the injunction provision of the Sale Order. Count III seeks to hold the Defendants in contempt for that alleged violation of the injunction provision.4 Presently before this Court is only the Defendants’ motion to dismiss Count *607III of the Complaint. Clean Harbors maintains that the Sale Order is clear on the issues of its non-assumption of the subject liabilities and the effect of the injunction provision. The Defendants assert that they cannot be found in contempt because the Sale Order does not unambiguously bar their pursuit of a claim against Clean Harbors. Indeed, the Debtors assert that in fact Clean Harbors did assume Safety-Kleen’s obligation to them.
The Source of Liability
Prior to the filing of its petition, Safety-Kleen had acquired the business of Rollins Environmental Services (NJ), Inc. (“Rollins”). Rollins had for a number of years operated a waste treatment operation that resulted in the disposal of waste material at a site in New Jersey. That site, later referred to as the Helen Kramer Landfill Superfund Site, drew the attention of the Environmental Protection Agency (“EPA”) and the State of New Jersey Department of Environmental Protection (“DEP”). The EPA and the DEP charged various potentially responsible parties (“PRPs”) with environmental pollution. Those charges resulted in consent decrees among the EPA, the DEP and the PRPs, including Rollins, to remediate the superfund site with the PRPs paying the cost of remediation.
Although the consent decrees created collective liability for the settling PRPs, those documents did not allocate such liability among the PRPs. Rather, the various PRPs entered into separate settlement agreements (the “Settlement Agreements”) among themselves providing for the sharing of the remediation costs. As a result of the Settlement Agreements, Rollins became obligated to the Defendants to provide funds to assist in the remediation work over the course of a number of years. When Safety-Kleen acquired Rollins it became obligated to the Defendants under the terms of the Settlement Agreements.
Safety-Kleen’s Sale To Clean Harbors
During the course of the bankruptcy case, Safety-Kleen filed a motion seeking to sell its environmental services division to Clean Harbors. The proposed sale was subject to a detailed Acquisition Agreement (the “Agreement”) dated February 22, 2002. The Sale Order was entered on June 18, 2002. As a result of the sale, Clean Harbors assumed certain liabilities of Safety-Kleen. As to liabilities not assumed by Clean Harbors the Sale Order enjoins holders of such claims from pursuing recovery against Clean Harbors. The subject adversary proceeding thus involves the dispute as to whether Clean Harbors has assumed Safety-Kleen’s liabilities owing to the Defendants, which liabilities arose out of the Safety-Kleen acquisition of Rollins.
Acting on the belief that Clean Harbors assumed such liabilities, the Defendants filed a motion in the New Jersey Court seeking an order requiring Clean Harbors to pay all monies due from Safety-Kleen under the Settlement Agreements.5 However, the Defendants voluntarily withdrew the New Jersey Court motion, apparently intending to refile it at a later date. This adversary proceeding was filed in this Court by Clean Harbors before the Defendants’ refiled in the New Jersey Court.
Due to the Defendants’ attempts to enforce their obligations in the New Jersey Court, Clean Harbors asserts that the Defendants have violated the injunction provisions of the Sale Order. From this, Clean Harbors alleges that this supposedly *608“clear” violation warrants contempt sanctions.
DISCUSSION
Standard of Review
In determining whether a claim should be dismissed pursuant to Rule 12(b)(6), the Court may look only to the allegations contained in the Complaint and any exhibits attached thereto. City of Pittsburgh v. West Penn Power Co., 147 F.3d 256, 259 (3d Cir.1998) (citation omitted). But if matters outside the Complaint are presented to and not excluded by the Court, the motion to dismiss “shall be treated as one for summary judgment and disposed of as provided in Rule 56 .... ” Fed. R. Civ. P. 12(b). The decision to consider evidence outside the Complaint and convert a motion to dismiss to one for summary judgment is within the discretion of the Court. Kulwicki v. Dawson, 969 F.2d 1454, 1462 (3d Cir.1992) (citation omitted).
Summary judgment is appropriate “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Fed. R. Civ. P 56(c).6 When deciding a motion for summary judgment, the court views the facts, and all permissible inferences from those facts, in the light most favorable to the non-moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587-88, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Where the record could not lead a reasonable trier of fact to find for the non-moving party, disposition by summary judgment is appropriate. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
Contempt Liability
“A plaintiff must prove three elements by clear and convincing evidence to establish that a party is liable for civil contempt: (1) that a valid order of the court existed; (2) that the defendants had knowledge of the order; and (3) that the defendants disobeyed the order.” Roe v. Operation Rescue, 54 F.3d 133, 137 (3d Cir.1995) (citation and internal quotations omitted). The requirement of knowledge has a corollary: “the order which is said to have been violated must be specific and definite.” In re Rubin, 378 F.2d 104, 108 (3d Cir.1967) (citations omitted). Put differently, “a person will not be held in contempt of an order unless the order has given him fair warning that his acts were forbidden.” United States v. Christie Indus., Inc., 465 F.2d 1002, 1006 (3d Cir.1972). Further, the longstanding rule in contempt cases is that ambiguities or omissions in an order will favor the party charged with contempt. Ford v. Kammerer, 450 F.2d 279, 280 (3d Cir.1971). In sum, the plaintiff must prove by clear and convincing evidence that the defendants violated an unambiguous order in that no other reasonable interpretation of such order existed. See Harris v. City of Philadelphia, 47 F.3d 1342, 1350 (3d Cir.1995) (summarizing the applicable standard for contempt).
The Injunction
According to Clean Harbors, there was a valid injunction, which the Defendants knowingly violated. The Defendants counter that (a) they did not violate the Sale Order, and (b) if they did violate it, they did so without the requisite knowl*609edge because the order was not sufficiently clear.
The first step is an examination of the injunction provisions of the Sale Order. Paragraph 97 of that order reads as follows:
Except as expressly permitted by the Agreement or this order, all persons and entities holding Encumbrances or Claims of any kind and nature with respect to the Acquired Assets are hereby enjoined from asserting, prosecuting or otherwise pursuing such Encumbrances and Claims of any kind and nature against Clean Harbors, its successors or assigns, or the Acquired Assets.
(Doe. # 4932, ¶ 9 (emphasis added)).
Paragraph 29 of the Sale Order goes on to state, in relevant part:
All persons holding Encumbrances in or Claims against the Acquired Assets of any kind or nature whatsoever (other than persons holding Permitted Exceptions and Assumed Liabilities)8 shall be, and hereby are, forever barred, es-topped, and permanently enjoined from asserting, prosecuting, or otherwise pursuing such Encumbrances or Claims of any kind or nature whatsoever against Clean Harbors....
(Doc. # 4932, ¶ 29 (emphasis added)).
These provisions enjoin the prosecution of certain claims not otherwise permitted by the Agreement. As Paragraph 29 indicates, however, the Agreement permits the prosecution of certain Permitted Exceptions and Assumed Liabilities. The issue then is whether the obligations owing to the Defendants fall within the category of Assumed Liabilities, or more precisely, whether the obligations so clearly do not fit within Assumed Liabilities that the Defendants should be sanctioned for their actions in pursuing recovery against Clean Harbors. As such, it is necessary to examine the language of the Agreement and Sale Order, specifically, Section 1.3 of the Agreement and Paragraph 0 of the order. Assumed Liabilities
In relevant part, Section 1.3 of the Agreement defines “Assumed Liabilities” as including:
... liabilities and obligations, whether arising before or after the Closing Date, in connection with the Owned Real Property, the real property subject to Real Property Leases, the real property owned or leased, directly or indirectly, by any Transferred Sub or the operation of the Business (including liabilities and obligations arising under Environmental Laws (or other Laws) that relate to violations of Environmental Laws [) ]
(Doc. # 3672, Exh. A § 1.3) (emphasis added).
Paragraph 0 of the Sale Order further elaborates as follows:
The liabilities assumed in paragraph 1.3 of the Acquisition Agreement specifically include the liability of the Seller and the Selling Subs with respect to the Business and the Acquired Assets for liability to a governmental entity acting under CERCLA or similar state statutes with respect to those sites set forth on Exhibit A.
(Doc. # 4932, ¶ 0).
Exhibit A to the Sale Order includes the “Helen Kramer Landfill” as among the *610Assumed Liabilities. The Defendants represent that “[t]he Superfund Remediation Liability [currently at issue] was Safety-Kleen’s only liability in connection with the Kramer Superfund Site .... ” And, “[t]here is no other Kramer Superfund Site liability to which Paragraph 0 and Exhibit A could have been referring.” (Adv.Doc. # 5, p. 23) (emphasis in original). Clean Harbors does not challenge this factual representation.
Clean Harbors does argue, however, that Paragraph 0 of the order only relates to the direct claims of the EPA or the DEP. I do not read it that way. Paragraph 0 speaks in terms of “liability of the Seller ... for liability to a governmental entity.” (Doc. # 4932, ¶ 0). Thus, Paragraph 0 contemplates liability owed for liability to a governmental entity, which is exactly the case here. Safety-Kleen owed an obligation to the Defendants for liability that the PRPs to the Settlement Agreements (including Rollins) owed to the governmental entities.
If the Sale Order only desired to have the purchaser assume liability owed directly to a governmental agency, it could have expressed it as such. In fact, in Paragraph P, the Sale Order states: “[t]he liabilities assumed in paragraph 1.3 of the Agreement specifically include the liabilities of the Seller and the Selling Subs to a governmental entity .... ” (Doc. # 4932, ¶?).
Furthermore, Paragraph 0 of the Sale Order does not serve to limit the scope of the Assumed Liabilities set forth in Section 1.3 of the Agreement. Paragraph 0 of the Sale Order simply states that the assumed liabilities “specifically include” certain environmental liabilities with reference to Exhibit A. Even if Paragraph 0 were read to be limited solely to liabilities to a governmental entity, the broader language in Section 1.3 of the Agreement still stands: environmental liabilities, not limited to those asserted by environmental agencies, are assumed unless otherwise excluded.
Excluded Liabilities
Clean Harbors argues that Section 3.8 of the Agreement applies to the instant matter to exclude the subject liabilities. Section 3.8 provides:
Title to Property. Upon the entry of the Section 363/365 Order and, if applicable, the Confirmation Order, at the Closing the Seller and each of the Selling Subs will sell, assign, transfer, convey and deliver, as the case may be, to the Purchaser and the Purchasing Subs the Acquired Assets, and the Acquired Assets and the assets held by the Domestic Transferred Subs will be free and clear of all liens, claims, encumbrances and security interests other than Permitted Exceptions.
(Doc. # 3672, Exh. A, § 3.8).
According to the Agreement, the term “Excluded Liabilities” includes liabilities “which are to be discharged by the Bankruptcy Court in accordance with Section 3.8 [of the Acquisition Agreement].” (Doc. # 3672, Exh. A, Article IX) This language does not advance Clean Harbors’ argument, however.
Section 3.8 of the Agreement merely represents that the Acquired Assets will be conveyed free and clear of all liens and encumbrances. The Helen Kramer Landfill was not conveyed to Clean Harbors. Safety-Kleen itself acknowledges that “the Helen Kramer Landfill was not one of the Acquired Assets.... ” (Adv.Doc.# 6, Exh. C, p. 13). Since the Helen Kramer Landfill was not an Acquired Asset, Section 3.8 does not apply here.
Extrinsic Evidence and the Parol Evidence Rule
Looking beyond the Agreement and Sale Order, other evidence supports the *611interpretation that Clean Harbors assumed environmental liabilities not limited to those asserted by governmental entities. Specifically, statements made at the two-day sale hearing suggest that Clean Harbors has successor liabilities beyond those to governmental entities. Clean Harbors contends that consideration of this extrinsic evidence is barred by the parol evidence rule. I do not agree.
The Agreement and the Sale Order are complex legal documents whose pervasive application is not free from debate.9 The above discussion of the interplay among various provisions of those two documents shows that there is plenty of room for serious debate as to what liabilities Clean Harbors assumed. Consequently, it is appropriate for the Court to consider extrinsic evidence. As discussed below, comments made by parties during the sale hearing and communications among involved parties subsequent thereto, clearly show that the Defendants had a reasonable basis to believe that they have successor liability claims against Clean Harbors. That evidence is therefore appropriate for the Court’s consideration.
The Sale Hearing
On the first day of the sale hearing, the Court heard an objection from Onyx North America Corporation (“Onyx”), a losing bidder for the business. See (Doc. # 4901, §§ 14-16). The Onyx objection was based, among other things, on the notion that the Onyx offer was higher and better than the Clean Harbors offer. Safety-Kleen disagreed with Onyx even though Onyx offered a higher cash/working capital component. Safety-Kleen reasoned that the Onyx offer was inferior to Clean Harbors because Clean Harbors was willing to assume more environmental liabilities.
Specifically, the testimony of Mr. Haack, an investment banker with Lazard Freres and Company, who was retained by Safety-Kleen, stated that Clean Harbors was assuming $265 million of GAAP liabilities. In explaining which liabilities this $265 million figure represented, the following exchange took place:
Q: [MR. MEEHAN, counsel for Safety-Kleen]: Now, you’re familiar with the acquisition agreement with Clean Harbors, are you sir?
A: Yes, generally
Q: Generally, sir, could you explain to us what the types of liabilities are that would be assumed under that agreement as you understand it?
A: Under the agreement, Clean Harbors would be assuming a number of different categories of liabilities. First of all, they would be assuming the $265 million of GAAP liabilities that are directly related to the properties that they’re acquiring.
Secondly, they would be acquiring certain potential liabilities-liabilities related to potential violations of environmental law. They would be assuming certain working capital liabilities.
Q: And among those liabilities then-you indicated that would be all the closure and post closure liabilities for owned and leased sites?
A: And remediation, yes.
(Doc. # 5003, pp. 22-23 lines 22-15).
Later, Mr. Haack testified in a similar fashion explaining that “... Clean Harbors, pursuant to the agreement, is taking the contingent liabilities related to potential violations and liabilities of environmental law.” (Doc. # 5003, p. 27 lines 21-25).
*612That same day, Mr. McKim, president of Clean Harbors testified as to the extent of Clean Harbors’ assumption of liabilities. On cross examination the following exchange occurred:
Q: [Mr. Goroff, counsel for Onyx] Okay. And what do you ascribe to remediation?
A: (no verbal response.)
Q: First of all, what is remediation?
A: Well, there are a number of sites that were owned by the company that have been closed that need to be cleaned up, properly closed and remediated. And then there are potentially super-fund sites that are associated with off-site liabilities that the company has.
Q: And how much are you assuming is going to be — how much of the 265 million is remediation expenses?
A: I don’t have the breakdown here in front of me, I’m sorry.
(Doc. # 5003, p. 158 lines 13-23).
As seen through this testimony, both Safety-Kleen and Clean Harbors seemed to believe that Clean Harbors would assume the costs of the remediation expenses whether in connection with owned properties or offsite.
This understanding was reinforced on the second day of the sale hearing. On that day, this Court heard an objection from a group of creditors referred to as the Maionchi Creditors. The Maionchi Creditors had operated a business, which they sold to a predecessor in interest of Safety-Kleen. At some point after that, environmental claims were brought against the Maionchi Creditors and, as a result, they believed Safety-Kleen was liable to them for such claims. The Maionchi Creditors opposed the sale because, among other things, inadequate information had been provided to the creditors to allow them to determine what liabilities were being assumed. See (Doc. # 4834).
Safety-Kleen’s counsel responded to this argument by saying “if this is a claim that is essentially based on damages related to environmental claims, I believe under the contract, as we discussed yesterday, there is likewise no question but that this claim has been assumed.” (Doc. #5009, p. 15 lines 15-18). In other words, in response to creditor concerns about the ambiguity of the Assumed Liabilities, Safety-Kleen responded that it believed without question that Clean Harbors had assumed the environmental claims. In response to the above described testimony and representations made at the sale hearing, Clean Harbors states:
[S]uch extrinsic evidence as the Defendants cite proves only that, at the time of the Sale Hearing to approve the Acquisition Agreement, the parties to the Acquisition Agreement made clear to the Court that the parties were not in accord as to the meaning of the words therein.
(Adv.Doc. # 8, p. 2).
Simultaneously, Clean Harbors asserts that the Acquisition Agreement is “clear and unequivocal” and not “susceptible of more than one meaning.” (Adv.Doc. #8, p. 14). Yet Clean Harbors concedes “that the Seller had a different interpretation of the words of the contract than did Clean Harbors .... ” (Adv.Doc. # 8, p. 21).
Puzzlingly, Clean Harbors recites this fact repeatedly. In Clean Harbors’ words, “... Clean Harbors was not in agreement with the Sellers as to the breadth of the definition of ‘Assumed Liabilities’ ascribed to it by the Sellers.” (Adv.Doc. # 8, p. 21). And, “... every witness that testified acknowledged that there were unresolved ‘disputes’ between the parties to the Acquisition Agreement as to their respective understanding of what liabilities fell within *613the definition of ‘Assumed Liabilities’.” (Adv.Doc. #8, p. 15). Despite all this, Clean Harbors still asserts that there is a clear meaning in the Agreement and the Sale Order as to assumed and non-assumed environmental liabilities and that the Defendants should be held in contempt for acting on their differing interpretation.
Affidavits and Relevant Correspondence
Several affidavits and related documents further support the reasonableness of the Defendants’ conduct in pursuing Clean Harbors in the New Jersey Court.10 Specifically, the affidavit of Mr. Harris, the Defendants’ counsel, states that after the sale closing he had communicated with Clean Harbors’ outside counsel, Mr. Black, and that the following occurred:
Mr. Black explained that Clean Harbors understood that the payment of $1,125,000 to the Kramer Group was coming due, that Clean Harbors had assumed that obligation as part of its purchase of the Chemical Services Division, and that Clean Harbors wanted to explore with Kramer Group the possibility of satisfying some, or all, of this obligation by providing environmental services to the Kramer Group in lieu of a cash payment.
(AdvDoc. # 6, Exh. B, Exh. C, ¶ 11).
The affidavit also references a November 13, 2002 email from Mr. Black to Mr. Harris. (Adv.Doc. # 6, Exh. B, Exh. C, ¶ 12). In that email Mr. Black states that he had “spoken with top management at Clean Harbors and they are extremely interested in discussing in-kind services at the Helen Kramer site.” (Adv.Doc. # 6, Exh. B, Exh. C, Exh. B). This clearly shows Clean Harbors’ interest in discharging a monetary obligation by providing remedial services and obviously suggests an acknowledgment by Clean Harbors of a liability to the Defendants.
Attached to Mr. Harris’ affidavit is a letter dated March 21, 2002 from Mr. Harris to Safety-Kleen’s in-house counsel, Mr. Duffie. That letter confirmed Safety-Kleen’s understanding of Clean Harbors’ assumption of subject liabilities as follows:
I received today notice of the Court’s approval of the sale of the old Rollins and Laidlaw businesses at auction. No schedule of “Assumed Liabilities” was attached. This is therefore to confirm our conversation a week or so ago wherein you indicated that the Kramer Landfill liabilities both to ATOFINA Chemicals, Inc. and to the Helen Kramer 0-8 Parties are Assumed Liabilities that will be transferred to Clean Harbors or any other buyer at the auction.
(Adv.Doc. # 6, Exh. B, Exh. C, Exh. A).
An affidavit of Mr. Duffie confirms the contents of the March 21, 2002. Specifically, Mr. Duffie states that he received Mr. Harris’ letter and did not respond because the letter correctly confirmed Clean Harbors’ obligation to the Defendants. (Adv. Doc. # 6, Exh. B, Exh. B, ¶ 9). Further, Mr. Duffie’s affidavit states that when he subsequently became aware of Clean Harbors refusal to satisfy the Helen Kramer site obligations, he reminded Clean Harbors that he believed the obligations were liabilities assumed by Clean Harbors. (Adv.Doc. # 6, Exh. B, Exh. B, ¶ 14). Thus, both the Defendants and Safety-Kleen understood Clean Harbors as having assumed the liabilities. Given the language of the Agreement and Sale Order, as discussed above, it cannot be said that this view was unreasonable.
To rebut Mr. Harris’ affidavit, Clean Harbors offers the affidavit of Mr. Black, its outside counsel. That affidavit ac*614knowledges that Mr. Black and Mr. Harris had discussions regarding in-kind services. (Doc. #7922, Exh. H, ¶ 10). But Mr. Black’s affidavit states that he did not have authority from Clean Harbors to represent Clean Harbors’ position on liability and that he did not say that Clean Harbors had assumed the liability. (Doc. # 7922, Exh. H, ¶ 11). Mr. Black’s affidavit does not deny liability, however. Rather, Mr. Black indicates that he reported to Clean Harbors that such obligations of “Safety-Kleen might not be obligations to a governmental entity under CERCLA.” (Doc. # 7922, Exh. H, ¶ 10) (emphasis added). Mr. Black’s affidavit does not undermine the import of Mr. Harris’ affidavit and the attachment thereto.
Contrary to Clean Harbors’ assertions, the language in the Agreement and Sale Order is not unambiguous on whether Clean Harbors has successor liability to the Defendants. Indeed, Clean Harbors concedes that even the parties to the Agreement had different interpretations as to the successor liability provision. Consequently, on the record before me, I conclude that no reasonable person could find that Clean Harbors could demonstrate by convincing evidence that the Agreement was not susceptible to more than one meaning as to Clean Harbors’ successor liabilities.
In the future there may be legitimate debate as to whether Clean Harbors assumed the Rollins obligations; but based solely on the record at this time, this Court easily concludes that the Defendants did not act unreasonably in pursuing Clean Harbors in the New Jersey Court with respect to those obligations.
CONCLUSION
For the foregoing reasons, I conclude that the Sale Order and the related Agreement did not give the Defendants “fair warning that [their] acts were forbidden,” United States v. Christie Indus., Inc., 465 F.2d at 1006, and I will therefore grant the Defendants’ motion to dismiss Count III of the Complaint.
. This rule is incorporated here by Bankruptcy Rule 7012.
. Individual sections of the Bankruptcy Code will be cited herein as "§ _”.
. The sale order refers to the "Order (I) Authorizing and Approving (A) Sale of Substantially All of the Assets and Certain Equity Interests of the Debtors' Chemical Services Division To Clean Harbors, Inc., Free and Clear of Liens, Claims, Encumbrances and Interests, and (B) Assumption and Assignment of Certain Related Executory Contracts and Unexpired Leases, and (II) Determining That Such Sale Is Exempt From Any Stamp, Transfer, Recording, or Similar Tax, and (III) Granting Related Relief" (hereinafter the "Sale Order”). (Doc. # 4932).
.Prior to seeking to enforce its claim in the New Jersey Court, the Defendants filed a motion in this Court in Safety-Kleen’s Chapter II case seeking essentially the same relief, i.e., a declaration that Clean Harbors assumed Safety-Kleen's obligations to the Defendants. Clean Harbors opposed that motion and it was subsequently withdrawn on procedural grounds. Clean Harbors’ Count III does not complain about the pursuit by the Defendants of that motion.
. The pre-petition environmental litigation involving Rollins took place in the New Jersey Court.
. Federal Rule of Civil Procedure 56(c)is applicable to contested matters in bankruptcy pursuant to Bankruptcy Rules 9014 and 7056.
. Although the Complaint alleges that the Defendants violated the injunction in Paragraph 9, Clean Harbors’ brief refers to Paragraph 29. Both provisions are discussed below.
. Clean Harbors argues that the term “persons holding” refers to Safety-Kleen. Clean Harbors’ argument on this point is unpersuasive and contrary to the plain language of the provision.
. The Agreement is 69 pages long (not including exhibits) and the Sale Order is 33 pages long.
. These documents are exhibits attached to the motion referred to in footnote 4 above. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493767/ | OPINION
WARREN W. BENTZ, Bankruptcy Judge.
Introduction
On December 2, 2003, the Center for Advanced Manufacturing & Technology a/k/a Camtech (“Debtor” or “Camtech”) filed a voluntary Petition under Chapter 11 of the Bankruptcy Code. On October 14, *6502004, Debtor’s Plan of Reorganization (“Plan”) was confirmed.
On June 10, 2005, Debtor filed the within COMPLAINT AGAINST WRIGHTCO TECHNOLOGIES, INC. FOR TURNOVER OF PROPERTY OF THE ESTATE, BREACH OF CONTRACT, AND TO AVOID AND RECOVER FRAUDULENT TRANSFERS (the “Complaint”). Debtor asserts certain causes of action (“Causes of Action”) against Wrightco Technologies, Inc. (“Wrightco” or “Defendant”) which are summarized as follows:
Count I — Turnover—11 U.S.C. § 542(a)
Count II — Breach of Contract
Count III — Fraudulent Transfer — 11 U.S.C. § 548(a) and (b)
Count IV — Fraudulent Transfer — 11 U.S.C. § 544(b) and 12 Pa.C.S.A. § 5105
Count V — Fraudulent Transfer — 11 U.S.C. § 544(b) and 12 Pa. C.S.A. § 5104(a)(1)
Count VI — Fraudulent Transfer — 11 U.S.C. § 544(b) and 12 Pa.C.S.A. § 5104(a)(2)
Presently before the Court is DEFENDANT’S MOTION TO DISMISS PLAINTIFF’S COMPLAINT OR IN THE ALTERNATIVE MOTION TO STRIKE AND FOR MORE DEFINITE STATEMENT.
Motion to Dismiss
Wrightco posits that, pursuant to Fed. R.Civ.P. 12(b)(1), which is incorporated by Fed.R.Bankr.P. 7012, that the Complaint must be dismissed because this Court lacks subject matter jurisdiction due to the Debtor’s lack of standing to assert the Causes of Action. Wrightco asserts that “[t]he Causes of Action were not retained, assigned and/or transferred to the Debtor as required by the plain language of 11 U.S.C. § 1123(b)(3)(B) and therefore, upon confirmation of the Plan, the Causes of Action became unenforceable.” Wrightco further asserts that the Complaint must be dismissed because “[t]he Debtor is no longer a debtor-in-possession (due to confirmation of the Plan) and only a ‘trustee’ has standing to assert the statutory powers under Chapter 5 of the Bankruptcy Code.”
Debtor responds that, pursuant to the terms of its Plan, the Debtor retained the Causes of Action that are set forth in the Complaint against Wrightco and that it is the appropriate entity to pursue the Causes of Action.
Discussion
Section 1123(b) of the Bankruptcy Code, 11 U.S.C. § 1123(b), provides for postconfirmation pursuit of a debtor’s bankruptcy causes of action. It provides in relevant part:
(b) Subject to subsection (a) of this section, a plan may-
(3) provide for-
(A) the settlement or adjustment of any claim or interest belonging to the debtor or to the estate; or
(B) the retention and enforcement by the debtor, by the trustee, or by a representative of the estate appointed for such purpose, of any such claim or interest;
11 U.S.C. § 1123(b).
Camtech’s Plan specifically provided that “Debtor’s attorney will file appropriate complaints in the Bankruptcy Court or other court of appropriate jurisdiction to pursue the Code Created Causes of Action on behalf of the Estate.” The Plan at Section 1.14 defines Code Created Causes of Action as:
1.14 Code Created Causes of Action: Collectively, (a) causes of action, claims, *651rights and remedies created by or arising under the Bankruptcy Code, including but not limited to transfers avoidable and/or recoverable under Sections 542, 544, 547, 548, 549 and 550 of the Bankruptcy Code; (b) causes of action, claims, rights and remedies in favor of the Debtor, the estate and creditors, against any third party; and (c) all of the recoveries and proceeds from (a) and (b).
The Plan also defines “Estate” in Section 1.22 as “The above-captioned Chapter 11 estate.” The caption on the Plan is “Center For Advanced Manufacturing & Technology A/K/A Camtech.”
The Debtor has complied with § 1123(b)(8)(B). The provisions of the Plan provide that the Debtor retains the causes of action raised by the Complaint against Wrightco and that the Debtor intends to pursue such action through its attorneys.
Wrightco directs our attention to Hartford Underwriters Insurance Co. v. Union Planters Bank, 530 U.S. 1, 120 S.Ct. 1942, 147 L.Ed.2d 1 (2000) in support of its position that only a case trustee or a debt- or-in-possession may pursue an avoidance action under § 542, 544 and 547-550. Wri-ghtco posits that the Plaintiff-Debtor is not a case trustee and is no longer a debtor-in-possession due to confirmation of the Plan.
In Hartford Underwriters, the Supreme Court construed the language “the trustee may” in 11 U.S.C. § 506 to mean that only the trustee has standing to seek recovery under § 506(c), not other parties, even in the absence of specific language denying others such standing. Hartford Underwriters, 530 U.S. at 6, 120 S.Ct. at 1947. The Hartford Underwriters court stated in a footnote that it did not address whether a bankruptcy court may allow other interested parties to act in the trustee’s stead in pursuing recovery under statutes other than § 506(c), specifically referring to “the practice of some courts of allowing creditors or creditors’ committees a derivative right to bring avoidance actions when the trustee refuses to do so, even though the applicable code provisions, see 11 U.S.C. § 544, 545, 547(b), 548(a), 549(a), mention only the trustee.” Hartford Underwriters, 530 U.S. at 13, 120 S.Ct. at 1951.
Several decisions since Hartford Underwriters have concluded that the interpretation of “the trustee may” in § 506(c) does not apply to other sections of the Bankruptcy Code. In re Railworks Corp., 325 B.R. 709, 723 (Bankr.D.Md.2005) (holding that Hartford Underwriters does not prevent a representative of the estate from bringing a postconfirmation avoidance action in accordance with a confirmed plan); In re J. Allan Steel Co., 323 B.R. 425, 432-34 (Bankr.W.D.Pa.2005) (distinguishing Hartford Underwriters, to conclude that the unsecured creditors’ committee may pursue the debtor’s avoidance actions which were assigned to it under a confirmed Chapter 11 plan); In re Together Development Corp., 262 B.R. 586 (Bankr.D.Mass.2001) (holding that Hartford Underwriters does not apply to a case in which the debtor stipulated that the creditors’ committee could pursue avoidance actions).
We are persuaded that the Supreme Court’s Hartford Underwriters decision is not an impediment to the Debtor’s action here, and that in bringing the Complaint against Wrightco, Debtor appropriately seeks to enforce the Causes of Action that it retained under the Plan. The jurisdiction of this Court continues because these causes of action are part of the Court’s core jurisdiction and they were preserved in the Debtor’s Plan. In re Railworks Corp., 325 B.R. at 724.
*652Wrighteo’s Motion to Dismiss for Lack of Subject Matter Jurisdiction Pursuant to Fed.R.Civ.P. 12(b)(1) will be refused.
Motion for More Definite Statement
Wrightco asserts that Debtor has not provided any facts to support its assertion that a fraudulent transfer was made by the Debtor to Wrightco. Our review of the Complaint reveals that the Debtor has alleged sufficiently detailed facts to permit Wrightco to answer properly. Wrighteo’s Motion for More Definite Statement will be refused.
Motion to Strike Claim for Attorney Fees and Punitive Damages
The Debtor has failed to file any response to Wrighteo’s Motion to Strike Claim for Attorney Fees and Punitive Damages. The case law cited by Wrightco in its Brief appears to support its position. Debtor’s request for attorney fees and punitive damages will be stricken.
ORDER
This 19th day of October, 2005, in accordance with the accompanying Opinion, it shall be, and hereby is, ORDERED as follows:
1. The Motion to Dismiss for Lack of Subject Matter Jurisdiction filed by Defendant Wrightco Industries, Inc. is REFUSED.
2. The Motion for More Definite Statement filed by Defendant Wrightco Industries, Inc. is REFUSED.
3. The Motion to Strike Plaintiffs Claim for Attorney’s Fees and Punitive Damages filed by Defendant Wrightco Industries, Inc. is GRANTED.
4. Wrightco Industries, Inc. shall file an Answer to the Complaint within 20 days.
5. Discovery is open.
6. A status conference is fixed for January 9, 2006 at 11:40 a.m. in the U.S. Courthouse, Bankruptcy Courtroom, 17 South Park Row, Erie, PA. Only 10 minutes have been reserved on the Court’s calendar. All parties may participate by telephone pursuant to instructions on the Court’s website.
7. This is an interlocutory Order and not subject to appeal pending final resolution of all issues. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493768/ | DECISION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
Before this Court is the Motion of the Trustee, John Graham, for Reconsideration of this Court’s Order Dated 3/29/2005 Dismissing William/Tracy Kovalcik as Party Defendants. At the Hearing held on this matter, the Court deferred judgment so as to afford the matter thorough consideration. The Court has now had this opportunity, and hereby holds that the law does not permit the entry of the relief sought by the Trustee.
Procedurally speaking, the essence of the relief sought by the Trustee is that for Relief from Judgment. Federal Rule of Civil Procedure 60(b), made applicable to this proceeding by Bankruptcy 9024, sets forth the six grounds for which judgment may be set aside:
(1) mistake, inadvertence, surprise, or excusable neglect;
(2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under rule 59(b);
(3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party;
(4) the judgment is void;
(5) the judgment has been satisfied, released or discharged, or a prior judgment upon which it is based has be reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application; or
(6) any other reason justifying relief from the operation of the judgment.
In seeking relief under Rule 60(b), the Trustee cited to various actions of the Defendants which he puts forth interfered with his duties to maximize the available assets for distribution to unsecured creditors: (1) hiring more than one attorney during the pendency of the case; (2) during the pendency of the case, refinancing the property constituting the subject of the litigation; and (3) failing to effectuate agreed upon settlement terms. According to the Trustee, these actions were egregious in their scope; and that to deny the relief sought would allow the Defendants to obtain a “windfall” on account of their wrongful conduct.
As it concerns the six available grounds upon which relief may be afforded under Rule 60(b), the Trustee’s basis for seeking relief from judgment is necessarily equitable in nature. And as such, the only available ground upon which relief may be afforded is through the residual provision of paragraph (6) of Rule 60(b): for “any other reason justifying relief from the operation of the judgment.”
Relief from judgment under Rule 60(b)(6) is only to granted in exceptional or extraordinary circumstances. Cincinnati Ins. Co. v. Byers, 151 F.3d 574, 579 (6th Cir.1998). Its principal purpose is to deal with unforeseen contingencies. In re Durkalec, 21 B.R. 618, 620 (Bankr.E.D.Pa.1982). It may be applied where, as argued here, a substantial injustice or inequity would result if the judgment were to con*744tinue in effect. Davis v. Jellico Community Hosp., Inc., 912 F.2d 129, 134 (6th Cir.1990)
In this matter, the allegations put forth by the Trustee raise a very serious concern. Any intentional interference with a trustee’s duties simply cannot be tolerated. For the Trustee, however, the difficulty is that there has been no substantial change in circumstances; the Trustee bases his Motion upon those facts which were in existence at the time the Court dismissed the Defendants as party-defendants, the order from which relief is now sought.
Judgments are to be accorded a strong presumption of finality, and should not be set aside merely because an inequity would result. Waifersong Ltd. v. Classic Music Vending, 976 F.2d 290, 292 (6th Cir.1992) (Rule 60(b) is circumscribed by public policy favoring finality of judgments and termination of litigation). And in this matter, although the concerns of the Trustee may be very well-founded, the lack of any significant change in circumstances constrains this Court to find that the principle regarding the finality of judgments carries greater weight. In this way, a Rule 60(b) motion is not a substitution for an appeal. Hopper v. Euclid Manor Nursing Home, Inc., 867 F.2d 291, 294 (6th Cir.1989).
In reaching the conclusions found herein, the Court has considered all of the evidence, exhibits and arguments of counsel, regardless of whether or not they are specifically referred to in this Decision.
Accordingly, it is
ORDERED that the Motion of the Trustee, John Graham, for Reconsideration of this Court’s Order Dated 3/29/2005 Dismissing William/Tracy Kovalcik as Party Defendants, be, and is hereby, DENIED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493769/ | MEMORANDUM OF OPINION AND ORDER
RANDOLPH BAXTER, Chief Judge.
The matter before the Court is the State of Ohio’s Department of Youth Services’ (DYS) motion to dismiss under Rule 12(b)(1) of the Federal Rules of Civil Procedure, made applicable to this proceeding under Bankruptcy Rule 7012(b)(1). In the alternative, DYS seeks dismissal under Rule 12(b)(6)(failure to state a claim). The Chapter 7 Trustee (Trustee) has timely objected. The Court acquires core matter jurisdiction over this proceeding under 28 U.S.C. 157(b)(2)(J) and General Order No. 84 of this District. Upon a hearing and an examination of the parties’ respective briefs and supporting documentation, the following findings and conclusions are made pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure:
*
The complaint allegations provide, in part that: The Debtor was engaged in providing electronic monitoring equipment and services (“Monitoring”) for home detention programs operated by Lake County. On or about July 1, 2003 the Debtor entered into a contract with Lake County to provide Monitoring through June 30, 2004 (“Lake County Contract”). On or about July 1, 2003 the Debtor entered into a contract with DYS to provide Monitoring through June 30, 2005 (“DYS Contract” and collectively with the Lake County Contract the “Contracts”).
On or about September 15, 2003, Kenneth Wisniewski and Richard Friedman formed Lake Erie Interlock, Inc. (“LEI”). *753Wisniewski is the President of the Debtor and an insider of the Debtor as defined in 11 U.S.C. § 101, and is also an officer of LEI. Friedman is the Vice-President of the Debtor and is an insider of the Debtor and an officer of LEI.
The Debtor filed the bankruptcy case on or about September 18, 2003. On the Debtor’s Schedule B it listed $6,794.00 as being due from Lake County, and $1,911.00 as due from DYS. Thereafter the Trustee received $2,812.00 from Lake County for invoices due the Debtor under the Lake County Contract. Thereafter the Trustee received $1,911.00 from DYS for invoices due the Debtor under the DYS Contract. On September 19, 2003, the Debtor filed for voluntary relief under Chapter 7 proceedings of the Bankruptcy Code. On April 6, 2005, the Trustee filed a complaint against the Debtor and other named defendants. The adversary complaint alleges, in part, that Debtor paid certain monies belonging to the Debtor’s estate to co-defendant Lake Erie Interlock (LEI) after receiving notice from the Trustee. The complaint further alleges that on or about July 1, 2003 the Debtor entered into a contract with DYS to provide Monitoring through June 30, 2005 (“DYS Contract” and collectively with the Lake County Contract the “Contracts”). Count VII provides that “after learning of thie (sic) filing of the bankruptcy case, Lake County and DYS paid monies due the Debtor to LEI and/or Mssrs. Friedman and Wis-niewski.” Trustee alleges that pursuant to 11 U.S.C. §§ 541, 549 and 550 he may recover the value of the monies due the Debtor that Lake County or DYS paid to LEI and/or Mssrs. Friedman and Wis-niewski after they learned of the filing of the bankruptcy case from Lake County or DYS.
* *
DYS now moves for dismissal under Rule 12(b)(1) on the alleged grounds that this Court lacks jurisdiction over it because of sovereign immunity. DYS and the Trustee, through his objection, to dismissal acknowledge that the Sixth Circuit’s Hood v. Term. Student Assis. Corp. (In re Hood), 319 F.3d 755 (6th Cir.2003), aff'd 541 U.S. 440, 124 S.Ct. 1905, 158 L.Ed.2d 764 (2004) primarily governs the determination of this matter. DYS also, in the alternative, seeks dismissal under Rule 12(b)(6) alleging that the Trustee’s complaint fails to state a claim upon which relief can be granted.
* * *
The dispositive issues are whether sovereign immunity prevents this Court from exercising jurisdiction over the Department of Youth Services, or whether under Rule 12(b)(6) should be dismissed as a party-defendant for failure to state a claim upon which relief may be granted.
The Eleventh Amendment to the United States Constitution prohibits the federal courts from hearing suits against unconsenting states in federal court which are based upon either diversity of citizenship, or those suits which are brought against an unconsenting state by one of its own citizens as well as by citizens of another state. Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S. 89, 98, 104 S.Ct. 900, 79 L.Ed.2d 67 (1984); Hans v. Louisiana, 134 U.S. 1, 18-19, 10 S.Ct. 504, 33 L.Ed. 842 (1890). This immunity from suit also extends to any duly created agencies of the state, and thus the state entities involved in the present proceeding are entitled to the protections afforded by the Eleventh Amendment. Pennhurst State School, 465 U.S. at 100-01, 104 S.Ct. at 907-08; Hall v. Medical College of Ohio, 742 F.2d 299, 302 (6th Cir.1984), cert. denied, 469 U.S. 1113, 105 S.Ct. 796, 83 L.Ed.2d 789 (1985). Thus private suits against states may pro*754ceed only if the state waives sovereign immunity or if Congress, acting pursuant to a valid constitutional authority, abrogates the state’s sovereign immunity. See In re Hood, 319 F.3d at 755.
In Seminole Tribe of Florida v. Florida, 517 U.S. 44, 116 S.Ct. 1114, 134 L.Ed.2d 252 (1996), the Supreme Court of the United States had the occasion to address the scope of the Eleventh Amendment as it relates to Congress’ authority to abrogate a state’s sovereign immunity and held that:
Even when the Constitution vests in Congress complete law-making authority over a particular area, the Eleventh Amendment prevents congressional authorization of suits by private parties against unconsenting States. The Eleventh Amendment restricts the judicial power under Article III, and Article I cannot be used to circumvent the constitutional limitations placed upon federal jurisdiction.
Id. at 72-73, 517 U.S. 44, 116 S.Ct. 1114, 134 L.Ed.2d 252 (footnote omitted). Hood established that the Seminole Tribe inquiry must proceed in two parts. First, the Supreme Court requires that to abrogate the States’ Eleventh Amendment immunity from suit in federal court ... Congress must make its intention “unmistakably clear in the language of the statute.” The second inquiry is whether Congress’ attempt to abrogate state sovereign immunity was pursuant to sufficient authority. Hood is clear that § 106 provides Congress’ unmistakable intent to abrogate the States’ Eleventh Amendment immunity under § 106 of the Bankruptcy Code and that sufficient authority was so established. Section 106 of the Bankruptcy Code provides:
(a) Notwithstanding an assertion of sovereign immunity, sovereign immunity is abrogated as to a governmental unit to the extent set forth in this section with respect to the following:
(1) Sections 105, 106, 107, 108, 303, 346, 362, 363, 364, 365, 366, 502, 503, 505, 506, 510, 522, 523, 524, 525, 542, 543, 544, 545, 546, 547, 548, 549, 550, 551, 552, 553, 722, 724, 726, 728, 744, 749, 764, 901, 922, 926, 928, 929, 944, 1107, 1141, 1142, 1143, 1146, 1201, 1203, 1205, 1206, 1227, 1231, 1301, 1303, 1305, and 1327 of this title.
(2) The court may hear and determine any issue arising with respect to the application of such sections to governmental units.
(3) The court may issue against a governmental unit an order, process, or judgment under such sections or the Federal Rules of Bankruptcy Procedure, including an order or judgment awarding a money recovery, but not including an award of punitive damages. Such order or judgment for costs or fees under this title or the Federal Rules of Bankruptcy Procedure against any governmental unit shall be consistent with the provisions and limitations of section 2412(d)(2)(A) of title 28.
(4) The enforcement of any such order, process, or judgment against any governmental unit shall be consistent with appropriate nonbankruptcy law applicable to such governmental unit and, in the case of a money judgment against the United States, shall be paid as if it is a judgment rendered by a district court of the United States.
(5) Nothing in this section shall create any substantive claim for relief or cause of action not otherwise existing under this title, the Federal Rules of Bankruptcy Procedure, or nonbankruptcy law.
(b) A governmental unit that has filed a proof of claim in the case is deemed to have waived sovereign immunity with respect to a claim against such *755governmental unit that is property of the estate and that arose out of the same transaction or occurrence out of which the claim of such governmental unit arose.
(c) Notwithstanding any assertion of •sovereign immunity by a governmental unit, there shall be offset against a claim or interest of a governmental unit any claim against such governmental unit that is property of the estate.
11 U.S.C. § 106. As indicated above, § 106(b) provides a limited waiver of a state’s sovereign immunity respecting a claim against any governmental unit that is (1) property of the estate and which (2) arose out of the same transaction or occurrence from which the governmental unit’s claim arose. Under § 101(26), “governmental unit means United States; State; Commonwealth; District; Territory; municipality; foreign state; department, agency, or instrumentality of the United States ... a state, a Commonwealth, a District, a Territory, a municipality, or a foreign state; or other foreign or domestic government.” 11 U.S.C. 101(26). When any of the entities defined under § 101(26)’s definition of “governmental unit” is in issue in a bankruptcy case, and enjoys sovereign immunity, it is subject to the waiver provisions of § 106. Id. Storey, Trustee v. City of Toledo (In re Cook United, Inc.), 117 B.R. 301, 303-304 (Bankr.N.D.Ohio 1990). This Court has previously opined:
The filing of a proof of claim by at least one agency of a state or municipality is sufficient to abrogate the Eleventh Amendment immunity to suit otherwise afforded to that state or municipality. In re St. Joseph’s Hospital, 103 B.R. 643 (Bankr.E.D.Pa.1989). It is also well-established that the filing of a proof of claim by a state or municipality constitutes a voluntary submission to the jurisdiction of the Bankruptcy Court and waives any element of immunity under the Eleventh Amendment. Clark v. Barnard, 108 U.S. 436, 447, 2 S.Ct. 878, 882-83, 27 L.Ed. 780 (1883); St. Joseph’s, supra, at 650; In re Windrush Assoc. II, 105 B.R. 195 (Bankr.D.Conn.1989) (Sovereign immunity waived in a § 548 action based on foreclosure of ag-ister’s lien where defendant filed proof of claim asserting lien.); In re Price, 103 B.R. 989 (Bankr.N.D.Ill.1989) (under § 106(a), IRS’s filing of proof of claim waived sovereign immunity); In re Lile, 103 B.R. 830 (Bankr.S.D.Tex.1989), accord. Although the present language of § 106(a) omits language from an earlier version which expressly required that a governmental unit must file a proof of claim before its sovereign immunity is waived, the more frequent judicial interpretation of § 106(a) and (b) conditions such a waiver upon the filing of a proof of claim. In re Neavear, 674 F.2d 1201, 1204 (7th Cir.1982); In re Remke, Inc., [5 B.R. 299,] 2 C.B.C.2d 670, 673 n. 1 (Bankr.E.D.Mich.1980).
In re Cook United, Inc., 117 B.R. at 304-305. This ruling is consistent with the Hood decision holding that the Bankruptcy Code, through § 106, waived the states sovereign immunity when a proof of claim is filed on behalf of a state entity. Here, the Ohio Department of Jobs and Family Services and Department of Taxation filed proofs of claims in the Debtor’s case. Thus, the filing of the proofs of claims abrogated the State’s sovereign immunity.
Moreover, the Trustee is correct in his objection that the Supreme Court in its affirmance of Hood did not limit the Sixth Circuit’s holding. Hood dealt specifically with § 523(a)(8), but § 106 also abrogates the subsections relied on by the Trustee’s complaint. Therefore, DYS’s motion to *756dismiss under Rule 12(b)(1) is without merit and is denied.
Next it must determined whether dismissal of DYS as a co-defendant is warranted under Rule 12(b)(6). A motion to dismiss for failure to state a claim is a test of the plaintiffs cause of action as stated in the complaint, not a challenge to the plaintiffs factual allegations. Id. Thus this Court must assume that all allegations are true and dismiss the claim “only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations,” i.e., that the legal protections invoked do not provide relief for the conduct alleged. Sistrunk v. City of Strongsville, 99 F.3d 194, 197 (6th Cir.1996) (quoting Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984)); see also Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974); Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). In addition, “while liberal, this standard of review does require more than the bare assertion of legal conclusions.” Columbia Natural Resources, Inc. v. Tatum, 58 F.3d 1101, 1109-1110 (6th Cir.1995) (citing Allard v. Weitzman (In re DeLorean Motor Co.), 991 F.2d 1236, 1240 (6th Cir.1993)). “In practice, ‘a ... complaint must contain either direct or inferential allegations respecting all the material elements to sustain a recovery under some viable legal theory.’ ” Allard, 991 F.2d at 1240 (quoting Scheid v. Fanny Farmer Candy Shops, Inc., 859 F.2d 434, 436 (6th Cir.1988)); see also Ana Leon T. v. Federal Reserve Bank, 823 F.2d 928, 930 (6th Cir.) (per curiam) (holding that the statement of mere legal conclusions is not entitled to liberal Rule 12(b)(6);6794;6794 review), cert. denied, 484 U.S. 945, 108 S.Ct. 333, 98 L.Ed.2d 360 (1987).
DYS alleges that the Trustee’s complaint seeks recovery of postpetition transfers under §§ 541, 549, and 550. DYS contends that even if the Trustee can prove that money is property of the estate under § 541, and he can prove that the payments are avoidable transactions under § 549, § 550 does not entitle the Trustee to recover the payments made by DYS as a transferor, from DYS. This argument has merit. Section 550 of the Bankruptcy Code provides, in pertinent part:
(a) Except as otherwise provided in this section, to the extent that a transfer is avoided under section 544, 545, 547, 548, 549, 553(b), or 724(a) of this title, the trustee may recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property, from—
(1) the initial transferee of such transfer or the entity for whose benefit such transfer was made; or
(2) any immediate or mediate transferee of such initial transferee.
11 U.S.C. § 550(a). No authority has been established by the Trustee that under § 550(a), he can sustain a recovery of the alleged postpetition transfer made by DYS (the alleged transferor) from DYS, instead of the alleged transferee. The statute is clear and unambiguous that the Trustee may recover from an initial, immediate, or mediate transferee. Accordingly, the motion to dismiss is well-premised under Rule 12(b)(6) and is hereby granted. Each party is to bear its respective costs.
IT IS SO ORDERED.
JUDGMENT
At Cleveland, in said District, on this 2nd day of September, 2005.
A Memorandum Of Opinion And Order having been rendered by the Court in this matter,
*757IT IS THEREFORE ORDERED, ADJUDGED AND DECREED that the Ohio’s Department of Youth Services’ (DYS) motion to dismiss under Rule 12(b)(1) is without merit and is denied. DYS’ motion to dismiss is well-premised under Rule 12(b)(6) and is hereby granted. Each party is to bear its respective costs.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493770/ | MEMORANDUM OPINION DENYING MOTION TO DISMISS
KAY WOODS, Bankruptcy Judge.
On August 29, 2005, this Court held a hearing on the Corrected Motion of Creditor The Lamson & Sessions Co. for an Order, Pursuant to Section 707(a) of the Bankruptcy Code, Dismissing the Bankruptcy Case of the Debtor With Prejudice (the “Motion to Dismiss”). The Motion to Dismiss was opposed by the Chapter 7 Trustee (the “Trustee”), the Debtor 3710 Henricks Road Corp. f/k/a/ YSD Industries, Inc. (‘YSD” or “Debtor”) and the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union f/k/a the United Steelworkers of America, AFL-CIO-CLC (the “USW”), a creditor in this Chapter 7 case. All parties were present and represented by counsel at the hearing. In addition, an attorney for the *758Mahoning County Treasurer, which has filed a proof of claim for priority taxes in this case, was allowed to address the Court.
This Court has jurisdiction of this matter pursuant to 28 U.S.C. § 1334. This matter constitutes a core proceeding pursuant to 28 U.S.C. § 157. The following constitutes this Court’s findings of fact and conclusions of law as required by Fed. R. Bankr. P. 7052.
For the reasons set forth below, this Court denies the Motion to Dismiss, without prejudice.
FACTS
This Chapter 7 case was filed on June 26, 2005. That same day, the Debtor filed a notice of removal of a state court action (the “State Court Action”) to the bankruptcy court. The State Court Action, which had been initiated by The Lamson & Sessions Co. (“Lamson”) in July 2004 against YSD and William Mundinger and William Peters, set forth five causes of action: fraudulent transfer, breach of contract, alter ego, breach of fiduciary duty and unjust enrichment. Mundinger and Peters were directors of YSD and were YSD’s sole shareholders.
By way of background, the Debtor was formerly known as The Youngstown Steel Door Company and manufactured railroad car doors and related railroad components. In or about 1976, Lamson purchased the steel door business and operated it as a wholly owned subsidiary until 1988. On or about March 9, 1988, Lamson sold and YSD purchased substantially all of the assets of the steel door business. Pursuant to the purchase agreement, YSD assumed certain benefit plans, including health and life insurance plans for certain employees and retirees of the steel door business. Certain retirees brought a class action lawsuit relating to the assumed benefits, which was resolved in August 1988 by a settlement agreement, pursuant to which the Debtor is liable for certain employee benefit obligations (the “Retiree Health Plan Obligations”) of the business and Lamson provided a limited guarantee of these obligations, until 2010, in the event of the Debtor’s default. To the extent that Lamson made or makes payments to satisfy the Retiree Health Plan Obligations, the Debtor is obligated to reimburse Lamson for those payments.
Lamson alleges, and the Debtor appears to concede, that in 2001, while YSD was insolvent or on the brink of insolvency, the company transferred cash and assets from YSD to Mundinger and Peters. Lamson alleges that such transfers were made without any consideration. These alleged transfers were, as follows:
(a) On or about July 2002, YSD received from one of its insurers, Anthem, upon its demutualization, in excess of $3 million in Anthem stock. From these amounts, Mundinger and Peters authorized and directed YSD to make distributions to themselves (as shareholders) totaling $3,151,571;
(b) On or about September 2002, Triax-YSD, Inc. (“Triax”), a wholly-owned subsidiary of YSD, was spun-off and became a free standing company with Mundinger and Peters as its directors and officers. The Triaz [sic] spinoff, authorized and directed by Mundinger and Peters, resulted in a distribution by YSD to Mundinger and Peters of $1,241,374;
(c) On March of 2003, Mundinger and Peters, as directors of YSD, authorized YSD to make a distribution to Mundinger and Peters, as shareholders of YSD, in the amount of $167,556.
(Motion to Dismiss at ¶ 7.)
On or about April 3, 2003, YSD notified Lamson that it was unable to make one of *759its monthly payments for the Retiree Health Plan Obligations. In response, Lamson loaned money to YSD. In subsequent months, YSD called upon Lamson to make additional loans for the Retiree Health Plan Obligations payments and Lamson did so. These loans were evidenced by a promissory note secured by a mortgage on certain real estate of YSD.
Because YSD continued to struggle financially, YSD’s secured lender, LaSalle Bank, N.A. (“LaSalle”), ultimately foreclosed on substantially all of YSD’s assets, which served as collateral for LaSalle. (Exhibits A — C, Foreclosure Agreement, Schedule 2.1, and Supplemental Agreement.) As of April 5, 2004, substantially all of YSD’s assets were sold to Railco Industries, Inc. pursuant to a foreclosure agreement and other related documents. (Exhibit D, Closing Statement.) The proceeds of this sale were used to satisfy YSD’s obligations to LaSalle and to partially pay Lamson on account of the promissory note secured by the mortgage. Around this time, YSD notified Lamson that it would no longer be able to satisfy the Retiree Health Plan Obligations and Lamson thereafter notified the applicable retirees that it would assume such payment obligations. Also around this time, YSD filed papers with the Secretary of State for the state of Ohio changing its name to 3710 Henrieks Road Corp.
YSD, through its attorneys, Nadler Na-dler & Burdman, began to wind up its affairs and operations, including collecting on accounts receivable that were part of the assets excluded from the sale and paying certain of YSD’s creditors. At the hearing, counsel for the Debtor stated that, among the actions taken to wind up the company were payment of approximately Two Hundred Seventy Thousand Dollars ($270,000.00) in priority taxes to the Mahoning County Treasurer,1 payment of approximately Three Hundred Thousand Dollars ($300,000.00) in severance, vacation and other benefits owed to employees and payment to Anthem Blue Cross after an audit of open and paid claims. As part of the winding up, YSD’s counsel informed Lamson’s counsel that there would be little cash left to pay unsecured claims. In compliance with YSD’s request that Lamson submit a notice of its unsecured claim, Lamson’s counsel sent a letter dated May 13, 2004 setting forth the amount of its claim. (Exhibit E, Letter from William H. Coquillette to Edward F. Smith dated May 13, 2004.) When there was no response to the claim letter, in July 2004, Lamson initiated the State Court Action.
The State Court Action alleges that Lamson has been damaged in the approximate amount of Three Million Five Hundred Thousand Dollars ($3,500,000.00) as a result of alleged fraudulent transfers, breach of contract, breach of fiduciary duty, alter ego and unjust enrichment. Lamson filed an Amended Complaint on or about September 28, 2004 that contained the same causes of action. Apparently at the request of the defendants in the State Court Action, the parties participated in two mediation efforts — both of them unsuccessful. The first mediation occurred in February 2005 and the second mediation took place on June 24, 2005. The stay of discovery was supposed to expire on July 1, 2005.
Only two days after the second mediation failed and just days before discovery was to begin in the State Court Action, the Debtor filed the instant Chapter 7 bankruptcy petition. Lamson asserts that the *760filing was in bad faith and, consequently, the case must be dismissed. In support of its allegation of bad faith, Lamson points to the following facts and makes the following arguments:
(a) Immediately after the mediation concluded, the YSD Board of Directors met at the offices where the mediation was held and resolved to file a Chapter 7 bankruptcy petition (Exhibits F & G, Minutes and handwritten notes of Board Meeting; Mundinger Deposition at 142-43, 150; Peters Deposition at 27);
(b) Despite being unable to pay its debts since 2003 and having sold its assets and having ceased operations in 2004, this Board Meeting was the first time the Directors considered filing for bankruptcy protection (Peters Deposition at 33);
(c) The minutes of the Board Meeting reflect that the company was “without assets” (Exhibit F, Minutes of June 14, 2004 Board of Directors Meeting);
(d) Mundinger and Peters, as shareholders, had an obvious personal interest in retaining the assets transferred to them as allegedly fraudulent transfers;
(e) Mundinger and Peters, as directors, had a fiduciary duty to the company and its creditors, and their status as defendants in the State Court Action presented a conflict of interest with YSD (Mundinger Deposition at 145^16);
(f) James Messenger, who was also a director of YSD and who acted as legal counsel for both the company,2 and Mun-dinger and Peters individually, (i) had a fiduciary duty as a director to the company, (ii) had a duty as YSD’s counsel to advise the other directors of them fiduciary duties, (in) had a duty as counsel to Mun-dinger and Peters to take action so that the shareholders could keep the transferred funds and, (iv) as counsel to YSD, had a duty to attempt to have the transferred funds returned to the company (Mundinger Deposition at 144-46);
(g)Because all of the decision makers— Mundinger, Peters and Messenger — were unavoidably conflicted, the decision to file the bankruptcy petition was made in bad faith and as a litigation strategy.
Lamson also cites to Mundinger’s testimony as Debtor’s representative at the Rule 2004 examination that YSD thought the State Court Action was for the purpose of Lamson recovering One Hundred Thousand Dollars ($100,000.00) that remained unpaid under a 1995 agreement. According to Mundinger, he didn’t discover the true nature of the State Court Action until the second mediation attempt. He testified that, after realizing the nature of the State Court Action, it didn’t make sense to settle with only one creditor. Lamson argues that this testimony isn’t credible.
ANALYSIS
Lamson alleges that the reasons for the bankruptcy filing proffered by the *761Debtor and the Trustee in opposition to the Motion to Dismiss aren’t credible and don’t square with the facts. Lamson correctly points out that neither counsel for the Debtor nor the Trustee attended the June 24 Board of Directors’ meeting. Lamson asserts that the reason for filing proffered by Debtor’s counsel and the Trustee — i.e., to deal with all creditors in one forum — isn’t supported by the facts. Lamson points out that the concern for the creditors isn’t even mentioned in the Board minutes; the only reason given in the minutes relating to the bankruptcy is that the company has no assets.
Lamson’s case is largely circumstantial. Lamson urges that, if this Court should find that it has not met its burden of proof with respect to the Motion to Dismiss, it should be allowed to set forth statements that were made during the mediation that would, according to Lamson, conclusively demonstrate the lack of good faith in this bankruptcy filing. At present, Lamson is restrained from disclosing such statements by the confidentiality requirements imposed by Ohio Revised Code § 2317.023. Lamson urged this Court to relieve it of such obligation of confidentiality. Prior to the hearing on the Motion to Dismiss, the Court denied Lamson’s motion for a hearing pursuant to O.R.C. § 2317.023.3 This Court finds that even if, arguendo, the reasons Mundinger and Peters authorized the filing of the bankruptcy petition did not evidence good faith, dismissal of the case would not be in the best interests of the creditors or the estate. Accordingly, there is no need to abrogate the confidentiality of the mediation discussions to attempt to establish the alleged bad faith.
Lamson relies heavily on Industrial Insurance Services, Inc. v. Zick (In re Zick), 931 F.2d 1124 (6th Cir.1991), which held that lack of good faith is a valid basis to dismiss a Chapter 7 case “for cause.” “We are persuaded that there is good authority for the principle that lack of good faith is a valid basis of decision in a ‘for cause’ dismissal by a bankruptcy court.” Id. at 1127. The dismissal motion in the Zick case was brought by the principal creditor pursuant to § 707(a) of the Bankruptcy Code, 11 U.S.C. § 707(a). The Sixth Circuit held that the word “including” in § 707(a) was not meant to be a limiting word and recognized that a lack of good faith was the basis for the dismissal of a number of bankruptcy cases under § 707(a). The Court found that there was merit to the “smell test” in Morgan Fiduciary, Ltd. v. Citizens and Southern International Bank, 95 B.R. 232, 234 (S.D.Fla.1988). Zick at 1127-28. The Court went on to say: “The factors relied on by the bankruptcy court are essential in appellate review, and should be set out in the bankruptcy court’s decision.” Id. at 1128.
The basis for the bankruptcy court’s holding was set forth as follows: [T]his case is dismissed for the following reasons. Congress intended to give an honest debtor filing in good faith a fresh start. And in this case, it is conceded that the Debtor’s manipulations have reduced this to a one creditor case. It appears to be for the sole purpose of avoiding payment to your client, Industrial. It also appears that the Debtor has made no marginal, much less significant adjustments to his lifestyle, to make any fleeting or meaningful effort to repay the obligation. The case was *762filed nine days after the Debtor entered into a Consent Judgment in the Oakland County Circuit Court. That is uncontested on this record. It is uncontested on this record and, indeed, it is admitted that the entry of that Judgment precipitated the filing. It is uncon-tested on this record and, indeed, it is admitted that this has been structured as a one creditor case. Everyone who is a Bankruptcy Judge dis-agrees about this because there is no cook book analysis that you can give. It really comes down to a sense of what is fair and just. And in this case, it is unfair and unjust for this Debtor to have filed this case in bad faith.
Id. at 1126, n. 1 (emphasis added).
The Zick case involved an individual Chapter 7 debtor, rather than a corporate entity, that had filed a Chapter 7 petition to deal with a single creditor with a large judgment against the debtor. Although § 707(a) applies equally to individuals and corporate Chapter 7 cases, the facts and circumstances of the Zick case are substantively different from the instant facts. This is not a single creditor case. Lamson holds a substantial claim against the Debt- or; however, it is not YSD’s only creditor and, indeed, not the only creditor with a large claim against the Debtor. In Zick, the debtor entered into a Consent Decree and nine days thereafter filed for bankruptcy protection to avoid paying its sole creditor. Lamson argues that the Zick facts are facially similar to the instant case, which was filed immediately after the second mediation failed to result in settlement. The big difference, however, is that in Zick, the Chapter 7 case was filed to stop a single creditor from being able to collect on its judgment whereas here the Chapter 7 case merely resulted in the lawsuit being litigated in another forum. Lamson asserts that the Debtor’s bankruptcy filing is merely a litigation strategy to avoid litigation with Lamson. Lamson may be correct, but that doesn’t necessitate dismissal of the case. Lamson took the initiative to pursue the Debtor, as well as Mundinger and Peters, in the State Court Action in an attempt to recover on its alleged causes of action. Even Lamson acknowledges that, if it were to be successful in the State Court Action, it would establish that all creditors were hurt by the actions of the defendants. As a consequence, the fact that Mundinger and Peters may have been motivated to file the Chapter 7 case as a litigation tactic, does not mandate that the case should be dismissed.
Lamson also cites to In re American Telecom Corp., 304 B.R. 867 (Bankr.N.D.Ill.2004), for the proposition that a Chapter 7 case was never intended to serve merely as a litigation tool. In American Telecom, Siemens obtained a pre-petition judgment for $173,000 against the debtor. By the time that Siemens could collect (after appeals and conducting a citation-to-assets proceeding), the debtor had ceased operations and had virtually no assets. Siemens initiated a collections action against the debtor and two shareholders/prineipals in an effort to pierce the corporate veil. Subsequently, the debtor filed a Chapter 7 petition, listing Siemens as its only creditor. Later the debtor asserted that its lawyers had a contingent claim for fees and that the two insiders had claims for unpaid rent and salary (which claims were scheduled as having priority over Siemens’ claim). The collection action was on appeal when the debtor filed its Chapter 7 case. The Bankruptcy Court determined that there were two scenarios that could be played out on appeal, each of which would result in there being no role for a Chapter 7 trustee to distribute assets to creditors. In dismissing the case, the Court stated: “A major consider*763ation that has led other courts to conclude that a Chapter 7 case should be dismissed is the fact that the case is primarily a tool for thwarting the collection efforts of a single creditor holding a disputed money judgment.” Id. at 873 (citing In re Zick, 931 F.2d 1124, 1128 (6th Cir.1991)); In re Huckfeldt, 39 F.3d 829 832-33 (8th Cir.1994); In re Collins, 250 B.R. 645, 654-55 (Bankr.N.D.Ill.2000); In re Stump, 280 B.R. 208, 214 nn. 1 & 2 (Bankr.S.D.Ohio 2002). As set forth above, the instant case can not be viewed as a tool for thwarting the collection action of a single creditor.
In the present case, it appears that Peters and Mundinger may have decided to file the Debtor’s Chapter 7 petition as a litigation tactic, but Lamson is not the Debtor’s sole creditor and most, if not all, of the causes of action that Lamson has asserted in the State Court Action can be maintained for the benefit of all of the Debtor’s creditors.
It appears that Mundinger and Peters may well have been motivated by self interest in causing the Debtor to file the bankruptcy petition. It certainly appears credible that, having failed to reach an acceptable agreement to settle the State Court Action with Lamson, they decided the company should seek bankruptcy protection. This decision enabled Mundinger and Peters to get the State Court Action before this Court. It may well be that Mundinger and Peters believed that a more favorable settlement could be reached with a bankruptcy trustee than with Lamson in light of the limited resources (vis-a-vis Lamson) that the Trustee will have to pursue litigation. The Trustee has assured the Court that, if the motion to substitute the Trustee as the plaintiff is granted,4 he will vigorously pursue these claims on behalf of the estate and the creditors.
All in all, Lamson presented a good circumstantial case that the bankruptcy filing was made in bad faith. That being said, however, is it “fair and just” for this case to remain in this Court? In other words, even if this case was filed for the wrong reasons (ie., the actions of Mun-dinger and Peters “smell”), should this case be dismissed?
If, as Lamson alleges, the transfers to Mundinger and Peters were fraudulent, such actions hurt all of the creditors, not just Lamson. Lamson even acknowledges this fact in its pleadings in the State Court Action. Lamson initially asserted that it was the largest creditor of YSD by a wide margin and that Lamson should be permitted to pursue the State Court Action. Since the filing of this bankruptcy petition, other creditors have come to the foreground. In particular, the USW alleges that, as the representative of the more than 300 retirees, the USW may be the largest creditor of the estate by virtue of the unpaid Retiree Health Plan Obligations. The Mahoning County Treasurer has also filed a claim and made an appearance in this case for unpaid priority taxes. Although it has not yet filed a claim, the Debtor asserts that the Ohio Burean of Workers Compensation will also likely be a large creditor of the estate. The Debtor asserts that there are nearly 150 other unpaid trade creditors of the estate, but based on the Debtor’s own schedules, it appears that Lamson has substantially the largest claim among those trade creditors. As a consequence, although Lamson initially appeared to be the estate’s largest creditor (but never the sole creditor), it now must share the distinction of “large creditor” with other entities.
Lamson acknowledges that other creditors have rights to pursue their damages *764under the fraudulent transfer claims and suggests that they could join Lamson in the State Court Action if the bankruptcy case were to be dismissed. Although this proposal may be possible, it does not sound like a practical or the most desirable solution.
The Court has several concerns regarding dismissal. First, if the case were to be dismissed, Lamson urges that the dismissal should be with prejudice. Although it might make sense to preclude the Debtor from filing a second voluntary petition if the initial filing was in bad faith, it certainly would be inequitable and unjust to prohibit an involuntary petition against the Debtor by YSD’s creditors if this case were to be dismissed. Now that the USW and the Mahoning County Treasurer have been apprised of the potential for recovery if the fraudulent transfer claims are pursued, they (along with one other creditor) could file an involuntary petition putting YSD back into Chapter 7.5 The alleged lack of good faith in filing this petition should not, and this Court finds would not, preclude an involuntary filing. That being said, there appears to be no purpose served in dismissing the Chapter 7 ease at present.
The Trustee’s motion to substitute himself as plaintiff in the adversary proceeding is not presently before the Court. When that motion is addressed, however, the Court has concerns about whether the Trustee will have the resolve and the resources to vigorously pursue the fraudulent transfer claims.6 The Debtor (who for apparently self serving reasons wants this case to remain in this Court) made various representations that appear to be at odds with each other. On one hand, the Debtor alleged that there could be 700-900 creditors in this case — if asbestos claims are included. In the next breath, the Debtor stated that the asbestos claims are being handled and paid by the State of Ohio Bureau of Workers Compensation and, thus, individual asbestos claims could not appropriately be brought against the estate. The estimate of 700-900 claims also appears to include individual employee claims even though the USW asserts that it represents all of the unionized retirees and the Debtor represented that the salaried employees should not have any further claims. If, indeed, there are more than 250 claims, the Trustee will need funds to engage a claims administrator. The limited cash that the Trustee has on hand will make such an engagement difficult. Even if there are fewer than 250 claims, thus abrogating the need for a claims administrator, if the Court were to grant the Trustee’s motion, the cost of litigating the fraudulent transfer and other claims could be cost prohibitive.
The Court will carefully monitor this case. If it appears to be floundering, dismissal to provide Lamson the opportunity to pursue the State Court Action may well be appropriate at that later date.
*765
CONCLUSION
Lamson has put on evidence, although largely circumstantial, that indicates that Mundinger and Peters may have acted in their self interests rather than the interests of the Debtor and its creditors in filing the bankruptcy petition. Despite this showing, however, it does not appear to be in the best interests of the creditors to dismiss this case. As set forth above, it would be inequitable to prohibit the creditors from filing an involuntary case against YSD just because Mundinger and Peters may have acted in their self interest in filing the Chapter 7 case. If an involuntary case may be filed (and given the circumstances, that seems likely to the Court), then no good purpose would be served by dismissal now. The fraudulent transfer cause of action is clearly one that, if proved, harmed all of the creditors — not just Lamson. Accordingly, it is fair and just for this case to remain pending. The Motion to Dismiss is hereby denied, without prejudice to being renewed under appropriate circumstances.
An appropriate order will enter.
ORDER DENYING MOTION TO DISMISS
For the reasons set forth in this Court’s Memorandum Opinion entered this date, the Corrected Motion of Creditor The Lamson & Sessions Co. for an Order, Pursuant to Section 707(a) of the Bankruptcy Code, Dismissing the Bankruptcy Case of the Debtor With Prejudice is hereby denied, without prejudice.
IT IS SO ORDERED.
. It is not clear to the Court whether this amount was paid and is in addition to the priority taxes currently being claimed by the Mahoning County Treasurer or if the amount of the claim and this reference constitute one and the same obligation.
. Lamson points out that it is unclear if Messenger was a director at the time of the June 26, 2005 Board Meeting. Mundinger testified at deposition that Messenger was a director at that time, but the record contains a letter of resignation from Messenger dated June 27, 2005, with the resignation effective December 1, 2004. There is no explanation in the resignation letter for the timing and Mundinger could not explain the timing at his deposition. (Exhibit I, Letter from James L. Messenger dated June 27, 2005 and Mundinger Deposition at 144.) Peters testified that Messenger was acting only on behalf of the shareholders, i.e., Mundinger and Peters, at the June 26 Board Meeting (Peters Deposition at 28), but Mundinger testified that Messenger was acting as counsel for both the company and the shareholders at that time (Mundinger Deposition at 118, 130-31). Lamson asserts that Messenger apparently resolved the conflict by acting only in the interests of the shareholders in having the company resolve to file the bankruptcy petition.
. There are public policy reasons that statements made during mediation and during settlement discussions should remain confidential. Making such statements public or part of the record could have a chilling effect on future settlement discussions. In the present case, the Court cannot find that there is sufficient justification to permit Lamson to be relieved of its obligation of non-disclosure.
. That motion is not presently before this Court.
. Based upon the aggressive opposition of the USW and the Mahoning County Treasurer to the Motion to Dismiss, this Court believes it is most likely that an involuntary petition would be filed.
. The decision to file the Chapter 7 petition was apparently made by Mundinger and Peters in order to protect their own interests. Despite this appearance, the Debtor itself is strongly advocating that the case not be dismissed. Indeed, the Debtor — not the Trustee — took the lead in opposing the Motion to Dismiss. Additionally, in a related pleading, the Trustee filed a response that was identical to that filed by the Debtor. In a situation like the present one, where there appears to be bad faith on the part of the principals/shareholders/directors in filing the case, the Court has some concern that the Trustee and the Debtor may be too closely aligned. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493772/ | DECISION
JAMES E. SHAPIRO, Bankruptcy Judge.
This dispute involves the amount of North Shore Bank’s claim against the debtors in this chapter 13 case resulting *795from the debtors’ early termination of their motor vehicle lease. It has been presented upon a stipulation of facts, cross motions for summary judgment, and briefs.
BACKGROUND
On August 31, 2002, the debtors, as lessees, entered into a 48-month motor vehicle lease of a 2002 Volkswagen Cabrio with Ernie von Schledorn Pontiac/Buick Volkswagen as lessor. This lease was thereafter assigned by the lessor to North Shore Bank. Monthly lease payments were $355.09 starting in September, 2002. After 12 months, the debtors terminated this lease and surrendered the vehicle to North Shore Bank, leaving 36 monthly lease payments remaining when the lease was terminated.
On September 22, 2003, the debtors filed a petition in bankruptcy under chapter 13. North Shore Bank filed its proof of claim as an unsecured creditor in the amount of $6,857.14.1
A portion of North Shore Bank’s damages, which is contained in paragraph 17(a) of the motor vehicle lease, is not in dispute. What is in dispute is the remaining portion of the damages in paragraph 17(b). The parties agree that there are two options for computing damages in paragraph 17(b). They disagree, however, as to who has the right to select which option should be used and how damages under these options are to be computed.
Paragraph 17 of the motor vehicle lease (Early Termination Without Purchase) states:
17. EARLY TERMINATION WITHOUT PURCHASE. You may terminate this Lease at any time. If you terminate before the Lease End Date, you agree to pay us an Early Termination obligation which is an amount equal to the sum of:
(a) Any unpaid monthly payments that have accrued as of the date you terminate this Lease; any other amounts arising under the terms of this Lease (other than excess mileage charges) that are not prohibited under the Wisconsin Consumer Act or chapter 429 of the Wisconsin Statutes; any official fees and taxes imposed in connection with the termination of this Lease; an early termination fee in an amount equal to one Monthly Payment; and the reasonable costs of retaking, storing, preparing for sale and selling the Vehicle, except for any cost that could not be charged under section 422.413 of the Wisconsin Statutes in the event of a default; and
(b) Any positive amount determined by subtracting the Realized Value from any of the following:
(1) The sum of the balance subject to a rent charge and the rent charge earned in advance for the computational period in which the early termination occurs, calculated in accordance with the constant yield method or any other generally accepted accounting principle.
(2) An amount determined in accordance with generally accepted actuarial principles under which the rent charge is calculated on the adjusted capitalized cost for the time outstanding.
The parties agree on the following damages in paragraph 17(a):
Damage Claim Amount
Early termination fee $355.09
Reasonable costs of retaking, storing, preparing for sale and selling the vehicle $418.79
*796The parties also agree that a $350.00 “disposition fee” (contained in paragraph 5 of the lease and which represents an amount to be paid by the lessee if the lessee decides not to purchase the vehicle) is also a proper element of damages. The combined sum of these agreed damages under paragraphs 17(a) and 5 is $1,123.88. This leaves for the court’s consideration the disputed damages in paragraph 17(b).
NORTH SHORE BANK’S ANALYSIS OF PARAGRAPH 17(b)
North Shore Bank contends that it is entitled to the damages contained in the option under paragraph 17(b)(2) and that its damages under this provision are as follows:
Adjusted capital cost (per paragraph 8(c)) $ 22,191.76
Less 12 paid lease payments (covering September, 2002, through and including August, 2003) - 4,261.08
$ 17,930.68
Less selling price of vehicle (realized value) - 12,500.00 2
Damage loss under 17(b)(2) $ 5,430.68
Under this approach, by adding the damages of $5,430.58 (under paragraph 17(b)(2)) to the damages of $1,123.88 (under paragraphs 17(a) and 5), North Shore Bank states that its total claim is $6,554.56.
North Shore Bank further contends that the option in paragraph 17(b)(2), rather than 17(b)(1), must be utilized because, if 17(b)(2) is not used, “North Shore Bank will not be made whole.”
DEBTORS’ ANALYSIS OF PARAGRAPH 17(b)
Debtors submit that the option in paragraph 17(b)(1) should be utilized, and it results in the following damages for early termination:
36 remaining monthly unpaid lease payments $ 12,783.24 3
Less selling price of vehicle (residual value) - 12,500.00
Damage loss under 17(b)(1) $ 283.24
Under this approach, by adding $283.24 (under paragraph 17(b)(1)) to the damages of $1,123.88 (under paragraphs 17(a) and 5), North Shore Bank’s total claim is $1,407.12.
Debtors argue that using paragraph 17(b)(1) to compute the early termination damages avoids the “extensive calculations on the time value of money” involved under paragraph 17(b)(2). The debtors further submit that North Shore Bank’s computations for damages in paragraph 17(b)(2) are flawed. Debtors contend that the “adjusted capitalized cost” was erroneously computed by North Shore Bank as of the time the lease was entered into, instead of computing the adjusted capitalized cost for the time outstanding (underlining added for emphasis) as required under paragraph 17(b)(2). Assuming, but without deciding, that debtors’ interpretation of paragraph 17(b)(2) is correct and computing the adjusted capitalized cost by *797using debtors’ analysis produces a different result as follows:
Adjusted capitalized cost (as further adjusted for the 36 months remaining after the lease was terminated) (36 months divided by 48 months multiplied by $23,191.76) $ 16,643.82
Less 12 paid monthly lease payments - 4,261.08
$ 12,382.74
Less selling price of vehicle (realized value) - 12,500.00
Damage loss under 17(b)(1) $ (117.26)
Under this approach, there is no resulting loss under paragraph 17(b).
CONCLUSION
As between the two options in paragraphs 17(b)(1) and 17(b)(2), the court is satisfied that paragraph 17(b)(1) presents the more straightforward approach in arriving at damages for early lease termination. Although the damages in paragraph 17(b)(2) are capable of being computed, it is a much more complicated procedure and includes a determination of the meaning of “constant yield method or any other general accepted accounting principle” as well as wrestling with how to compute “adjusted capitalized cost.” However, that determination is unnecessary because the court is persuaded by the debtors’ argument that, when a document is ambiguous, it must be strictly construed against its drafter. This is a fundamental rule of construction. Shelby County State Bank v. Van Diest Supply Co., 303 F.3d 832 (7th Cir.2002); Advance Process Supply v. Litton Industries Credit, 745 F.2d 1076 (7th Cir.1984); Crescent Corp. v. Proctor & Gamble Co. & Huber, Hunt & Nichols, Inc., 898 F.2d 581 (7th Cir.1990); In re Zersen, 189 B.R. 732 (Bankr.E.D.Wis.1995). The motor vehicle lease in this case is silent on who, as between the lessor and lessee, has the right to choose the early termination damages option in computing damages under paragraph 17(b). Because the lease is unclear with respect to this matter, it is the lessee who has the right to select that option as between paragraph 17(b)(1) and paragraph 17(b)(2) because North Shore Bank stands in the shoes of the lessor as drafter of the lease. Since the lessee has chosen the option under paragraph 17(b)(1), the court holds that the full measure of North Shore Bank’s damages in this case is $1,407.12.
The debtors’ motion for summary judgment is GRANTED.
North Shore Bank’s motion for summary judgment is DENIED.
. North Shore Bank states in its brief that its total loss is $6,699.14. This differs in amount from the sum set forth in its proof of claim. However, the difference is de minimis and does not affect the court’s ruling with respect to this dispute.
. Although North Shore Bank in its brief computes the selling price of the vehicle at $12,355, rather than $12,500, at oral argument, counsel for North Shore Bank acknowledged this was an error and that the selling price is $12,500. That is because the $145.00 difference in these two amounts resulted from damages which are already included in that portion of the damages in paragraph 17(a) dealing with reasonable costs of retaking, storing, preparing for sale, and selling the vehicle.
. $12,783.24 is "the balance subject to a rent charge” as is provided in paragraph 17(b)(1). "Rent charge earned in advance,” also provided in paragraph 17(b)(1), refers to any unpaid lease payments before the lease was terminated and does not apply because there were no unpaid lease payments during this period. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493773/ | ORDER
JAMES G. MIXON, Bankruptcy Judge.
On June 12, 2003, Jimmy Lynn Thomas (“Debtor”) filed a voluntary petition for relief under the provisions of chapter 7 of the United States Bankruptcy Code. Renee S. Williams was appointed the chapter 7 trustee.
On his petition, the Debtor listed the following assets: “a 401(k) thru former employer which is not part of his estate; approx. $350,000.00 in fund” and “Retirement Annuity, under [sic] Sect. 408(b) of the IRS Code: this contract is not property of the estate.” (Trustee’s Ex. 1, Sub-Ex. C, Schedule B — Personal Property.) The Debtor has elected to claim state law exemptions consisting of $400.00 in clothing, $500.00 in general household goods, and a homestead valued at $95,000.00.
On February 16, 2004, the Trustee filed a motion against the Debtor to turnover an Individual Retirement Account (hereinafter “IRA”) maintained at Morgan Keegan under account number 72429293 in the approximate value of $366,707.25 and an IRA with Southern Farm Bureau Life Insurance Company, policy number 235252F (value unstated).
The Debtor objected to the motion for turnover on grounds that the accounts in question are ERISA qualified plans under 401(k) and 408(b) of the Internal Revenue Code and, therefore, not property of the estate.
Linda Thomas, the Debtor’s wife, also filed an objection to the Trustee’s motion, claiming that she was in the process of filing for divorce and that she had a claim to an unspecified portion of the accounts as marital property under Arkansas law.
Trial on the merits was held on October 6, 2004, and the matter was taken under advisement. This Court has jurisdiction in accordance with 28 U.S.C. § 1334 and § 157. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(E), and this Court has jurisdiction to enter a final judgment in the case.
The Trustee and the Debtor entered into a stipulation as follows:
2. At the time he filed his petition for relief, debtor owned the following IRA’s which had the following values:
*800A Morgan Keegan & Company, Inc., Individual Retirement Account Number 72429293 which had a value of $374,584.19 on June 11, 2003 ...
B Southern Farm Bureau Life Insurance Company Non-Participating Flexible Premiums Deferred Annuity Policy Number 235252F which had a value of $69,859.33 on June 11, 2003 ...
Trustee’s Ex. 1.
The Court will first address the issue of whether the IRA and annuity are property of the estate. The documents related to each account contained no restriction on alienation or transfer that is enforceable under non-bankruptcy law so as to exclude the Debtor’s interest in the two funds from his estate. See Patterson v. Shumate, 504 U.S. 753, 762-63, 112 S.Ct. 2242, 119 L.Ed.2d 519 (1992) (stating that section 541(c)(2) of the Bankruptcy Code excludes from property of the estate pension plans subject to transfer restrictions that are enforceable under nonbankruptcy law; IRA’s cannot be excluded from property of the estate under section 541(c)(2) because they lack the requisite transfer restrictions). Under this ruling, the IRA and annuity are clearly property of the estate. Furthermore, since the Debtor has elected to claim the state exemptions, he may not exempt the funds at issue. See Rousey v. Jacoway, — U.S. -, -, 125 S.Ct. 1561, 1566, 161 L.Ed.2d 563 (2005) (holding that, under the federal exemptions, the right to receive payment under an IRA is a right to receive payment because of age and an IRA is therefore exemptible under section 522(d)(10)(E) of the Bankruptcy Code).
The Debtor’s wife, Linda Thomas, claims an interest in the IRA and annuity in an unspecified amount because she filed for divorce against the Debtor on August 3, 2004, which was after the date the bankruptcy case was filed and after the motion for turnover was filed. Linda Thomas claims an interest based on her rights under Arkansas divorce law to a fair portion of marital property as defined under section 9-12-315 of the Arkansas Code Annotated. However, counsel for Linda Thomas makes no legal argument and cites no authority — and the Court is aware of none — that would elevate a claim of the wife of a chapter 7 debtor to marital property above the allowed claims of the Debt- or’s creditors.1
Under Arkansas law, “marital property” includes all property acquired by either spouse subsequent to the marriage, with certain exceptions not applicable in this case. Ark.Code Ann. § 9-12-315(b) (Michie 2002). At the time a divorce decree is entered, the court will distribute all marital property equitably, according to the guidelines established by statute. Ark.Code Ann. § 9-12-315(a) (Michie 2002). Generally speaking, property owned individually by one spouse or co-owned by both spouses may be classified as marital property subject to equitable distribution if that property has been acquired subsequent to the marriage and not specifically excepted by statute. Implicit in the statute is the concept that one party’s rights to marital property owned by the other party do not vest until a divorce decree is entered and the court has distributed the marital property. See, e.g., Schachter v. Lefrak (In re Lefrak), 223 B.R. 431, 439 (Bankr.S.D.N.Y.1998)(stating *801that under New York law, one spouse’s rights in marital property owned by the other are inchoate and do not vest until entry of judgment dissolving the marriage) (citing In re Cole, 202 B.R. 356, 360 (Bankr.S.D.N.Y.1996)), aff'd, 227 B.R. 222 (S.D.N.Y.1998).
In accordance with the Bankruptcy Code, property owned individually by the debtor or co-owned with a non-debtor spouse will become part of the bankruptcy estate upon the filing of the petition. Roberge v. Roberge (In re Roberge), 188 B.R. 366, 367 (E.D.Va.1995)(citing 11 U.S.C. § 541(a)(1) (2000); In re Becker, 136 B.R. 113, 115 (Bankr.D.N.J.1992)), aff'd sub nom. Roberge v. Buis, 95 F.3d 42 (4th Cir.1996). Where a divorce is filed after one spouse’s filing of a bankruptcy petition, principles of equitable distribution under state law are not determinative of the bankruptcy estate’s interest in property belonging to the debtor on the date of the bankruptcy petition. In re Becker, 136 B.R. at 118.
One bankruptcy court has observed that a bankruptcy filing is “the equivalent of a levy by the trustee upon all the debtor’s property as of the petition date.” In re Becker, 136 B.R. at 118. See also In re Abma, 215 B.R. 148, 152 (Bankr.N.D.Ill.1997) (if award of marital dissolution has not been made at time of bankruptcy filing, the trustee’s status as a hypothetical lien creditor cuts off non-debtor spouse’s inchoate rights in marital property, and such property becomes property of the estate, free of claims of the non-debtor spouse)(quoting In re Cole, 202 B.R. at 360; In re Palmer, 78 B.R. 402, 406 (Bankr.E.D.N.Y.1987)); In re Vann, 113 B.R. 704, 706 (Bankr.D.Colo.1990) (until dissolution of marriage proceeding is eom-menced and spouse takes some affirmative action to perfect her interest in marital property, her rights are inchoate and subordinate to those of the trustee in her spouse’s bankruptcy)(citing In re Tucker, 95 B.R. 796 (Bankr.Colo.1989)). Accord Polliard v. Polliard (In re Polliard), 152 B.R. 51, 54 (Bankr.W.D.Pa.1993) (non-debtor spouse’s interest in debtor’s share of marital property, which is the subject of equitable distribution proceedings in a divorce action commenced prior to bankruptcy, are cut off by the bankruptcy filing if property division has not been finalized) (citing Perlow v. Perlow, 128 B.R. 412 (E.D.N.C.1991); In re Greenwald, 134 B.R. 729, 731 (Bankr.S.D.N.Y.1991); In re Hilsen, 100 B.R. 708, 711 (Bankr.S.D.N.Y.1989), rev’d on other grounds, 119 B.R. 435 (S.D.N.Y.1990)).
The Arkansas Supreme Court has held that one spouse’s interest in a retirement plan is marital property subject to division of property in divorce cases. See Day v. Day, 281 Ark. 261, 263, 663 S.W.2d 719 (1984) (holding husband’s interest in the retirement plan sponsored by his employer was marital property.) At least arguably, the Debtor’s retirement funds could be classified as marital property subject to the Debtor’s wife’s interest if and when a division of property takes place pursuant to divorce in state court. However, in the instant case, Linda Thomas filed for divorce a year after the bankruptcy filing. On the petition day, the state court had not entered a divorce decree and divided the marital property; therefore, Linda Thomas’s rights to the retirement funds were inchoate at best.2
Furthermore, Linda Thomas’ motives for filing for divorce are highly suspect. *802She admitted that although her husband was convicted of fraud in state court and is due to serve time in jail, she still does not live separate and apart from him. They attended the bankruptcy court hearing together, and the Debtor testified that his wife stood by him during his state court trial. Strong evidence was adduced at the bankruptcy hearing that the divorce action is the result of collusion between spouses who intend to shield their principal assets from the claims of creditors. See Ark. Code Ann. § 9-12-308 (Miehie 2002) (if offense complained of in divorce complaint is occasioned by collusion of the parties, no divorce will be granted).
CONCLUSION
The assets at issue, being estate property that has not been exempted by the Debtor, are subject to turnover. Divorce proceedings having been filed after the petition filing, Linda Thomas may not now claim a property interest that supersedes the interests of the Debtor’s other creditors.
Therefore, the objections to the Trustee’s motion for turnover are overruled for the reasons stated above, and the motion for turnover is granted as to the property described in the motion.
IT IS SO ORDERED.
. Even, in states with community property laws, community property is property of the estate and subject to the claims of the debtor's creditor’s. 11 U.S.C. § 541(a)(2)(2000); 5 Collier on Bankruptcy ¶541.13[1] (Alan N. Resnick & Henry J. Sommer, et al. eds., 15th ed. rev. 1993).
. Furthermore, the docket in this case does not reflect that Linda Thomas was ever granted relief from the automatic stay pursuant to 11 U.S.C. § 362 to assert a claim against property of the estate in state court. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493775/ | OPINION
SMITH, Bankruptcy Judge.
This appeal is from a final order denying Appellant Singer Asset Finance Co.’s (“Singer”) motion for summary judgment and granting summary judgment in favor of the debtor, Tina Nichole Gallagher (“Debtor” or “Gallagher”). We AFFIRM.
FACTS
The relevant facts are not in dispute. On May 20, 1988, a California court entered an Order Approving Compromise of Minor’s Claim on behalf of Tina Christian-son, now Tina Gallagher. The order incorporated a settlement agreement reached between Allstate Insurance Company (“Allstate”) and Bonnie Christianson, as guardian ad litem for Gallagher following an accident that caused the death of her father. The agreement was a structured settlement providing monthly payments to Gallagher of $923.53 from June 9, 1995 through May 9, 2025, as well as three lump sum payments of $10,000 on June 9, 1995, $15,000 on June 9, 1998, and $25,000 on June 9, 2005. Allstate funded its periodic payment obligation by purchasing an annuity contract from Allstate Life Insurance Company (“Allstate Life”) which provided for the monthly annuity payments to be sent directly to Gallagher. The settlement agreement includes a non-assignment clause which states
[A]ll settlement funds shall be free from anticipation, assignment, pledge or *898obligations of the claimant, his heirs, executors, administrators, successors or assignees, and shall not be subject to attachment, exclusion or other legal process.
Despite the non-assignment clause, in June 2000, Gallagher entered into a loan agreement with Merrick Bank Corporation (“Merrick”), in which she borrowed $64,969 and assigned her right to receive the monthly payments under the settlement agreement for a period of 120 months plus one lump sum payment of $25,000 payable June 9, 2005, totaling $135,823.2 This equates to an effective interest rate of 15% per annum. Merrick subsequently assigned its interest in the loan agreement to Singer, who promptly filed a financing statement pursuant to the Uniform Commercial Code.
Gallagher performed under the loan agreement for almost two and a half years before defaulting. On May 20, 2003, she filed a chapter 13 3 bankruptcy petition. Singer timely filed a proof of claim in the amount of $98,495.33, asserting a security interest in the annuity payments. Allstate Life and Allstate Settlement Corporation thereafter filed an interpleader action and began depositing the monthly annuity payments with the clerk of the U.S. Bankruptcy Court.
On March 30, 2004, Gallagher commenced an adversary proceeding to avoid Singer’s security interest. Singer moved for summary judgment on the ground that under Article 9 of the Uniform Commercial Code, it held a perfected security interest in and to Gallagher’s periodic payments under the settlement agreement which could not be defeated by the non-assignment clause. In opposition, Gallagher contended that Article 9 does not apply to the transfer of an interest in a policy of insurance or arising out of a tort. Furthermore, Gallagher argued, Article 9 does not apply to structured settlements which contain a non-assignment clause.
The court granted summary judgment in favor of Gallagher, holding that the transaction was not governed by Article 9 because, pursuant to UCC § 9-104(k), the claim arose out of a tort.4
*899JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. § 1334 and § 157(b)(1) and (b)(2). This Panel has jurisdiction under 28 U.S.C. § 158(b)(1).5
ISSUE
Whether Singer’s claim is one arising in tort, rendering it exempt from coverage under Article 9.
STANDARD OF REVIEW
The Panel reviews summary judgment orders de novo. In re Paine, 283 B.R. 33, 36 (9th Cir. BAP 2002).
DISCUSSION
A. Applicability of Article 9 to Assignment of Rights Under Structured Settlements.
Preliminarily, we hold that, contrary to the bankruptcy court’s determination, Revised Article 9 of the UCC, rather than the former Article 9, is applicable here. See In re Wiersma, 283 B.R. 294, 299 (Bankr.D.Idaho 2002)(and cases cited therein). Washington state’s version of Revised Article 9, codified in RCWA § 62A.9A, became effective July 1, 2001,6 prior to the commencement of Gallagher’s bankruptcy case. Under these circumstances, many courts have applied the revised version, even though events relevant to the dispute may have occurred prior to the effective date. See Wiersma, 283 B.R. at 299.
The relevant section under the former Article 9, UCC § 9-104(k)(1998), was re-codified in Revised Article 9 as UCC § 9-109(d)(12) and adopted and codified in Washington as RCWA § 62A.9A-109(d)(12). Revised Article 9 will hereafter be referred to as “Article 9”. Our determination that the bankruptcy court incorrectly applied the former version of Article 9 does not, however, affect the soundness of the court’s ruling because the provisions relevant to its analysis remain substantially unchanged.
Article 9 governs secured transactions, including a secured creditor’s right to payment. However, the applicability of Article 9 to the assignment of payment rights under a structured settlement agreement is not entirely clear. Courts are split on the effectiveness of such assignments where an explicit non-assignment clause is present in the underlying agreement. To be sure, the issue has been litigated in a number of jurisdictions, both state and federal, with varying results.7
*900Rather than relying on Article 9, many courts have focused on balancing competing contract principles, such as freedom of contract and restraint on alienability concerns, as well as on the importance of giving effect to the terms agreed to by the parties. Taking this approach, some have looked to §§ 817 and 322 of the Restatement (Second) of Contracts8 in analyzing the effectiveness of non-assignment clauses under general contract principles. See e.g., In re Terry, 245 B.R. at 426-427; In re Cooper, 242 B.R. at 771; In re Berghman, 235 B.R. 683, 690-691 (Bankr.M.D.Fla.1999); In re Freeman, 232 B.R. at 503; Stone, 93 F.Supp.2d at 637; Wonsey, 32 F.Supp.2d at 944; Grieve v. General American Life Ins. Co., 58 F.Supp.2d 319, 322-324 (D.Vt.1999). Courts have also considered the potential adverse impact of assignments on favorable tax treatment afforded parties to structured settle*901ment agreements. See e.g., Liberty Life, 93 F.Supp.2d at 634; CGU Life Ins. Co., 275 Ga. at 330, 567 S.E.2d 9; Grieve, 58 F.Supp.2d at 323; Piasecki, 245 Ill.Dec. 340, 728 N.E.2d at 73; Henderson v. Roadway Express, 242 Ill.Dec. 153, 720 N.E.2d at 1112-1113.
The application of Article 9 to the as-signability of payments under structured tort settlement agreements is not always evident. First, the “transfer of an interest in or an assignment of a claim under a policy of insurance” that does not constitute proceeds of collateral is expressly excluded from Article 9. Section 9 — 109(d)(8). Second, the “assignment of a claim arising in tort, other than a commercial tort claim” is also excluded from Article 9. Section 9-109(d)(12); In re Ore Cargo, Inc., 544 F.2d 80 (2d Cir.1976)(an Article 9 security agreement cannot bestow a security interest in tort settlement proceeds other than a commercial tort claim).
At issue here is UCC § 9 — 109(d)(12) and whether it applies to tort proceeds.9 The meaning of “a claim arising in tort” is not defined in the statute and there is no majority rule in the decisional authority. See e.g., Owen v. CNA Ins./Cont’l Cas. Co., 167 N.J. 450, 457, 771 A.2d 1208 (2001); Barclays Bus. Credit, Inc. v. Four Winds Plaza Partnership, 938 F.Supp. 304, 308 (D.Vi.1996). Though some courts have held that the exclusion does apply to tort proceeds, the Official Comment, Note 15 to UCC § 9-109, seems to suggest otherwise. The Comment provides, in part:
15. Tort Claims. Subsection (d)(12) narrows somewhat the broad exclusion of transfers of tort claims under former Section 9-104(k). This Article now applies to assignments of “commercial tort claims” (defined in Section 9-102) as well as to security interests in tort claims that constitute proceeds of other collateral (e.g., a right to payment for negligent destruction of the debtor’s inventory). Note that once a claim arising in tort has been settled and reduced to a contractual obligation to pay (as in, but not limited to, a structured settlement), the right to payment becomes a payment intangible and ceases to be a claim arising in tort.
UCC § 9-109, Official Comment, Note 15 (emphasis added).
The notion that a tort claim, once reduced to a settlement, becomes contractual in nature and ceases to be a claim arising in tort is not a foreign concept. As with former UCC § 9-318(4), recodified as UCC § 9-406(d), which provides that non-assignment clauses in contracts are ineffective, the Comment to UCC § 9-109 reflects a shift in legal doctrine taking place in response to current business practices where accounts and other rights under contracts have become the collateral securing an ever-increasing number of financing transactions. See former UCC § 9-318(4), Official Comment, Note 4 (“[I]t has been necessary to reshape the law so that these intangibles, like negotiable instruments and negotiable documents of title, can be freely assigned.”).
However, where structured settlement factoring transactions are concerned, such as the one entered into between Gallagher and Singer, adopting the simplistic view that tort proceeds are freely assignable, and thus subject to the protections of Arti-*902ele 9, is somewhat problematic for several reasons.10
First, there is a strong public policy against unrestricted consumer-based factoring transactions. Allowing assignments could permit factoring companies to take unfair advantage of individuals, such as Debtor, by purchasing their payment rights for a deeply discounted lump sum payment. Grieve, 58 F.Supp.2d at 324 (“This court will not lend its approval to the voiding of unambiguous, bargained-for contract terms in order to enable Singer to profit, at an exorbitant rate of interest, from Grieve’s financial distress.”) Such practices could imperil the assignor’s long-term financial security and subvert the Congressional policy underlying the tax advantages accorded structured settlements. Id; see also R & P Capital Res., Inc. v. Metro. Life Ins. Co., 2 Misc.3d 220, 772 N.Y.S.2d 461, 462 (N.Y.Sup.Ct.2003)(“[T]hese purchases have not been looked upon favorably by courts or legislatures. In particular, courts have refused to approve factoring transactions where the annuity contract contains a non-assignment clause.”)
Both the federal government and numerous states, including Washington, have enacted strong measures to deter factoring transactions such as the one at issue in this case.11 See 26 U.S.C. § 5891(a)(im-posing a 40% tax on anyone directly or indirectly receiving payments under a structured settlement factoring transaction); RCWA § 19.205.030 (2001)(effective July 22, 2001). In Washington, a direct or indirect transfer of structured settlement payment rights now requires advance approval, by court order which makes express findings that the transfer, among other things, is in the best interest of the payee. RCWA § 19.205.030. Washington’s law was enacted, however, after Gallagher entered into the Loan Agreement.
Second, adopting the view that structured settlement tort proceeds are included under Article 9, but are freely assignable, begs the question posed by the bankruptcy court and others: what good is the exclusion if it applies only to tort claims but not derivative insurance rights or proceeds? See Barclays, 938 F.Supp. at 309 (“If the scope provisions of Article Nine, with their accompanying official comments, are construed to include certain rights derived from a tort cause of action, the Code’s exclusion of ‘any claim arising out of tort’ would become meaningless due to the ease with which it could be circumvented by assignment of these rights.”) quoting Professor Harold R. Weinberg, Tort Claims as Intangible Property: An Exploration from an As-signee’s Perspective, 64 Ky. L.J. 49, 87 (1975-76).
Professor Gilmore, one of the primary drafters of Article 9, has commented that tort claims were specifically excluded from Article 9 as “beyond the pale with respect to a statute devoted to commercial financ*903ing.” 1 Grant Gilmore, Security Interests in Personal Property § 10.7 (1965).
We have found no Ninth Circuit cases discussing the scope of former UCC § 9-104(k) or UCC § 9-109(d)(12) in the context of structured settlements. Though there is ample authority upholding the effectiveness of non-assignment clauses in structured agreements, most courts doing so tend to rely on authority other than the Article 9 exemption.
In Johnson v. First Colony, a district court decision from the Central District of California, the plaintiffs purported to assign to a lender in exchange for a lump sum payment, their right to periodic payments under a structured settlement agreement containing a non-assignability clause. 26 F.Supp.2d at 1227-28. First Colony, the obligor under the settlement agreement, refused to honor the assignment and plaintiffs sought enforcement of the assignment through declaratory relief. Id. at 1228.
Applying California law, the court noted that although there is a strong policy in favor of enabling persons to transfer property freely, it is also well-settled that parties are free to “agree by contract to give up that right, and such an agreement will generally be given full effect by the courts.” Id. at 1229. Non-assignability clauses are thus not inherently suspect, and are routinely enforced. Id. (citation omitted). Finding that plaintiffs had cited no authority supporting their position that the non-assignment provision was an unreasonable restraint on alienation, the court upheld the non-assignment provision. Id. at 1230.
Similarly, under Washington law, when a contract prohibits assignment in specific terms, the assignment will be deemed void against the obligor. Portland Elec. v. City of Vancouver, 29 Wash. App. 292, 627 P.2d 1350, 1351 (1981)(up-holding a non-assignment clause which provided that the “the Contractor shall not assign this contract or any part thereof, or any moneys due or to become due thereunder, without the written prior approval of the Owner”).
The bankruptcy court here held that Singer could not avail itself of Article 9 protection because Gallagher’s claim was one “arising” out of a tort. Specifically, the court reasoned that “the language of the UCC, in effect, extends the definition beyond the tort claim itself by using the word ‘arising’.” Transcript of Proceedings, June 4, 2002, 6:10-15. To hold otherwise, the court explained, would render the anti-assignment clauses in these types of structured settlements meaningless because these are the very situations the anti-assignment clauses are meant to cover.
Debtor contends that Johnson v. First Colony, among other cases, supports the court’s ruling, while Singer argues that the holding in the Johnson case is distinguishable because in that case, it was First Colony (the original obligor under the structured settlement agreement), who objected to the assignment while here, Allstate has not objected to the assignment. Singer argues further that the bankruptcy court’s decision is not based on any legal authority and that the court should have adopted the reasoning of the court in In re Chorney, 277 B.R. 477, 488 (Bankr.W.D.N.Y.2002). We agree with Debtor.
Chorney is distinguishable in at least two significant ways. First, the nature of the transactions was different. There, unlike here, the debtor never had a contractual interest in the subject annuity. 277 B.R. at 487. The court specifically found that, unlike in some structured settlements that are funded by an annuity where the recipient of the structure settlement may *904be the payee of the funding annuity, in Chorney, CNA was both the owner and the payee of the Continental annuity. The Chorney debtor’s only connection to the Continental annuity was that he was used as the annuitant by Continental for actuarial purposes and, CNA directed Continental, solely for its convenience, to make all payments directly to the Debtor. Id. Since CNA could at any time redirect the payments in its sole discretion, the debtor in that case did not have any direct claim to the payments due under the annuity. Id. In the instant case, Allstate funded its periodic payment obligation by purchasing an annuity contract from Allstate Life, providing that annuity payments be sent directly to Gallagher. There is no indication that Allstate was free to redirect the payments at its sole discretion.
Additionally, Chorney did not involve an assignment but rather, the granting of a security interest under former Article 9, the prohibition of which was specifically made ineffective by former § 9-318(4). Therefore, the court held, while it was undisputed that the settlement agreement contained language prohibiting the debtor from granting a security interest in the structured settlement payments, “that is exactly what Section 9-318(4) of the Former Article 9 makes ineffective.” Id. at 489.
The fact that the bankruptcy court did not specifically cite to authorities supporting its ruling awarding summary judgment in favor of Gallagher is not fatal to its holding. If the trial court’s decision is correct, it must be affirmed. See United States v. $129,374 in U.S. Currency, 769 F.2d 583, 586 (9th Cir.1985); see also In re Curry and Sorensen, Inc., 57 B.R. 824, 829 n. 5 (9th Cir. BAP 1986). Furthermore, this panel can affirm a trial court on any ground finding support in the record, even if it is not the ground articulated by the court as the basis for its ruling. In re Aquaslide ‘N’ Dive Corp., 85 B.R. 545, 549-550 (9th Cir. BAP 1987)(affirming the court’s granting of summary judgment, even though neither party requested it and the court did not articulate its reasons for the award).
Contrary to Singer’s contention, while there is no clear majority rule concerning the application of Article 9 to tort claim proceeds, we find that there is sufficient support for the court’s holding that proceeds from a tort claim constitute an interest “arising” out of tort which are exempted under UCC § 9 — 109(d)(12). See e.g., Barclays Bus. Credit, 938 F.Supp. at 309, citing William D. Hawkland, Richard A. Lord and Charles C. Lewis, Uniform Commercial Code Series, Sec. 9-104:12 (1996)(“Although an assignment of the right to receive the proceeds of a settlement contract should theoretically constitute a secured transaction, a strong argument can be made that subsection 9-104(k) excludes this assignment as well, since it too would be a transfer of a claim that arose out of a tort.”)
Additionally, there is support for the court’s ruling on other grounds, including under Ninth Circuit law, generally, and under Washington law, specifically. See e.g., Davidowitz v. Delta Dental Plan of California, 946 F.2d 1476, 1478, (9th Cir.1991) citing, Restatement (Second) of Contracts § 322 (1981)(“As a general rule of law, where the parties’ intent is clear, courts will enforce non-assignment provisions.”); Portland Elec., 627 P.2d at 1351 (‘When a contract prohibits assignment in ‘very specific’ and ‘unmistakable terms’ the assignment will be void against the obli-gor.”).
After oral argument, and pursuant to Fed. R.App. P. 28(j), Singer submitted a supplemental pleading directing our attention to our recent decision in In re Wiers*905ma, 324 B.R. 92 (9th Cir. BAP 2005) (“Wiersma (2005)”).
The Wiersmas were Idaho dairy farmers whose cows had been subjected to electrical shocks from faulty wiring and had been culled until the herd was liquidated. Id. at 99. Debtors sued the electrical contractor for the damages to its cattle and settled the suit for $2.5 million. The bank held a valid and perfected security interest in debtors’ dairy herd pursuant to a credit agreement.
When the debtors proposed using the settlement funds to purchase cows and begin anew in Georgia, giving the bank a replacement lien in the new cows, the bank objected. Id. at 100. Under its credit agreement with the debtors, the bank held a security interest in “all proceeds and products of the collateral, including, but not limited to, the proceeds of any insurance thereon.” Id. at 99. The bankruptcy court had already found that the bank had a secured interest in the settlement proceeds. Id. The Wiersmas argued, unsuccessfully, that the bank did not have a security interest in the settlement proceeds because the underlying lawsuit sounded in tort. Significantly, the bank’s security interest in the collateral, however, existed prior to the incident creating the tort. Id.
We concluded that under revised Article 9, the settlement proceeds were covered by the bank’s security interest to the extent of the value of the original collateral. These facts are not analogous to those before us and, therefore, we find nothing in the Wiersma (2005) case that leads us to a different outcome.
Additionally, as Gallagher argues, Wiersma (2005) is inapplicable here because the settlement funds in that case were from a lawsuit involving damage to collateral. Our discussion of UCC § 9-109, Comment 15, was limited to whether a cash settlement of a lawsuit for damage to collateral constitutes either proceeds of the Bank’s livestock collateral or an after-acquired “payment intangible” for collateral. Id. at 107.
Because we find that the court did not err in holding that Article 9 does not apply to the Loan Agreement, we need not address Singer’s argument that UCC § 9-406(d) (formerly UCC § 9-318(4)) renders the non-assignment language void.
B. The Language in the Settlement Agreement is Sufficient to Invalidate the Assignment.
Singer next argues that the language in the non-assignment clause does not manifest the parties’ intent to invalidate an assignment once made. We disagree.
As noted in Johnson v. First Colony, non-assignment clauses are not inherently suspect. 26 F.Supp.2d at 1229. Parties are free to agree that a contract is non-assignable and such an agreement will generally be given full effect by the courts. Id. Courts do not impose formulaic restraints on the language that contracting parties may employ to craft an anti-assignment clause that limits the power to assign. When a contract prohibits assignment in very specific and unmistakable terms, any purported assignment is generally void. Id. at 1229-30 (upholding anti-assignment provision in structured settlement agreement in spite of fact that the provision did not contain the words “void” or “invalid”); accord, Stone, 93 F.Supp.2d at 638; and Grieve, 58 F.Supp.2d at 321.
In this case, the non-assignment clause of the structured settlement agreement is unambiguous. Nothing contained in the clause suggests that an assignment, made in contravention to the terms therein, would in any way be deemed effective.
*906C. Estoppel & Waiver
Last, Singer argues that Gallagher is estopped from asserting the non-assignment provision because she waived the provision when she signed the Loan Agreement and accepted the funds.
Under Washington law, equitable estoppel requires: “(1) an admission, statement, or act inconsistent with a claim afterward asserted; (2) action by another in reasonable reliance on that act, statement, or admission; and (3) injury to the party who relied if the court allows the first party to contradict or repudiate the prior act, statement, or admission.” Berschauer/Phillips v. Seattle School Dist., 124 Wash.2d 816, 881 P.2d 986, 994 (1994)(emphasis added).
Because equitable estoppel is not a favored doctrine, the party asserting estoppel must prove each of its elements by clear, cogent, and convincing evidence, that is, by evidence of sufficient persuasive impact as to cause the trier of fact to believe that the fact at issue is highly probable. Colonial Imports, Inc. v. Carlton Northwest, Inc., 121 Wash.2d 726, 853 P.2d 913 (1993). Further, the doctrine does not apply if the injured party had equal opportunity to determine the facts. Public Util. Dist. v. W.P.P.S.S., 104 Wash.2d 353, 705 P.2d 1195 (1985).
Singer has not presented sufficient evidence to establish equitable estoppel. Singer’s reliance on In re Kaufman, 37 P.3d 845 (Okla.2001) is misplaced. The Kaufman court held, under factually similar circumstances, that a party who agreed to waive the non-assignment clause was estopped from later asserting it, even though the court simultaneously found that they lacked the power to assign the payments under the structured settlement. Id. at 855. The Kaufman holding, however, relies on long-standing Oklahoma jurisprudence specifically prohibiting an assign- or from asserting non-assignability against its assignee. Id. Singer has cited no such similar Washington statutory or common law.
With respect to the second element, Singer has not presented evidence sufficient to show that its reliance on Gallagher’s waiver of the non-assignment clause was reasonable. In light of the numerous cases Singer has litigated, many unsuccessfully, involving the waiver or attempted waiver of these non-assignment clauses, it was not reasonable for Singer to rely on Debtor’s waiver of the clause. As the obviously more sophisticated party — one that has been engaged in purchasing and litigating structured settlements across the country — Singer no doubt was aware of the potential adverse impact of the anti-assignment clause on the Loan Agreement. When Singer entered into the Loan Agreement, it was certainly well aware of the important public policy implications behind the non-assignment clause, as evidenced by its attempts to contract around it. Contrary to Singer’s contention, finding that Debtor is not estopped from asserting the non-assignment clause does not leave Singer with “nothing”. Singer still holds a claim against Debtor, albeit unsecured, for the proceeds advanced to her under the Loan Agreement.
As to the issue of waiver, the doctrine ordinarily applies to all rights or privileges to which a person is legally entitled. A waiver is the intentional and voluntary relinquishment of a known right, or such conduct as warrants an inference of the relinquishment of such right. Dombrosky v. Farmers Ins. Co., 84 Wash.App. 245, 928 P.2d 1127, 1134 (1996). It may result from an express agreement, or be inferred from circumstances indicating an intent to waive. Id.
*907Singer claims Debtor waived her right to assert the non-assignment clause when she entered into the Loan Agreement which contains express waivers of her rights under the structured settlement. Debtor contends that because the court found that the structured settlement contained an absolute prohibition on assignments, Debtor did not have the ability to waive the provision. We agree with Debt- or. To find that the non-assignment clause is effective and enforceable, and at the same time find that Debtor was empowered to waive the non-assignment provision in an assignment of her rights to Singer, would render the original finding upholding the effectiveness of the clause meaningless.
Because we find no error with the court’s ruling that the non-assignment clause is effective, we need not address Gallagher’s contention that her rights under the structured settlement are non-assignable because the settlement resulted from a court order compromising a claim of a minor, under California Probate Code § 3600, and that the agreement is thus subject to continuing supervision of the court.
CONCLUSION
Though the court did not state the legal basis of its ruling, adequate authority exists to support the court’s holding that the proceeds from Debtor’s structured settlement arose out of tort and were, therefore, not subject to Article 9 provisions. Based on the foregoing, we AFFIRM.
. Gallagher also executed a special irrevocable durable power of attorney along with an instruction that upon her death, Singer would be "entitled to the proceeds of each of the payments under the Settlement Agreement and or the Annuity and all other benefits regarding the Collateral” (without any language limiting Singer’s rights to those proceeds assigned under the Loan Agreement).
. Unless otherwise indicated, all chapter, section and rule references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1330, and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9036.
. According to Singer, the court erred in granting summary judgment in favor of Gallagher, the non-moving party, because her opposition stated no basis for dispositive relief, was not supported by any declaration or affidavit, did not include a motion for summary judgment, and did not provide Singer an opportunity for opposition briefing.
In her opposition papers, however, Gallagher did seek summary judgment, in the alternative. The record indicates the parties had every opportunity to expound on the issues inherent in the prayer for relief and did so to the extent they deemed advisable. There is no predicate in the record for Singer's claim of unfairness. See Cool Fuel, Inc. v. Connett, 685 F.2d 309, 312 (9th Cir.1982).
Furthermore, Singer is certainly no stranger to matters relating to the enforceability of anti-assignment clauses in structured settlement agreements, having actively litigated the issue, often without success, all over the country. See Singer Asset Finance Co. v. Continental Casualty Co., 886 So.2d 1004 (Fla.Dist.Ct.App.2004) (applying Texas law and finding the non-assignment provision of the settlement agreement to be valid); Singer Asset Finance Co. v. Michelle L. Duboff (In re Duboff), 290 B.R. 652 (Bankr.C.D.Ill.2003) (applying Illinois lottery law preventing assignment of prizes and rejecting Singer’s claim *899that the non-assignment provision in the statute is invalid against Singer's Article 9 secured interest); Singer Asset Finance Co. v. CGU Life Ins. Co., 275 Ga. 328, 567 S.E.2d 9 (July 15, 2002) (non-assignment clause contained in structured settlement is valid and enforceable); Singer Asset Finance Co. v. Backus, 294 A.D.2d 818, 741 N.Y.S.2d 618 (N.Y.App.Div.2002) (non-assignment clause contained in structured settlement is valid and enforceable).
.No separate, final judgment disposing of the adversary proceeding (Adv. No. 04-01164) was ever entered. Pursuant to the BAP Clerk’s order of August 23, 2004, and the fact that no separate judgment was entered within 14 days of the order, the separate document requirement is deemed waived pursuant to Bankers Trust Co. v. Mallis, 435 U.S. 381, 98 S.Ct. 1117, 55 L.Ed.2d 357 (1978).
. Although the Loan Agreement specified that Utah law would govern, the parties did not argue or cite to Utah law so the court construed Utah law to be the same as Washington law.
. Cases holding the assignments were ineffective include Liberty Life Assurance Co. of Boston v. Stone St. Capital, Inc., 93 F.Supp.2d 630, 638 (D.Md.2000); Townsend v. Hartford Life Ins., 1999 U.S. Dist. LEXIS 21783 at *4-5; Johnson v. First Colony Life Ins. Co., 26 F.Supp.2d 1227, 1230 (C.D.Cal.1998); Continental Cas. Co., 886 So.2d 1004; In re Duboff *900290 B.R. 652; CGU Life Ins. Co., 275 Ga. 328, 567 S.E.2d 9; Bachus, 741 N.Y.S.2d at 620, 294 A.D.2d 818; McKay v. Aetna Cas. & Sur. Co., No. CV990590195S, 2000 WL 371464, at *3-4, 2000 Conn.Super. LEXIS 840, at *9 (Mar. 29, 2000); Cavallaro v. SAFECO Assigned Benefits Co., No. CV990362118S, 1999 WL 1126320, at *9-10, 1999 Conn.Super. LEXIS 3211, at *27-28 (Nov. 18, 1999); Bobbitt v. SAFECO Assigned Benefits Serv. v. Co., No. CV990588205S, 1999 WL 703066, at *8, 1999 Conn.Super. LEXIS 2347, at *25 (Aug. 24, 1999); Piasecki v. Liberty Life Assurance Co. of Boston, 312 Ill.App.3d 872, 245 Ill.Dec. 340, 728 N.E.2d 71, 74 (2000); Green v. Safeco Life Ins. Co., 312 Ill.App.3d 577, 245 Ill.Dec. 140, 727 N.E.2d 393, 397 (2000); Henderson v. Roadway Express, 308 Ill.App.3d 546, 242 Ill.Dec. 153, 720 N.E.2d 1108, 1109-10 (1999); Wentworth v. Jones, 28 S.W.3d 309, 312, 315 (2000).
Courts that have found assignments to be valid include: Western United Life Assurance Co. v. Hayden, 64 F.3d 833, 842-843 (3d Cir.1995); In re Brooks, 248 B.R. 99, 105 (Bankr.W.D.Mich.2000); In re Terry, 245 B.R. 422, 427-28 (Bankr.N.D.Ga.2000); In re Cooper, 242 B.R. 767, 772 (Bankr.S.D.Ga.1999); In re Freeman, 232 B.R. 497, 503 (Bankr.M.D.Fla.1999); Wonsey v. Life Ins. Co. of N. Am., 32 F.Supp.2d 939, 944 (E.D.Mich.1998); Rumbin v. Utica Mut. Ins. Co., 254 Conn. 259, 757 A.2d 526, 528 (2000); and Buchanan v. Am. Mut. Life Ins. Co., No. 550420, 1999 WL 1081346, at *3, 1999 Conn.Super. LEXIS 3094, at *8 (Nov. 15, 1999).
. Restatement 2d of Contracts § 317 provides:
Assignment of a Right
(1) An assignment of a right is a manifestation of the assignor's intention to transfer it by virtue of which the assignor’s right to performance by the obligor is extinguished in whole or in part and the assignee acquires a right to such performance.
(2) A contractual right can be assigned unless
(a) the substitution of a right of the assign-ee for the right of the assignor would materially change the duty of the obligor, or materially increase the burden or risk imposed on him by his contract, or materially impair his chance of obtaining return performance, or materially reduce its value to him, or
(b) the assignment is forbidden by statute or is otherwise inoperative on grounds of public policy, or
(c) assignment is validly precluded by contract.
Restatement 2d of Contracts § 317.
And Restatement 2d of Contracts § 322 provides:
Contractual Prohibition of Assignment
(1) Unless the circumstances indicate the contrary, a contract term prohibiting assignment of "the contract” bars only the delegation to an assignee of the performance by the assignor of a duly or condition.
(2) A contract term prohibiting assignment of rights under the contract, unless a different intention is manifested,
(a) does not forbid assignment of a right to damages for breach of the whole contract or a right arising out of the assignor’s due performance of his entire obligation;
(b) gives the obligor a right to damages for breach of the terms forbidding assignment but does not render the assignment ineffective;
(c) is for the benefit of the obligor, and does not prevent the assignee from acquiring rights against the assignor or the obli-gor from discharging his duty as if there were no such prohibition.
Restatement 2d of Contracts § 322.
. UCC § 9-109(d)(12) provides:
This article does not apply to:
(12) an assignment of a claim arising in tort, other than a commercial tort claim, but Sections 9-315 and 9-322 apply with respect to proceeds and priorities in proceeds;
. The term "structured settlement factoring transaction” refers to a transfer of structured settlement payment rights (including portions of structured settlement payments) made for consideration by means of sale, assignment, pledge, or other form of encumbrance or alienation for consideration. 26 U.S.C. § 5891(c)(3)(A).
. The following states have enacted laws requiring prior judicial or administrative approval of a transfer of structured settlement rights: Arizona, California, Delaware, Florida, Georgia, Idaho, Iowa, Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Nebraska, New Jersey, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington and West Virginia. In re Goins, 2002 Bankr.LEXIS 1736, *36-37 (Bankr.D.Ky.2002). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493777/ | ORDER DENYING CHAPTER 13 PLAN CONFIRMATION
SAMUEL L. BUFFORD, Bankruptcy Judge.
I. INTRODUCTION
Debtor Christopher S. Paasch, a racehorse trainer, has proposed an amended Chapter 131 plan in this case, pursuant to which most of his plan payments would come from money that he intends to borrow from one of his clients. The Court finds that such a plan is not confirmable and denies confirmation.
II. RELEVANT FACTS
Christopher Paasch (“Paasch”) requests the court to confirm his chapter 13 plan, proposed principally to deal with support and property division payments owing to his ex-wife Arlene Kovnick. Pursuant to the plan, Paasch proposes to pay $2,399 per month for the benefit of his creditors during the remaining 26 months of his 36-month plan. Under the plan, the administrative claims and the unsecured claims of Kovnick and the IRS claim will be paid in full. The remaining unsecured creditors will receive payment of 4.93% of their claims.
However, based on his disposable income, Paasch admits that he can only afford plan payments of $508 per month after the payment of reasonable and necessary living expenses. Paasch proposes to cover the shortfall of $1,891 per month by borrowing $50,000 from a client, and to repay the loan after the completion of his chapter 13 plan.
Nancy Curry, the chapter 13 trustee, objects to confirmation of the plan, in part *921on the grounds that Paasch does not have sufficient disposable income to fund the proposed plan under § 1325(b)(2). Thus, she argues, the plan is merely an effort to forestall creditors from exercising their rights against him. Paasch claims that by borrowing $50,000 and adding that amount to his actual surplus of $508 per month, he is making the required “best efforts” to pay his creditors and that the plan is proposed in good faith.
III. ANALYSIS
Section 13252 requires the confirmation of a chapter 13 plan if it meets six requirements: (1) the plan complies with other provisions of bankruptcy law; (2) all pre-confirmation fees and charges have been paid; (3) the plan has been proposed in good faith and not by any means forbidden by law; (4) creditors will receive present value equal to what they would receive in a chapter 7 liquidation; (5) for secured claims, the claimant accepts the plan, the debtor surrenders the collateral, or the plan meets the “fair and equitable” test; and (6) the plan is feasible (i.e., the debtor will be able to comply with the plan and make the payments thereunder).
If the trustee objects to the confirmation of the plan, § 1325(b) imposes a seventh requirement, that the court may not confirm the plan unless either (a) all allowed unsecured claims are paid in full, or (b) the debtor applies all of his projected disposable income for three years to make the plan payments (the “best efforts” test).3 *922For debtors not engaged in business, “disposable income” is defined in § 1325(b)(2)(A) as income not reasonably necessary for the maintenance or support of the debtor or the debtor’s dependents.
A. Good Faith
Section 1325(a)(3) requires that a chapter 13 plan be “proposed in good faith and not by any means forbidden by law.” Although “good faith” is not defined by the statute or its legislative history, the Ninth Circuit has held that a “good faith test ... should examine the intentions of the debt- or and the legal effect of the confirmation of a Chapter 13 plan in light of the spirit and purposes of Chapter 13.” In re Chinichian, 784 F.2d 1440, 1444 (9th Cir.1986); see also In re Goeb, 675 F.2d 1386,1389-90 (9th Cir.1982); H.R. Rep. No. 96-1195, at 24-25 (1980); S. Rep. No. 95-989, at 126, 142 (1978); H.R. Rep. No. 95-595, at 412, 430 (1977), U.S.Code Cong. & Admin.News 1977, pp. 5963, 5785. The trustee contends that Paasch’s chapter 13 plan fails the good faith test because he proposes to borrow $50,000 from a client to make his plan payments.
The general purpose of a plan under chapter 13 is to provide a fresh start to the debtor, while, at the same time, providing for payment of debts owing to creditors. Under chapter 7, a debtor gives up all of his or her nonexempt assets for sale by the trustee and distribution (after paying administrative expenses) to creditors pro rata, after the payment of priority creditors. See §§ 541, 725, 726(b).
Chapter 13, however, is based on quite a different deal between the debtor and the creditors: under chapter 13, the debtor is entitled to keep all of his or her assets at the time of filing, in exchange for making payments to the creditors over a period of three to five years. See §§ 1306(a)-(b), 1322(d); see also H.R. Rep. No. 95-595, at 118 (1977) (describing benefit of chapter 13 repayment plan over chapter 7 liquidation as allowing debtor to protect and retain his assets). Creditors are protected under this arrangement by a requirement that the payments to creditors must be at least as much as they would receive under a chapter 7 liquidation. See § 1325(a)(4).
In promulgating chapter 13, Congress undertook a substantial revision to chapter XIII of the former Bankruptcy Act. Congress found that, in certain areas of the country:
[Inadequate supervision of debtors attempting to perform under wage earner plans have made them a way of life for certain debtors. Extensions on plans, new cases and newly incurred debts put some debtors under court supervised repayment plans for 7 to 10 years. This has become the closest thing to indentured servitude: it lasts for an indefinite period and does not provide the relief and fresh start for the debtor that is the essence of modem bankruptcy law.
See H.R. Rep. No. 95-595, at 117 (1977), U.S.Code Cong. & Admin.News 1977, pp. 5963, 6078 (emphasis added). The Committee on the Judiciary of the House of Representatives further explained the legislative intent of chapter 13 as follows:
[T]he debtor is given adequate exemptions and other protections to ensure that bankruptcy will provide a fresh start.... The premises of the bill with respect to consumer bankruptcy are that use of the bankruptcy law should be a last resort; that if it is used, debtors should attempt repayment under chapter 13 ... and finally, whether the debtor uses chapter 7, Liquidation, or chapter 13, Adjustment of Debts of an individual, bankruptcy relief should be effective, and should provide the debtor with afresh start.
Id.
Paasch’s proposal in this case would barely make a start toward the fresh start *923contemplated by chapter 13. Upon completion of the plan, Paasch would still owe nearly $50,000 in new debt undertaken to pay off his old debt. Furthermore, it is not apparent how Paasch could pay this new debt. Given his present monthly disposable income of $508, it would take ten additional years to pay off the new loan. This total of thirteen years far exceeds the statutory limit of five years for a chapter 13 plan and comes close to the situation of indentured servitude that debtors frequently suffered under chapter XIII. Chapter 13 does not contemplate such a result.
There is no provision in chapter 13 that explicitly prohibits a debtor from borrowing money for chapter 13 plan payments. However, the court finds that a chapter 13 plan that proposes to fund more than 70% of the payments by borrowing money fails the “good faith” test, and cannot be confirmed.
B. Other Trustee Objections
The trustee also argues that Paasch fails the “good faith” requirement in two other respects. First, she contends that the plan improperly divides the general unsecured creditors into two subclasses, one of which will be paid in full and the other only 4.93%. Second, the trustee argues that Paasch has not been truthful and honest with the court: he has not disclosed all of his income, has failed to disclose sources of income, has concealed assets and has falsified his expenses.
Finally, the trustee argues that Paasch cannot meet the “best efforts” requirement of § 1325(b)(1) because of his failure to disclose all amounts and sources of income and his concealment of assets and falsification of expenses.
The court would likely be required to take testimony on these issues before it could conclude that the chapter 13 requirements for plan confirmation are met. However, the court does not reach these issues because its finding on borrowing money to make more than 70% of the plan payments is dispositive.
IV. CONCLUSION
The Court finds that, under the circumstances of this case, the proposed plan is not viable and denies Paasch of a fresh start. The substitution of new debt for more than 70% of the existing, old debt is simply not within the contemplation of chapter 13. Moreover, without the borrowed funds, Paasch lacks the disposable income necessary to make his proposed plan a viable one.
For the foregoing reasons, the court finds that debtor’s proposed chapter 13 plan does not meet the requirements of good faith. Accordingly, the court denies confirmation of the plan.
. Unless otherwise indicated, all chapter, section and rule references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1330 (West 1999) and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9036.
. Section 1325(a) provides:
The court shall confirm a plan if—
(1) the plan complies with the provisions of this chapter and with other applicable provisions of this title;
(2) any fee, charge, or amount required under chapter 123 of title 28, or by the plan, to be paid before confirmation, has been paid;
(3) the plan has been proposed in good faith and not by any means forbidden by law;
(4) the value, as of the effective date of the plan, of property to be distributed under the plan on account of each allowed unsecured claim is not less than the amount that would be paid on such claim if the estate of the debtor were liquidated under chapter 7 of this title on such date;
(5) with respect to each allowed secured claim provided for by the plan-
(A) the holder of such claim has accepted the plan;
(B)(i) the plan provides that the holder of such claim retain the lien securing such claim; and
(ii) the value, as of the effective date of the plan, of property to be distributed under the plan on account of such claim is not less than the allowed amount of such claim; or
(C) the debtor surrenders the property securing such claim to such holder; and
(6)the debtor will be able to make all payments under the plan and to comply with the plan.
. Section 1325(b) provides in relevant part:
(1) If the trustee or the holder of an allowed unsecured claim objects to the confirmation of the plan, then the court may not approve the plan unless, as of the effective date of the plan-
(A) the value of the property to be distributed under the plan on account of such claim is not less than the amount of such claim; or
(B) the plan provides that all of the debt- or’s projected disposable income to be received in the three-year period beginning on the date that the first payment is due under the plan will be applied to make payments under the plan.
(2) For purposes of this subsection, "disposable income" means income which is received by the debtor and which is not reasonably necessary to be expended—
(A) for the maintenance or support of the debtor or a dependent of the debtor, including charitable contributions (that meet the definition of "charitable contribution" under section 548(d)(3)) to a qualified religious or charitable entity or organization (as that term is defined in section 548(d)(4)) in an amount not to exceed 15 percent of the gross income of the debtor for the year in which the contributions are made .... | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493778/ | MEMORANDUM OPINION1
MARY F. WALRATH, Bankruptcy Judge.
Before the Court is the Motion of the Defendant, Credit Suisse First Boston (USA), Inc., f/k/a Donaldson, Lufkin & Jenrette Securities Corporation (“DLJ”) to Dismiss the Complaint filed by the chapter 11 trustee (the “Trustee”). For the reasons set forth below, the Court will deny the Motion.
I. BACKGROUND
Quintus Corporation (“Quintus”) was a company that provided e-commerce software and services. In November 1999, Quintus, retained DLJ as lead underwriter for its initial public offering (“IPO”). In an IPO, an underwriting syndicate purchases all the securities from the issuer and then markets and resells the securities to investors, profiting from the spread between the price at which it acquires the securities and the price at which it sells the securities.
At the time of the IPO, DLJ beneficially owned 43.4% of Quintus’ stock through a series of affiliates: Sprout Capital VI, Sprout Capital VII, Sprout CEO and DLJ Capital. As a result, Quintus was required to retain Dain Rauscher Wessels (“DRW”) to recommend the price at which the stock would be sold by Quintus to the underwriting syndicate. The IPO price was set at $18.00 per share. On the first day of trading (November 16, 1999), Quintus’ stock closed at $55.00 per share. In the following five weeks of trading, the price never fell below $45.00 per share.
Subsequently, Quintus filed a chapter 11 petition on February 22, 2001. On January 14, 2005, the Trustee filed a complaint *112(the “Complaint”) against DLJ alleging that it had caused the stock issued in the IPO to be underpriced. On February 14, 2005, DLJ filed a motion to dismiss the complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. The matter has been fully briefed and is ripe for decision.2
II. JURISDICTION
This Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 1334 & 157(b).
III. DISCUSSION
A. Standard of Review
When considering a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure,3 the Court must accept all well-pleaded allegations as true and view them in the light most favorable to the plaintiff. In re Burlington Coat Factory Secs. Litig., 114 F.3d 1410, 1420 (3d Cir.1997). A court is not, however, required to credit “bald assertions” or “legal conclusions.” Id. at 1429. The issue is whether the plaintiff should be entitled to present evidence in support of his claims, not whether he will ultimately prevail on the merits. In re Rockefeller Center Props., Inc. Secs. Litig., 311 F.3d 198, 215 (3d Cir.2002). Therefore, “a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957).
Under Rule 12(b)(6), if “matters outside the pleading are presented to and not ex-eluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56.” The Court may, however, consider exhibits attached to a complaint, if they support a claim, or attached to a motion to dismiss, if it is an undisputedly authentic document on which the plaintiffs claim is based. Rossman v. Fleet Bank (R.I.) Nat’l Ass’n, 280 F.3d 384, 388 n. 4 (3d Cir.2002). Therefore, in this case the Court considered the Conduct Rules of the National Association of Securities Dealers, Inc. (the “NASD Conduct Rules”), the Underwriting Agreement and the Prospectus, because they are the documents on which the plaintiffs claim is based.
B. Allegations of Complaint
The Trustee’s Complaint against DLJ contains claims for breach of fiduciary duty, breach of the covenant of good faith and fair dealing, breach of contract, fraud and fraudulent concealment, negligence, and unjust enrichment. The premise of the Trustee’s Complaint is that DLJ caused the stock issued in the IPO to be underpriced. The Trustee also alleges that DLJ allocated the underpriced shares to favored clients who, in exchange, shared part of their profits with DLJ pursuant to side agreements. As a result of these actions, Quintus alleges it was deprived of millions of dollars of potential proceeds from its IPO while DLJ was excessively compensated.
1. Determining the IPO Price
DLJ moves to dismiss the Complaint on the ground that it had no role in *113determining the price for the IPO shares. Because DLJ beneficially owned more than 40% of the stock in Quintus, the IPO was subject to special rules to protect the investing public. The NASD Conduct Rules require that a Qualified Independent Underwriter (“QIU”) participate in the public offering and set the maximum price for the IPO securities when a member of the underwriting syndicate beneficially owns 10% or more of the offering company’s stock. Quintus complied with this Conduct Rule by hiring DRW as the QIU to set the stock price.
DLJ asserts that this is confirmed by the relevant documents. The Undex*writ-ing Agreement provides that DRW would fix the maximum price:
The Company hereby confixmxs its engagement of Dain Ruscher Wessels (“DRW”) as, and DRW hereby confirms its agreement with the Company to render services as, a “qualified independent underwriter”, within the meaning of Section (b)(15) of Rule 2720 of the Conduct Rules of the National Association of Securities Dealers, Inc. with respect to the offering and sale of the Shares .... The price at which the Shares will be sold to the public shall not be higher than the maximum price recommended by the QIU.
(emphasis added).
The Prospectus confirms this:
Because the Sprout Entities affiliated with Donaldson, Lufkin & Jenrette Securities Corporation beneficially own more than 10% of the outstanding common stock, this offering is being conducted in accordance with Rule 2720 of the Conduct Rules of the National Associate [sic] of Securities Dealers, Inc., which provides that the public offering price of an equity security be no higher than that recommended by a “qualified independent undexxwriter” meeting certain standards. In accordance with this requirement, Dain Rauscher Wessels, a division of Dain Rauscher Incorporated, assumed the responsibilities of action as qualified independent underwriter and recommended a price in compliance with the requirements of Rule 2720.
(emphasis added).
Because Quintus hired DRW as the QIU to set the price for its IPO, DLJ asserts that the Complaint (which is premised on the allegation that DLJ was responsible for setting the price) must be dismissed. Specifically, DLJ claims that the Trustee has pled no facts to support its assertion that DLJ influenced the price, but instead relies on “conclusions” and “vague assertions” which are contradicted by the Prospectus, the Underwriting Agreement, and the NASD Conduct Rules. Furthermore, DLJ contends that the Trustee has not alleged any facts in support of its theo:ry that DLJ somehow influenced the pricing. Rather, the Trustee simply claims it has “reason to believe” that DLJ as the lead underwriter had a significant input into the QIU recommendation and was the ultimate authority with respect to pricing the stock. Consequently, DLJ argues that the Trustee has not met its pleading burden.
In response, the Trustee contends that, despite the presence of DRW, DLJ still influenced the selling price. The Complaint alleges that “DLJ had control and influence over the pricing of the Quintus shares” and that “DLJ made material representations of fact regarding the appropriate pricing for Quintus stock for purposes of its IPO.” The Trustee asserts that he has pled with sufficient specificity that DLJ controlled the selling price. Although acknowledging that DRW was hired, the Trustee maintains that there is a question of fact as to whether DRW or DLJ actually set the price for the IPO shares.
*114The Court agrees with the Trustee. Under Rule 8(a) of the Federal Rules of Civil Procedure,4 a claimant is not required to establish in detail the facts supporting its claim. “All [Rule 8(a) ] require[s] is a ‘short and plain statement of the claim’ that will give the defendant fair notice of what the plaintiffs claim is and the grounds upon which it rests.” Conley, 355 U.S. at 47, 78 S.Ct. 99. The Court concludes that the Trustee has satisfied this pleading requirement.
2. Side Agreements
In addition, the Trustee alleges in the Complaint that DLJ misrepresented its compensation in violation of Rule 2710 of the NASD Conduct Rules.5 Specifically, the Trustee asserts in the Complaint that “DLJ allocated underpriced Quintus IPO shares to its favored clients who, in exchange, directly or indirectly shared portions of their profits therefrom with DLJ pursuant to side agreements or understandings.” DLJ’s defense that DRW priced the shares is irrelevant to this claim, according to the Trustee. '
DLJ maintains that this allegation must also be dismissed because, in the Complaint’s own words, that claim is “inextricably linked” to the underpricing of the IPO shares. The Complaint also states that DLJ’s allocation practices were “only possible because the initial IPO shares were underpriced.” Therefore, DLJ asserts that, because it did not determine the price of the shares, this count of the Complaint should also be dismissed.
As stated above, when reviewing a motion to dismiss, a court is “required to accept all well-pleaded allegations in the complaint as true and to draw all reasonable inferences in favor of the non-moving party.” In re Rockefeller Center Props., 311 F.3d at 215. In light of this standard, the Court concludes that the Trustee has sufficiently pled its claims. The Trustee asserts that although the documents state that DRW was assigned responsibility for setting the maximum price of the IPO shares, DLJ influenced the price that was finally selected. If this is true, the Trustee may be entitled to relief.
Even if DLJ did not set the price, however, the Trustee alleges that DLJ had side agreements that violated the NASD Conduct Rules. While DLJ contends that the Trustee has not presented enough facts to support this charge, more evidence is not required at this stage in the proceeding. In the context of this Motion, the Court must accept the allegations as true and allow the Trustee an opportunity to present evidence in support of its claim. Because there is a set of facts that the Trustee could prove that would support his claim and entitle him to relief, DLJ’s Motion to Dismiss must be denied as to this count as well.
IV. CONCLUSION
For the reasons stated above, the Court will deny the Defendant’s Motion to Dismiss.
. This Opinion constitutes the findings of fact and conclusions of law of the Court pursuant to Federal Rule of Bankruptcy Procedure 7052.
. After the notice of completion of briefing, the parties submitted supplemental briefing with respect to a recent decision that the Trustee argues is relevant to the issue at bar. Although the Court considered these briefs, the case cited was not relevant to the decision to deny the motion to dismiss.
. Rule 7012(b) of the Federal Rules of Bankruptcy Procedure makes Rule 12(b)(6) of the Federal Rules of Civil Procedure applicable to adversary proceedings.
. Rule 7008(a) of the Federal Rules of Bankruptcy Procedure makes Rule 8(a) of the Federal Rules of Civil Procedure applicable to adversary proceedings.
. Rule 2710 of the NASD Conduct Rules provides:
For purposes of determining the amount of underwriting compensation, all items of value received or to be received from any source by the underwriter and related persons which are deemed to be in connection with or related to the distribution of the public offering ... shall be disclosed.
(Emphasis added.) | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493779/ | MEMORANDUM OPINION AND DECISION
RICHARD L. SPEER, Bankruptcy Judge.
This cause is before the Court after a Hearing on the Motion for Adjustment of Contract filed by Dunkirk Realty, LLC and Brint Park Holdings, LLC; and the Debtor’s objection thereto. Each of the Parties submitted briefs in support of their respective positions. The Court has now had the opportunity to review the arguments raised both at the Hearing and in these Briefs, together with the applicable law, and based upon that review, the Court, for the reasons now explained, finds that the Motion of Dunkirk Realty, LLC and Brint Park Holdings, LLC should be GRANTED.
FACTS
On April 28, 2003, Desert Village Limited Partnership (“Desert Village”) filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. Pursuant to 11 U.S.C. § 363, Desert Village subsequently filed Notice of Intent to Sell Real Property Free and Clear of Liens; this Court entered an order approving the sale on June 6, 2003. Desert Village and Dunkirk Realty, LLC (“Dunkirk”) then effectuated the sale of the property according to the terms of their Real Estate Purchase Agreement (“the Agreement”).
At the time the Agreement was made, the property at issue was undeveloped agricultural land, and part of the Current Agricultural Use Valuation (“CAUV”) program, which provides a lower tax rate to owners of land reserved for agricultural use. O.R.C. § 5713.34(A)(1). Central to *162this controversy is paragraph nine of the Agreement, which states that “agricultural tax recoupment, if any, shall be paid by Seller.” (Doc. No. 204, Ex. A). As used here, recoupment is realized when CAUV property formerly used for agricultural purposes is converted to residential use. 0.R.C. § 5713.34(A)(2). Although applicable, no agricultural tax recoupment was assessed at the closing, apparently because the parcel was not listed on the county auditor’s tax screen as CAUV property. But had the agricultural recoupment tax been assessed at closing on the property in question, it is agreed that Dunkirk would have received a credit of $41,946.36.
Desert Village’s sale of the property was finalized on June 17, 2003. The same day, Dunkirk made an assignment to Brint Park Holdings, LLC (Brint Park) and to The dander Park System.1 As part of this transaction Brint Park, as Dunkirk’s assignee, consented to pay Desert Village a fee if Brint Park obtained satisfactory zoning and site plan approval for the property. Under this fee arrangement, Brint Park owes Desert Village $300,000 to be paid in six annual installments of $50,000 commencing June 17, 2005. Now, by way of their motion for adjustment of contract, Dunkirk and Brint Park ask that this obligation be reduced by the amount of the $41,946.36 credit Dunkirk would have received if tax recoupment had been realized at the time of the closing.
DISCUSSION
The motion before the Court for the adjustment of a contract is a matter directly concerning the administration of the estate, and thus is a “core proceeding” pursuant to 28 U.S.C. § 157(b)(2)(A). This Court, therefore, has the jurisdictional authority to enter a final order in this matter.
By way of their Motion, Dunkirk and Brint Park request that the agricultural tax recoupment that was not credited to them at the time of the closing be granted to them now in accordance with the terms of their Agreement. Desert Village objects, raising three points: (1) lack of standing; (2) misinterpretation of contractual terms; and (3) what the Court views as an equitable argument. The Court will now address each of these points in order.
Generally, standing exists when a party has alleged “such a personal stake in the outcome of the controversy, as to ensure that the dispute sought to be adjudicated will be presented in an adversary context and in a form historically viewed as capable of judicial resolution.” Dallman, quoting Sierra Club v. Morton, 405 U.S. 727, 731-32, 92 S.Ct. 1361, 31 L.Ed.2d 636 (1972), citing Flast v. Cohen, 392 U.S. 83, 101, 88 S.Ct. 1942, 20 L.Ed.2d 947 (1968) (internal citation and quotations omitted). Here, Desert Village argues this requirement is lacking because Dunkirk gave an unqualified assignment, and not merely a right to purchase, to Brint Park.
On this point, “[a]n unqualified assignment transfers to the assignee all the interest of the assignor in and to the thing assigned.” Leber v. Buckeye Union Ins. Co., 125 Ohio App.3d 321, 332, 708 N.E.2d 726, 733 (1997), citing Pancoast v. Ruffin, 1 Ohio 381 (1824). Thus, as argued by Desert Village, an unqualified assignment given to Brint Park would more than likely divest Dunkirk of a sufficient stake in this controversy, as its rights regarding the property would now belong to Brint Park. However, this position has both legal and factual weaknesses. Factually, the Court does not have enough information before it to judge the nature of the *163assignment. Legally, Brint Park, a co-movant, clearly has a sufficient stake in the outcome of the proceeding to satisfy the requirements of standing. Hence, given both of these points, the substantive merits of this matter — the proper application of the Parties’ Agreement — still need to be addressed. Accordingly, the Court turns its attention there at this time.
The second point raised by Desert Village concerns the contractual right of the Movants to assert their right of re-coupment. From the arguments presented by the Parties, the primary point of focus here centers on the interpretation of the phrase “if any” in paragraph nine of the Agreement. This sentence states that “Agricultural tax recoupment, if any, shall be paid by Seller.” (emphasis added) (Doc. No. 204, Ex. A). In its arguments, Desert Village asks the Court to interpret the term “if any” to mean that it must pay the actual “agricultural tax recoupment, not potential agricultural tax recoupment avoided.” (Doc. No. 204, at pg. 8). That is, since recoupment was never estimated for the parcel in question, Desert Village argues that it should owe nothing.
Dunkirk and Brint Park, however, maintain that Desert Village’s interpretation of “if any” ignores the plain meaning of the contract. In this way, Dunkirk and Brint Park put forth this reading: “if any” means that since the agricultural tax re-coupment was applicable to the parcel at the time of the transaction, then it is to be paid by the seller (Desert Village) and credited to the buyer (Dunkirk), regardless that it was not, as a result of a mistake made by the county, not known at the time of the closing. (Doc. No. 207, at pg. 3). The points made by the Parties thus differ in this fundamental respect: Dunkirk and Brint Park assert that the Agreement’s plain meaning looks to the conditions at the time of the transaction; in contrast, Desert Village’s interpretation seeks to take into consideration events which took place subsequent to when the Agreement was consummated.
“In construing the terms of any contract, the principal objective is to determine the intention of the parties.” Hamilton Ins. Services, Inc. et al v. Nationwide Ins. Companies, 86 Ohio St.3d 270, 273, 714 N.E.2d 898, 900 (1999), citing Aultman Hosp. Assn. v. Community Mut. Ins. Co., 46 Ohio St.3d 51, 53, 544 N.E.2d 920, 923 (1989). “When the terms included in an existing contract are clear and unambiguous, [the court] cannot create a new contract by finding an intent not expressed in the clear and unambiguous language of the written contract.” Id., at 273, 714 N.E.2d 898, 901, citing Alexander v. Buckeye Pipe Line Co., 53 Ohio St.2d 241, 246, 374 N.E.2d 146, 150 (1978). Furthermore, “[a] contract ‘does not become ambiguous by reason of the fact that in its operation it will work a hardship upon one of the parties thereto.’ ” Foster Wheeler Enviresponse, Inc. v. Franklin County Convention Facilities Auth., 78 Ohio St.3d 353, 362, 678 N.E.2d 519, 526-27 (1997), citing Ohio Crane Co. v. Hicks, 110 Ohio St. 168, 172, 143 N.E. 388, 389 (1924).
Using these principles as a foundation, the Court first observes that the Parties utilized a standard real estate contract. In its use, the Parties made no significant deviations. Wfinle not disposi-tive, the utilization of such a standard contract is indicative of an intent to abide by those practices and customs normally associated with real property transactions.2 *164With regards thereto, it is an underlying principle that in real estate closings, contractual terms are to be gauged with respect to the time at which the transaction — i.e., the transfer of the property — is performed. See generally Bowdoin Square v. Winn-Dixie Montgomery, 873 So.2d 1091 (2003) and Village of Grandview v. City of Springfield, 122 Ill.App.3d 794, 78 Ill.Dec. 197, 461 N.E.2d 1031 (1984). This principle is illustrated in Yoder v. Paradigm Acquisitions, No. 4-03-01, 2003 WL 21142956, 2003 Ohio App. LEXIS 2329 (3rd Dist. May 19, 2003).
In Yoder, the parties entered into a real estate contract “that provided for the payment of prorated property taxes on the date of closing.” Yoder, at *1, 2003 Ohio App. LEXIS 2329 at *1. Yoder calculated the taxes in accordance with the method set out in the contract and paid Paradigm Acquisitions. Id. Subsequently, the tax bill was levied with an amount less than what Yoder paid, and Yoder asked that “the parties refigure the tax proration based upon [the] reduced taxes.” Id., at *1, 2003 Ohio App. LEXIS 2329 at *2-3. Paradigm refused to renegotiate and Yo-der filed suit. Yoder, at *1, 2003 Ohio App. LEXIS 2329 at *3.
On appeal, the Third District Court of Appeals upheld the Defiance Municipal Court’s award of summary judgment to Paradigm, stating that “[p]roration is ... necessarily based upon speculation and [Yoder] does not contend that the taxes were prorated in a manner different from what the contract provided.” Id., at *1, 2003 Ohio App. LEXIS 2329 at *1. As a result, Yoder was not entitled to rescission of the contract due to what turned out to be an overpayment of taxes. Id., at *1, 2003 Ohio App. LEXIS 2329 at *1-2. This Court can see no reason why an agricultural recoupment assessment under the CAUV should be treated any differently. Thus, while Yo-der does not actually involve an agricultural recoupment, its principle still applies: the meaning of contractual terms are, in the absence of a specific term to the contrary, to be determined at the time of the transaction, regardless of any hardship that may subsequently befall one of the parties.
In this case, therefore, since the Parties utilized a standard real-estate contract, and set forth therein no explicit provisions to the contrary, it seems reasonable to conclude that the intent of the Parties was to afford the Buyer (Dunkirk, Brint Park) the benefit of any agricultural recoupment that would have been owed at the time of the transaction, regardless if it was not actually assessed at the time of the closing. Further supporting this view is the structure of the Parties’ Agreement.
When ascertaining the parties’ contractual intent, agreements are to be construed as a whole, and “[it] must be assumed that each provision of a contract is inserted for a purpose.” Ohio Historical Soc. v. General Maintenance & Engineering Co., 65 Ohio App.3d 139, 144, 583 N.E.2d 340, 343 (10th Dist.1989), citing Skivolocki v. East Ohio Gas Co., 38 Ohio St.2d 244, 313 N.E.2d 374 (1974). In this matter, paragraph nine sets forth the Parties’ respective rights and liabilities regarding taxes and assessments, including the CAUV. The paragraph begins:
Seller shall pay all improvement assessments and taxes and assessments due and payable as of the date of closing. Current taxes and assessments shall be pro rated as of the date of closing ... in accordance with the. custom in Lucas County, Ohio.
(Doc. No. 204, Ex. A) (emphasis added).
The provision at issue, however, is different from this general provision, stating *165“Agricultural tax recoupment if any, shall be paid by Seller.” Id. Noticeably lacking from this provision is the limiting language found in the general provision specifying that only those taxes “due and payable” as of the date of closing are to be paid by Desert Village. This creates a problem from Desert Village’s viewpoint.
The “due and payable” language can easily be taken to mean that a tax must actually be levied before any legal liability would arise; exactly the interpretation Desert Village seeks to apply to the agricultural recoupment. But wherever possible, every word of a contract is to be accorded meaning. And here, since the Parties decided to handle the agricultural recoupment separately, and since the Parties excluded the “due and payable” language from this provision, a better reading of this contractual provision is that any possible recoupment should be paid by Desert Village, regardless of if and when it is assessed, (recoupment actually levied the day of closing). Helberg v. Nat’l Union Fire Ins. Co., 102 Ohio App.3d 679, 683, 657 N.E.2d 832, 835 (6th Dist.1995). To find otherwise, would not give proper effect to this differentiation, as it would simply be repeating the preceding sentence obligating the seller to pay all taxes and assessments due. At its core, this is simply an application of the interpretation maxim of expressio unis est exclusivo alterius: the inclusion of specific things implies the exclusion of those not mentioned.
In summary, principles of contractual interpretation support the position that the term “if any,” as set forth in the Parties’ Agreement, is unambiguous and means precisely what the Movants argue: regardless of whether it was actually assessed or known, the obligation of Desert Village to pay the agricultural recoupment under the CAUV program must be gauged from the time the Parties consummated their transaction.
The final objection raised by Desert Village is an equitable argument and is based upon these two facts: the county has yet to issue a bill for the conversion of the property from agricultural to residential use; and additionally, since all of the land was not converted, recoupment should only be due for that portion that was converted. These arguments, however, fail because, as previously discussed, the contractual language at issue here is unambiguous. Therefore, it is neither “the responsibility or function of this court to rewrite the parties’ contract in order to provide for a more equitable result.” Foster Wheeler Enviresponse, Inc., 78 Ohio St.3d at 362, 678 N.E.2d 519, 526 (1997). Furthermore, the evidence demonstrates that it was within Desert Village’s power to know of the mistake giving rise to this controversy and to have fixed that mistake at the closing. And, per the maxim, “equity will treat as done that which should have been done,” recovery cannot be allowed when Desert Village had the means necessary to avoid the mistake altogether. Akron Coal Co. v. Fulton, 52 Ohio App. 257, 259, 3 N.E.2d 653, 654 (9th Dist.1935).
In reaching the conclusion found herein, the Court has considered all of the evidence, exhibits and arguments of counsel, regardless of whether or not they are specifically referred to in this Opinion.
Accordingly, it is
ORDERED that the Motion of Dunkirk and Brint Park for Adjustment of Contract be, and is hereby, GRANTED.
. The Olander Park System is not a party to this controversy.
. Paragraph nine of the Agreement is taken "verbatim from paragraph 13 in the standard Real Estate Purchase Agreement form approved and adopted by the Toledo Board of Realtors and the Toledo Bar Association.” (Doc. No. 207 at pgs. 2-3, and Ex. 1). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493780/ | OPINION
MARY P. GORMAN, Bankruptcy Judge.
The issue before the Court is whether the Debtor should be denied a discharge pursuant to 11 U.S.C. § 727(a)(2)(A) for concealing her ownership of a 1995 Rinker boat and a 1996 Sea Doo water craft and the pre-petition transfer of the Rinker boat.
This adversary proceeding was called for trial on October 6, 2005. The Trustee, Jeffrey D. Richardson, appeared ready for trial. The Debtor, Deborah Bramhall, did not appear. The Debtor’s attorney, Brian Finney, appeared, but he was unable to offer an explanation for the Debtor’s failure to appear. The Trustee, without objection from Mr. Finney, submitted the deposition testimony of the Debtor, her boyfriend Chris Doyle, and an employee from Mr. Finney’s office, Barbara Meri-dith. The Court took the matter under advisement.
In July, 2003, Mr. Doyle agreed to purchase a 1995 Rinker boat from Charles Hall. On July 29, 2003, Mr. Doyle issued an $8,000 check to Mr. Hall and, in return, received a handwritten Bill of Sale for the boat. Despite the purchase, Mr. Doyle did not register the boat in his name. Believing that previous DUI convictions which resulted in the loss of his Illinois driving privileges prohibited him from registering a boat in his name, Mr. Doyle registered the boat in the name of his girlfriend, Deborah Bramhall.
When Ms. Bramhall decided in late 2004 to file bankruptcy, she was concerned about having the boat in her name. Therefore, she transferred the boat to Mr. Doyle in early 2005.
Ms. Bramhall filed a petition pursuant to Chapter 7 of the Bankruptcy Code on February 28, 2005. Paragraph 10 of the Statement of Financial Affairs requires a debtor to list all transfers of property within one year of the bankruptcy filing. The Debtor did not list the transfer of the Rinker boat. Paragraph 24 of Schedule B requires a debtor to list “boats, motors, and accessories”. The Debtor did not list the Rinker boat or the Sea Doo water craft. A meeting of creditors pursuant to 11 U.S.C. § 341 was set for April 12, 2005.
On April 12, 2005, the Debtor filed an Amended Schedule B which showed her ownership interest in a 1996 Sea Doo water craft.
Prior to the meeting of creditors, the Trustee ran a Westlaw search for motor vehicles and water craft. Through this method, the Trustee discovered the Debt- or’s ownership interest in the Rinker boat and Sea Doo water craft. The Debtor did not volunteer information about these items at the meeting of creditors, but she admitted ownership of the Rinker and Sea Doo and the transfer of the Rinker after being confronted by the Trustee.
The Trustee filed an adversary complaint objecting to the discharge of the Debtor based on her nondisclosure of her ownership of the Rinker boat and Sea Doo water craft and the pre-petition transfer of *185the Rinker boat to her boyfriend, Mr. Doyle. The Trustee did not specify which subsection of § 727 that he was proceeding under, but the allegations appear to fall within the ambit of § 727(a)(2)(A).
A discharge provided by the Bankruptcy Code is to effectuate the “fresh start” goal of bankruptcy relief. In exchange for that fresh start, the Bankruptcy Code requires debtors to accurately and truthfully present themselves before the Court. A discharge is only for the honest debtor. In re Garman, 643 F.2d 1252, 1257 (7th Cir.1980), cert. denied, 450 U.S. 910, 101 S.Ct. 1347, 67 L.Ed.2d 333 (1981). However, objections to discharge under 11 U.S.C. § 727 should be liberally construed in favor of debtors and strictly construed against objectors in order to grant debtors a fresh start. In re Johnson, 98 B.R. 359, 364 (Bankr.N.D.Ill.1988) (citation omitted). Because denial of discharge is so drastic a remedy, courts may be more reluctant to impose it than to find a particular debt nondischargeable. See Johnson, supra, 98 B.R. at 367 (“The denial of discharge is a harsh remedy to be reserved for a truly pernicious debtor.”) (citation omitted). The plaintiff has the burden of proving the objection. See Fed. R.Bankr.P. 4005; In re Martin, 698 F.2d 883, 887 (7th Cir.1983) (the ultimate burden of proof in a proceeding objecting to a discharge lies with the plaintiff). The objector must establish all elements by a preponderance of the evidence. In re Scott, 172 F.3d 959, 966-67 (7th Cir.1999).
Pursuant to 11 U.S.C. § 727(a)(2)(A), a court will grant a debtor a discharge unless the plaintiff can prove by a preponderance of the evidence that the debtor:
(2) with intent to hinder, delay or defraud a creditor or an officer of the estate charged with custody of property under this title, has transferred, removed, destroyed, mutilated, or concealed, or has permitted to be transferred, removed, destroyed, mutilated, or concealed—
(A) property of the debtor, within one year before the date of the filing of the petition[.]
11 U.S.C. § 727(a)(2)(A).
Denial of discharge under this section requires proof of actual intent to hinder, delay, or defraud a creditor. In re Snyder, 152 F.3d 596, 601 (7th Cir.1998); In re Krehl, 86 F.3d 737, 743 (7th Cir.1996); In re Smiley, 864 F.2d 562, 566 (7th Cir.1989). “[Pjroof of harm is not a required element of a cause of action under Section 727.” Id. at 569. In determining whether a debtor has acted with intent to defraud under § 727, the court should consider the debtor’s “whole pattern of conduct.” In re Ratner, 132 B.R. 728, 731 (N.D.Ill.1991) (quoting In re Reed, 700 F.2d 986 (5th Cir.1983)). The issue of a debtor’s intent is a question of fact to be determined by the bankruptcy judge. See Smiley, supra, 864 F.2d at 566. Actual fraudulent intent can be inferred from extrinsic evidence. Id.; Krehl, supra, 86 F.3d at 743; In re White, 63 B.R. 742, 744 (Bankr.N.D.Ill.1986) (“a debtor is unlikely to directly testify that his intent was fraudulent, the court may deduce fraudulent intent from all the facts and circumstances of a case”). “Thus, where the evidence on the intent question is such that two permissible conclusions may rationally be drawn, the bankruptcy court’s choice between them will not be viewed as clearly erroneous.” Krehl, supra, 86 F.3d at 744 (citation omitted). “Intent to defraud involves a material misrepresentation that you know to be false, or, what amounts to the same thing, an omission that you know will create an erroneous impression.” In re Chavin, 150 F.3d 726, 728 (7th Cir.1998) (citations omitted).
*186In order to prevail against a debt- or on a § 727(a)(2)(A) claim, a plaintiff must prove two things: (a) the debtor transferred, removed, destroyed, mutilated, or concealed property and, if proven, (b) that the debtor had an intent to hinder, delay, or defraud his creditors.
While the denial of the discharge is a harsh result, the Court cannot overlook a willful intent to conceal assets of the estate from the Trastee. The Debtor admitted the purpose of the transfer of the Rinker boat to Mr. Doyle was to get it out of her name before she filed bankruptcy. She intentionally failed to disclose the transfer of the Rinker to Mr. Doyle. The Debtor also failed to offer a credible explanation for her failure to include the Sea Doo in her original schedules. She thought it was listed with her debt to Heights, but Heights was only listed as an unsecured creditor.
The Debtor testified at her deposition that she told Barbara Meridith of Mr. Finney’s office about the Rinker and Ms. Meridith advised her to transfer the boat. This testimony was not credible. Ms. Meridith, who has worked for Mr. Finney for 11 years, specifically denied advising the Debtor to get the boat out of her name. Even if the Debtor received such advice, this would not explain her failure to disclose the transfer on her Statement of Affairs or at her first meeting.
The Debtor’s explanation that she did not schedule an interest in the Rinker boat because it belonged to Mr. Doyle is without merit. The Debtor knew she had an interest in the boat, and that is why she transferred it to Mr. Doyle before the bankruptcy. Moreover, assets in which a debtor has an interest must be disclosed on the debtor’s schedules even if the debt- or believes another person or entity may have an equitable right to the asset. In re Braun, 98 B.R. 382 (Bankr.NJD.IH.1989).
For the foregoing reasons, the Court finds that the Trustee has met his burden of proof and that the discharge of Deborah Bramhall should be denied pursuant to 11 U.S.C. § 727(a)(2)(A).
This Opinion is to serve as Findings of Fact and Conclusions of Law pursuant to Rule 7052 of the Rules of Bankruptcy Procedure.
See written Order.
ORDER
For the reasons set forth in an Opinion entered this day,
IT IS HEREBY ORDERED that the discharge of Deborah Bramhall be and is hereby denied pursuant to 11 U.S.C. § 727(a)(2)(A). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493781/ | Whereas, on April 20, 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) was enacted into law; and
Whereas, most provisions of BAPCPA are effective on October 17, 2005; and
Whereas, the Advisory Committee on Bankruptcy Rules has prepared Interim Rules designed to implement the substantive and procedural changes mandated by BAPCPA; and
Whereas, the Committee on Rules of Practice and Procedure of the United States Judicial Conference (the “JCUS Standing Rules Committee”), and the Judicial Conference of the United States, have approved these Interim Rules and recommended the adoption of the Interim Rules to provide uniform procedures for implementing BAPCPA; and
Whereas, included in the Interim Rules are Rules 8001(f) and 8003(d), both of which pertain to direct appeals to the court of appeals as authorized by 28 U.S.C. 158(d)(2) (the “Direct Appeals Provision”); and
Whereas, the Bankruptcy Appellate Panel of the Ninth Circuit (“BAP”) needs interim procedural rules in place as of October 17, 2005 in order to implement the Direct Appeals Provision; and
Whereas, the October 17, 2005 effective date of BAPCPA has not provided sufficient time to promulgate rules after appropriate public notice and an opportunity for comment;
NOW THEREFORE, pursuant to 28 U.S.C. section 2071, and Paragraph 8 of the Amended Order Continuing Bankruptcy Appellate Panel of the Ninth Circuit (Amended May 9, 2002), the final versions of Interim Rules 8001(f) and 8003(d), as recommended by the JCUS Standing Rules Committee, are adopted in their entirety without change by the BAP, to conform with BAPCPA, for appeals arising out of bankruptcy cases filed on or after October 17, 2005.
Interim Rules 8001(f) and 8003(d) shall remain in effect until further order of the court.
Rule 8001. Manner of Taking Appeal; Voluntary Dismissal; Certification to Court of Appeals
* * * * * *
(f) CERTIFICATION FOR DIRECT APPEAL TO COURT OF APPEALS
(1) Timely Appeal Required. A certification of a judgment, order, or decree of a *200bankruptcy court to a court of appeals under 28 U.S.C. § 158(d)(2) shall not be treated as a certification entered on the docket within the meaning of § 1233(b)(4)(A) of Public Law No. 109-8 until a timely appeal has been taken in the manner required by subdivisions (a) or (b) of this rule and the notice of appeal has become effective under Rule 8002.
(2) Court Where Made. A certification that a circumstance specified in 28 U.S.C. § 158(d)(2)(A)(i)-(iii) exists shall be filed in the court in which a matter is pending for purposes of 28 U.S.C. § 158(d)(2) and this rule. A matter is pending in a bankruptcy court until the docketing, in accordance with Rule 8007(b), of an appeal taken under 28 U.S.C. § 158(a)(1) or (2), or the grant of leave to appeal under 28 U.S.C. § 158(a)(3). A matter is pending in a district court or bankruptcy appellate panel after the docketing, in accordance with Rule 8007(b), of an appeal taken under 28 U.S.C. § 158(a)(1) or (2), or the grant of leave to appeal under 28 U.S.C. § 158(a)(3).
(A)Certification by Court on Request or Court’s Own Initiative.
(i) Before Docketing or Grant of Leave to Appeal. Only a bankruptcy court may make a certification on request or on its own initiative while the matter is pending in the bankruptcy court.
(ii) After Docketing or Grant of Leave to Appeal. Only the district court or bankruptcy appellate panel involved may make a certification on request of the parties or on its own initiative while the matter is pending in the district court or bankruptcy appellate panel.
(B)Certification by All Appellants and Appellees Acting Jointly.
A certification by all the appellants and appellees, if any, acting jointly may be made by filing the appropriate Official Form with the clerk of the court in which the matter is pending. The certification may be accompanied by a short statement of the basis for the certification, which may include the information listed in subdivision (f)(3)(C) of this rule.
(3) Request for Certification; Filing; Service; Contents.
(A) A request for certification shall be filed, within the time specified by 28 U.S.C. § 158(d)(2), with the clerk of the court in which the matter is pending.
(B) Notice of the filing of a request for certification shall be served in the manner required for service of a notice of appeal under Rule 8004.
(C) A request for certification shall include the following:
(i) the facts necessary to understand the question presented;
(ii) the question itself;
(iii) the relief sought;
(iv) the reasons why the appeal should be allowed and is authorized by statute or rule, including why a circumstance specified in 28 U.S.C. § 158(d)(2)(A)(i)-(iii)exists; and
(v) an attached copy of the judgment, order, or decree complained of and any related opinion or memorandum.
(D) A party may file a response to a request for certification or a cross-request within 10 days after the notice of the request is served, or another time fixed by the court.
(E) The request, cross request, and any response shall not be governed by Rule 9014 and shall be submitted without oral argument unless the court otherwise directs.
(F) A certification of an appeal under 28 U.S.C. § 158(d)(2) shall be made in a separate document served on the parties.
*201(4) Certification on Court’s Own Initiative.
(A) A certification of an appeal on the court’s own initiative under 28 U.S.C. § 158(d)(2) shall be made in a separate document served on the parties in the manner required for service of a notice of appeal under Rule 8004. The certification shall be accompanied by an opinion or memorandum that contains the information required by subdivision (f)(3)(C)(i)-(iv) of this rule.
(B) A party may file a supplementary short statement of the basis for certification within 10 days after the certification.
Rule 8003. Leave to Appeal
* * * * * *
(d) If leave to appeal is required by 28 U.S.C. § 158(a) and has not earlier been granted, the authorization of a direct appeal by a court of appeals under 28 U.S.C. § 158(d)(2) shall be deemed to satisfy the requirement for leave to appeal. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484634/ | Lane v City of New York (2022 NY Slip Op 06433)
Lane v City of New York
2022 NY Slip Op 06433
Decided on November 15, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 15, 2022
Before: Manzanet-Daniels, J.P., Webber, Mazzarelli, Friedman, Shulman, JJ.
Index No. 153022/15 Appeal No. 16665 Case No. 2021-02371
[*1]Denise Lane, Plaintiff-Appellant,
vThe City of New York et al., Defendants-Respondents.
Michael H. Zhu, New York, for appellant.
Sylvia O. Hinds-Radix, Corporation Counsel, New York (Jamison Davies of counsel), for respondents.
Order, Supreme Court, New York County (J. Machelle Sweeting, J.), entered on or about May 5, 2021, which to the extent appealed from as limited by the briefs, denied plaintiff's CPLR 3126 motion to strike defendants' answer and to compel them to produce certain discovery, unanimously modified, on the law, to compel defendants to comply with plaintiff's discovery demands insofar as they seek nonmedical records of inmate William Jones, as maintained by defendant New York City Department of Correction (DOC), and otherwise affirmed, without costs.
Contrary to defendants' contention, plaintiff's motion sufficiently complied with the good-faith provisions of 22 NYCRR 202.7 as it made clear that issues presented therein would not be resolved between the parties (see Northern Leasing Sys., Inc. v Estate of Turner, 82 AD3d 490, 490 [1st Dept 2011]). Supreme Court providently exercised its discretion in denying plaintiff's request to strike defendants' answer (see generally Gross v Edmer Sanitary Supply Co., 201 AD2d 390, 391 [1st Dept 1994]; Those Certain Underwriters at Lloyds, London v Occidental Gems, Inc., 11 NY3d 843, 845 [2008]). Willful and contumacious conduct can be inferred from defendants' repeated failure to timely comply with multiple directives that they "respond to" or "comply with" plaintiff's notices for discovery and inspection, and defendants did not articulate any persuasive reason for failing to obey those directives in the first instance. However, defendants largely became current on their disclosure obligations prior to, or in response to plaintiff's motion, which was the first CPLR 3126 motion made in the action, and review of the record reveals that defendants' failures were not egregious and thus, did not warrant the "drastic remedy" of striking the answer (see Henderson-Jones v City of New York, 87 AD3d 498, 504 [1st Dept 2011]; see Forbes v New York City Tr. Auth., 88 AD3d 546, 546 [1st Dept 2011]; Reidel v Ryder TRS, Inc., 13 AD3d 170, 171 [1st Dept 2004]). Although a lesser sanction might have been warranted, plaintiff did not request alternative relief, and thus Supreme Court did not improvidently exercise its discretion by failing to grant such relief. We decline to exercise our own discretion in that regard.
Supreme Court should have compelled defendants to comply with plaintiff's discovery demands to the extent they sought nonmedical records relating to Jones and those records were maintained by DOC. Such records, which include documents relating to Jones' violence classification level and his prior conduct at Manhattan Detention Complex or in other DOC facilities, are material to plaintiff's action, which is premised on Jones' alleged assault of her while under DOC supervision (see CPLR 3101[a]). Defendants apparently do not dispute the relevance of Jones' nonmedical records and have not shown that any privilege applies to those records (cf. CPL 160.50).
However, Supreme Court providently exercised its discretion when [*2]it declined to compel defendants to comply with plaintiff's discovery demands to the extent they sought Jones' medical records. Plaintiff failed to obtain a waiver of the patient-physician privilege from Jones (see Muniz v Preferred Assoc., 189 AD2d 738, 739 [1st Dept 1993]; accord Monica W. v Milevoi, 252 AD2d 260, 262-263 [1st Dept 1999]; Mullen v Wishner, 172 AD3d 1386, 1388-1389 [2d Dept 2019]) and does not claim to have undertaken any efforts to locate Jones and notify him of her disclosure request (see 45 CFR § 164.512[e][1][iii]). Supreme Court also providently exercised its discretion when it declined to compel defendants to comply with plaintiff's discovery demands to the extent they sought DOC personnel records. Plaintiff failed to establish that those records were relevant to her action. Defendants conceded that the correction officers were acting within the scope of their employment at the time of the incident and there has been no showing that the records sought may contain information about the incident (see Cheng Feng Fong v New York City Tr. Auth., 83 AD3d 642, 643 [2d Dept 2011]; see also Hui-Lin Wu v City of New York, 183 AD3d 411, 412-413 [1st Dept 2020]; cf. Flores v City of New York, 207 AD2d 302, 304 [1st Dept 1994]).
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 15, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484629/ | Matter of Jada J. (Reginald J.) (2022 NY Slip Op 06430)
Matter of Jada J. (Reginald J.)
2022 NY Slip Op 06430
Decided on November 15, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 15, 2022
Before: Manzanet-Daniels, J.P., Webber, Mazzarelli, Friedman, Shulman, JJ.
Docket No. N9024/20 Appeal No. 16652 Case No. 2022-00674
[*1]In the Matter of Jada J., a Child Under Eighteen Years of Age, etc., Reginald J., Respondent-Appellant, Administration for Children's Services, Petitioner-Respondent.
Law Office of Thomas R. Villecco, P.C., Jericho (Thomas R. Villecco of counsel), for appellant.
Sylvia O. Hinds-Radix, Corporation Counsel, New York (Amanda Abata of counsel), for respondent.
Dawne A. Mitchell, The Legal Aid Society, New York (Susan Clement of counsel), attorney for the child.
Order of fact-finding and disposition (one paper) of the Family Court, Bronx County (Karen M.C. Cortes, J.), entered on or about December 21, 2021 upon respondent father's default, which, to the extent it brings up for review the denial of his motion to dismiss the petition for failure to establish a prima facie case of neglect, unanimously affirmed, without costs.
Although the judgment was entered upon the father's default, the appeal brings up for review an issue that was decided by the Family Court and that was the "subject of contest below" before the father's default — namely, the denial of the father's motion to dismiss the petition for failure to establish a prima facie case of neglect, made August 4, 2021, at the close of petitioner's case (James v Powell, 19 NY2d 249, 256 n 3 [1967]; see Matter of Constance P. v Avraam G., 27 AD3d 754, 755 [2d Dept 2006]).
On the merits, viewed in the light most favorable to petitioner agency and making all reasonable inferences in the agency's favor (see Matter of Angel L. [Victor M.], 182 AD3d 429, 429 [1st Dept 2020]), the preponderance of the evidence supports Family Court's finding of neglect, as the father failed to provide a minimum degree of care while the child was in his custody and when the child was out of the home, thus placing her in danger of imminent harm (Family Court Act § 1012[f][i]; see Nicholson v Scoppetta, 3 NY3d 357, 368-369 [2004]). Petitioner first established that for a two-year period before mid-May 2020, while the child was living with the father, she slept on an air mattress in an unfurnished room, while the father's room was furnished. There was little food in the apartment, and even though the father told the child to buy some food, he refused to give the child money to do so, thus abdicating his parental responsibilities to provide food or proper shelter for the child (see Matter of Joelle T. [Laconia W.], 140 AD3d 513, 513 [1st Dept 2016]).
Furthermore, in mid-May 2020, while the child was staying with a friend, the father changed the locks in the apartment and did not give the child a set of keys, and during that time, failed to ensure that the child had adequate food, clothing, or shelter (see Matter of Debraun M., 34 AD3d 587, 588 [2d Dept 2006]; Matter of Elijah J. [Yvonda M.], 105 AD3d 449, 450 [1st Dept 2013]). Later, and initially unbeknownst to the father, the child relocated to her paternal aunt's house, at which time the father eventually contributed only $400 toward her care (see e.g. Matter of Charisma D. [Sandra R.], 115 AD3d 441, 442 [1st Dept 2014]). The father later rejected the child's attempts to reconcile and return home. Nor did he present any plan for the child's care, instead rejecting ACS's attempts to engage him in formulating a viable plan (see Matter of Kimberly F. [Maria F.],146 AD3d 562 [1st Dept 2017], lv denied 29 NY3d 902 [2017]).
Contrary to the father's argument, his own statements made to the caseworkers corroborated the child's [*2]out-of-court statements (see Matter of Maxwell P. [Katherine S.], 196 AD3d 416, 416-417 [1st Dept 2021]). Additionally, the child's consistent statements to caseworkers regarding her living situation with the father and the circumstances surrounding her stay with the paternal aunt bolstered their credibility (see Matter of David R. [Carmen R.], 123 AD3d 483, 484 [1st Dept 2014]).
We have considered the father's remaining arguments and find them unavailing.
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 15, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484635/ | Kamara v Century Mgt. Servs. (2022 NY Slip Op 06432)
Kamara v Century Mgt. Servs.
2022 NY Slip Op 06432
Decided on November 15, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 15, 2022
Before: Gische, J.P., Kapnick, Kern, Gesmer, Higgitt, JJ.
Index No. 27396/18 Appeal No. 16644 Case No. 2022-00380
[*1]Sorie Kamara, Plaintiff-Respondent, 323 PAS Owner LLC, et al., Defendants,
vCentury Management Services et al., Defendants-Appellants.
Mischel & Horn, P.C., New York (Lauren Bryant of counsel), for appellants.
Greenberg & Stein, P.C., New York (Ian Asch of counsel), for respondent.
Order, Supreme Court, Bronx County (Wilma Guzman, J.), entered January 25, 2022, which denied the motion of defendants Century Management Services and 323 Park Avenue South Condominium for summary judgment dismissing the complaint as against them, unanimously modified, on the law, to grant the motion as to 323 Park Avenue South, and otherwise affirmed, without costs. The Clerk is directed to enter judgment dismissing the complaint as against 323 Park Avenue South.
Century Management failed to sustain its prima facie burden of demonstrating entitlement to summary judgment, as it did not submit sufficient evidence regarding its management obligations for the leased premises, including a written management contract, if it exists, or evidence of the terms of an oral management agreement (see Agli v 21 E. 90 Apts. Corp., 195 AD3d 458, 460 [1st Dept 2021]). Without these documents, issues of fact remained regarding who controlled the premises and what Century's role, if any, was in managing the premises. Therefore, there are outstanding issues of fact as to who was responsible for the repair and maintenance of the portion of the building where plaintiff was injured (see Ingrao v New York City Tr. Auth., 161 AD3d 683, 684 [1st Dept 2018]; Colon v Corporate Bldg. Groups, Inc., 116 AD3d 414, 414 [1st Dept 2014]).
As to 323 Park Avenue South, plaintiff has stated, both before Supreme Court and now on appeal, that he opposed defendants' motion only insofar as it concerned Century Management, and does not oppose dismissing the complaint as against 323 Park Avenue South.
We have considered Century's remaining contentions and find them unavailing.
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 15, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484641/ | Curry v Martin (2022 NY Slip Op 06422)
Curry v Martin
2022 NY Slip Op 06422
Decided on November 15, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 15, 2022
Before: Gische, J.P., Kapnick, Kern, Gesmer, Higgitt, JJ.
Index No. 31668/18E Appeal No. 16642 Case No. 2022-01543
[*1]Thornton Curry, as the Administrator of the Estate of Hannah Curry, Plaintiff-Respondent,
vLola Lee Martin, Defendant, Mrs. G's Services LLC, Defendant-Appellant.
Wilson Elser Moskowitz Edelman & Dicker LLP, New York (Judy C. Selmeci of counsel), for appellant.
Denlea & Carton LLP, White Plains (John L. Leifert of counsel), for respondent.
Order, Supreme Court, Bronx County (Andrew Cohen, J.), entered on or about October 4, 2021, which, to the extent appealed from as limited by the briefs, denied defendant Mrs. G's Services LLC's (Mrs. G's) motion for summary judgment dismissing the negligence cause of action against it, unanimously affirmed, without costs.
Plaintiff alleges that Mrs. G's, a home care agency, breached a duty of care to his mother, the decedent, through the actions of its employee, defendant Lola Lee Martin, who allegedly used rusty contaminated scissors, which had been used to cut the decedent's soiled diapers, to remove dead skin from the decedent's foot. Plaintiff further alleges that this act caused a wound that led to an infection and, ultimately, an above-the-knee amputation of the decedent's right leg.
There are triable issues of fact as whether Martin breached a duty of care to the decedent. Mrs. G's made a prima facie showing that Martin did not commit the alleged act, and therefore did not breach a duty of care, by submitting Martin's deposition testimony denying that she used the scissors to trim skin off the decedent's foot. In opposition, plaintiff raised an issue of fact by submitting his testimony that he noticed an odd "straight cut" on the decedent's right foot around the same time that he noticed the pair of scissors lying on the TV stand, as well as a report prepared by Mrs. G's and medical records documenting his complaints that Martin had trimmed the decedent's foot with rusty scissors. Thus, the record raises credibility issues that cannot be resolved on summary judgment (see Vega v Restani Constr. Corp., 18 NY3d 499, 505 [2002]).
There are also triable issues of fact as to whether the alleged negligent act proximately caused the decedent's injuries. On its motion, Mrs. G's submitted the affidavit of its expert, Dr. William Suggs, who opined that decedent's foot infection and subsequent amputation were the result of a blister that deteriorated into an ulcer, and that the injuries were "clinically unavoidable" in view of the decedent's preexisting medical conditions. However, plaintiff submitted the affidavit of her own expert, Dr. David A. Mayer, who otherwise opined that the infection was caused by fecal bacteria, not naturally occurring on common surfaces like other bacteria, and it was likely that the same scissors used to cut the soiled diaper had been reused on plaintiff's foot. These conflicting expert affidavits raise issues of fact as to whether defendant's alleged negligence resulted in the amputation of plaintiff's leg, warranting denial of its motion.
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 15, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484632/ | Lis v Lancaster (2022 NY Slip Op 06435)
Lis v Lancaster
2022 NY Slip Op 06435
Decided on November 15, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 15, 2022
Before: Gische, J.P., Kapnick, Kern, Gesmer, Higgitt, JJ.
Index No. 650855/19 Appeal No. 16648 Case No. 2022-01450
[*1]Andrew Lis, Plaintiff-Appellant,
vJason Lancaster et al., Defendants-Respondents. Debbie Lancaster et al., Defendants.
Jason Lancaster et al., Third-Party Plaintiffs-Respondents,
vEnvironmental Supply Chain Alternative Planning Experts LLC, Formally Known as JAL Environmental Services Programs LLC, Third-Party Defendant-Appellant.
Pavia & Harcourt LLP, New York (Ihsan Dogramaci of counsel), for appellants.
White and Williams LLP, New York (Nicole A. Sullivan of counsel), for respondents.
Order, Supreme Court, New York County (Melissa Crane, J.), entered on or about March 18, 2022, which, to the extent appealed from, denied plaintiff's motion to reject the Referee's report insofar as it recommended limiting the scope of questioning for the reopened deposition of defendant Jason Lancaster, and granted the motion of Lancaster and defendants JAL Environmental Supply Chain Alternative Planning Experts LLC f/k/a JAL Environmental Services Programs Inc. and Gulf Premier Logistics LLC to confirm the report in its entirety, unanimously affirmed, without costs.
The court providently adopted the recommendations of the Special Referee to reopen Lancaster's deposition and to limit questioning to the discrepancy between Lancaster's initial deposition testimony that there had been a draft partnership agreement and defendants' disclosure of employment agreements and cryptocurrency records indicating that Lancaster had purchased Bitcoin through the Coinbase exchange (see Those Certain Underwriters at Lloyds, London v Occidental Gems, Inc., 11 NY3d 843, 845 [2008]). Under the circumstances of this case, the court providently exercised its discretion in setting reasonable terms and conditions on disclosure, consistent with the Commercial Division rules (see Merkos L'Inyonei Chinuch, Inc. v Sharf, 59 AD3d 408, 410 [2d Dept 2009]; Matter of DataSafe Inc. v American Express, 2 AD3d 224, 225 [1st Dept 2003]). Plaintiff failed to provide a basis for a wide-ranging inquiry into defendants' document retention practices or for inquiry concerning certain documents disclosed subsequent to Lancaster's first deposition (see McKay v Khabele, 46 AD3d 258 [1st Dept 2007]).
The court also providently adopted the Referee's recommendation that plaintiff's motion to compel defendants to provide a Jackson affidavit be denied. Defendants have not alleged that requested documents are missing or otherwise unavailable (see e.g. Robinson v Highbridge House Ogden, LLC, 124 AD3d 472, 473 [1st Dept 2015]; Henderson-Jones v City of New York, 87 AD3d 498, 505 [1st Dept 2011]).
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 15, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484638/ | Excel Sports Mgt., LLC v Eways (2022 NY Slip Op 06427)
Excel Sports Mgt., LLC v Eways
2022 NY Slip Op 06427
Decided on November 15, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 15, 2022
Before: Manzanet-Daniels, J.P., Webber, Mazzarelli, Friedman, Shulman, JJ.
Index No. 651043/22 Appeal No. 16666 Case No. 2022-01640
[*1]Excel Sports Management, LLC, Plaintiff-Appellant,
vEric Eways et al., Defendants-Respondents.
Sheppard, Mullin, Richter & Hampton LLP, New York (Jonathan Stoler of counsel), for appellant.
Clayman Rosenberg Kirshner & Linder, LLP, New York (James Valentino of counsel), for Eric Eways, respondent.
Winston & Strawn LLP, New York (Jeffrey L. Kessler of counsel), for Klutch Sports Group, LLC, respondent.
Appeal from order, Supreme Court, New York County (Robert Reed, J.), entered on or about April 13, 2022, which, to the extent appealed from as limited by the briefs, denied plaintiff's motion for a preliminary injunction against defendants, unanimously dismissed, without costs, as moot.
This case presents a situation where the party appealing from the order has already been granted the relief it is seeking, namely the enforcement of a noncompete agreement for the period of eight months following the employee's resignation. This Court previously issued an appellate injunction pending a determination of the appeal or October 15, 2022, whichever came first. Thus, the preliminary injunction initially sought and subsequently ordered by this Court has expired by its own terms, and plaintiff no longer remains aggrieved from the order to the extent it has been appealed from. As there is no longer a live controversy and the issues presented are academic, the appeal is dismissed as moot (Matter of Javier R. [Robert R.], 43 AD3d 1 [1st Dept 2007]).
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 15, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484633/ | Lek v Lek (2022 NY Slip Op 06434)
Lek v Lek
2022 NY Slip Op 06434
Decided on November 15, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 15, 2022
Before: Manzanet-Daniels, J.P., Webber, Mazzarelli, Friedman, Shulman, JJ.
Index No. 309100/19 Appeal No. 16664 Case No. 2021-04345
[*1]Charles Frederik Lek, Plaintiff-Respondent,
vOlesya Aleksandrovna Lek, Defendant-Appellant.
Howard Freedman, New York, for appellant.
Pryor Cashman LLP, New York (Ronnie Schindel of counsel), for respondent.
Order, Supreme Court, New York County (Michael L. Katz, J.), entered on or about October 8, 2021, which, to the extent appealed from, denied defendant's motion for an award of 50% of the rental proceeds from the parties' former primary marital residence, unanimously reversed, on the law, with costs, defendant's motion granted, and the matter remanded for further proceedings consistent with this decision.
The relief sought by defendant was contemplated by the parties' prenuptial agreement. This Court previously determined that, under the terms of the prenuptial agreement, the subject property was the parties' "Primary Marital Residence" and that defendant had "an equal ownership interest" in it (see Lek v Lek, 196 AD3d 403, 404 [1st Dept 2021]). The prenuptial agreement provides that upon a dissolution event, the Primary Marital Residence "shall constitute Marital Property," as if "held in the parties' joint names," and shall be listed for sale within 90 days unless one party agrees to buy out the other party's interest. Plaintiff, however, rented the property to his father pursuant to a three-year lease, which included the right to renew and right of first refusal in the event of a purchase offer. Defendant contends that this impeded the sale of the property to her detriment.
Although the prenuptial agreement is silent on the issue of rental proceeds, employing a "commonsense" approach, we find that the parties intended for defendant to share in the rental proceeds generated by the property (see generally Awards.com v Kinko's, Inc., 42 AD3d 178, 183-184 [1st Dept 2007], affd 14 NY3d 791 [2010]). Because the contract evinces the parties' clear intent to treat the Primary Marital Residence as jointly titled marital property, entitling defendant to 50% of its value upon a dissolution event, it follows that defendant is entitled to 50% of the rental proceeds. Contrary to plaintiff's contention, nothing in the prenuptial agreement contradicts this interpretation.
Accordingly, we remand the matter for a calculation of rental proceeds during the relevant period, of which defendant should be awarded half.
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 15, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484640/ | Drummond v 450 Partners LLC (2022 NY Slip Op 06425)
Drummond v 450 Partners LLC
2022 NY Slip Op 06425
Decided on November 15, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 15, 2022
Before: Manzanet-Daniels, J.P., Webber, Mazzarelli, Friedman, Shulman, JJ.
Index No. 24436/18E Appeal No. 16654 Case No. 2021-01096
[*1]Charles Drummond, Plaintiff-Respondent,
v450 Partners LLC et al., Defendants-Respondents, Associated Test & Balance Inc., Defendant-Appellant.
Shaub, Ahmuty, Citrin & Spratt, Lake Success (Jonathan Shaub of counsel), for appellant.
Burns & Harris, New York (Mariel Crippen of counsel), for Charles Drummond, respondent.
Wood Smith Henning & Berman LLP, New York (Cole R. Munson of counsel), for 450 Partners LLC, Brookfield Properties (USA II) LLC, Tishman Construction Corporation and Brookfield Properties Developer, LLC, respondents.
Order, Supreme Court, Bronx County (Alison Y. Tuitt, J.), entered March 24, 2021, which, to the extent appealed from as limited by the briefs, granted plaintiff's motion for partial summary judgment on the issue of liability against defendant Associated Test & Balance Inc. (AT&B), granted defendants 450 Partners LLC, Brookfield Properties (USAII) LLC f/k/a Brookfield Properties Management LLC, Tishman Construction Corporation, and Brookfield Properties Developer LLC's (Owner Defendants) motion for summary judgment on their cross claim for common-law indemnification against AT&B, and denied AT&B's motion for summary judgment dismissing the complaint and all cross claims as against it, unanimously affirmed, without costs.
The court correctly granted plaintiff's motion for partial summary judgment on the issue of liability and denied AT&B's motion for summary judgment dismissing the complaint. The record evidence, including surveillance footage capturing an AT&B employee placing the sheet of Masonite on the lobby floor shortly before plaintiff tripped and fell on it, established that AT&B left the premises "less safe" than before, and therefore launched a force or instrument of harm (see Church v Callanan Indus., 99 NY2d 104, 112 [2002]; Espinal v Melville Snow Contrs., 98 NY2d 136, 140 [2002]). AT&B's contention that it justifiably relied on the Owner Defendant's instructions to place the Masonite on the floor is unavailing (see Hartofil v McCourt & Trudden Funeral Home, Inc., 57 AD3d 943, 945 [2d Dept 2008]). The issue of plaintiff's comparative fault remains an issue for the factfinder at trial (see Rodriguez v City of New York, 31 NY3d 312 [2018]).
Absent evidence of active negligence on the Owner Defendants' part, or that they controlled AT&B's work, the court correctly granted them summary judgment on their cross claim for common-law indemnification against AT&B (see e.g. Tighe v Hennegan Constr. Co., Inc., 48 AD3d 201, 202 [1st Dept 2008]).
We have considered AT&B's remaining arguments and find them unavailing.
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 15, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484636/ | Ghodbane v 111 John Realty Corp. (2022 NY Slip Op 06429)
Ghodbane v 111 John Realty Corp.
2022 NY Slip Op 06429
Decided on November 15, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 15, 2022
Before: Gische, J.P., Kapnick, Kern, Gesmer, Higgitt, JJ.
Index No. 159695/14 Appeal No. 16639-16639A Case No. 2021-04186
[*1]Hassene Ghodbane, Plaintiff-Appellant-Respondent,
v111 John Realty Corp. et al., Defendants-Respondents, Gemstar Construction Corp., Defendant-Respondent-Appellant.
Elefterakis, Elefterakis & Panek, New York (Eileen Kaplan of counsel), for appellant-respondent.
McManus Ateshoglou Aiello & Apostolakos PLLC, New York (Michael Martens of counsel), for respondent-appellant.
Congdon, Flaherty, O'Callaghan, Fishlinger & Pavlides, Uniondale (Kathleen D. Foley of counsel), for respondents.
Orders, Supreme Court, New York County (Gerald Lebovits, J.), entered October 21, 2021 and January 6, 2022, which, to the extent appealed from, granted the motion of defendants 111 John Realty Corp. and Braun Management, Inc. (together, the John Realty defendants) for summary judgment dismissing the complaint as against them, and denied defendant Gemstar Construction Corp.'s motion for summary judgment dismissing the complaint and all cross claims as against it and for summary judgment in its favor on its cross claims against the John Realty defendants, unanimously modified, on the law, to dismiss the John Realty defendants' cross claims against Gemstar for common-law indemnification and contribution, and otherwise affirmed, without costs.
This personal injury action concerns a building owned by 111 John Realty Corp. and managed by Braun Management. 111 John Realty Corp. leased the premises to 7-Eleven, and after the lease was executed, the premises were damaged. As a result, 7-Eleven retained defendant Gemstar to perform renovation work at the store. After the renovations were completed and the store had opened for business, plaintiff, who was an employee of 7-Eleven, was injured when he slipped on a staircase leading to the basement of the premises. Plaintiff commenced this action against the John Realty defendants and Gemstar. Gemstar and the John Realty defendants then asserted cross claims against each other for common-law indemnification and contribution.
Gemstar failed to establish its entitlement to summary judgment dismissing the complaint as against it, as the record presents an issue of fact as to whether, during the renovation work on the premises, it launched a force or instrument of harm by negligently creating or exacerbating a hazardous condition on the staircase (see Espinal v Melville Snow Contrs., 98 NY2d 136, 139 [2002]; Almonte v Edgecombe Props. LLC, 194 AD3d 562, 562-563 [1st Dept 2021]).
By contrast, 111 John Realty Corp. established its entitlement to judgment by demonstrating that it was an out-of-possession landlords, and that its lease with 7-Eleven imposes no contractual obligation upon it to maintain or repair the premises (see Mollette v 111 John Realty Corp., 194 AD3d 614, 615 [1st Dept 2021]; Guilbe v Port Auth. of N.Y. & N.J., 154 AD3d 522, 522 [1st Dept 2017]). 111 John Realty Corp. also established its entitlement to judgment as a matter of law by submitting evidence that it did not create or have notice of the allegedly hazardous condition on the staircase (see Donkor v First Ghana Seventh-Day Adventist Church, 198 AD3d 477 [1st Dept 2021]). Moreover, plaintiff did not proffer any independent basis to hold Braun Management separately liable.
Because the claim against the John Realty defendants is dismissed, their cross claims against Gemstar for common-law indemnification and contribution must also be dismissed. In the absence of any liability against them on account of Gemstar, they cannot recover attorneys' [*2]fees in common-law indemnification (see generally McCarthy v Turner Constr. Inc., 17 NY3d 369, 374-375 [2011]). Indeed, on appeal, the John Realty defendants make no mention of their common-law indemnification or contribution cross claims, asking only that the dismissal of the complaint as against them be affirmed.
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 15, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484639/ | Eshaghian v Eshaghian (2022 NY Slip Op 06426)
Eshaghian v Eshaghian
2022 NY Slip Op 06426
Decided on November 15, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 15, 2022
Before: Gische, J.P., Kapnick, Kern, Gesmer, Higgitt, JJ.
Index No. 654481/15 Appeal No. 16646-16646A Case No. 2021-03639, 2022-00244
[*1]David Eshaghian, Plaintiff-Appellant,
vMahrokh Eshaghian, Sued Herein as Marokh Eshaghian et al., Defendants-Respondents.
Davidoff Hutcher & Citron LLP, New York (Martin H. Samson of counsel), for appellant.
Markewich and Rosenstock LLP, New York (Lawrence M. Rosenstock of counsel), for respondents.
Judgment, Supreme Court, New York County (Melissa A. Crane, J.), entered October 4, 2021, in favor of defendants, pursuant to an order, same court and Justice, entered on or about September 17, 2021, which granted defendants executors' motion for $2,774,150.30 in prejudgment interest on a portion of the stipulated damages award on their breach of contract counterclaim, unanimously modified, on the law, to provide for prejudgment interest calculated from December 17, 2015 on the disputed revenue, i.e., 10% of the revenue distributed by York Avenue Associates of New York LLC (the operating LLC) to Yorktown 82nd Associates LLC (the holding LLC), distributed prior to that date, and from the date of the distribution on the disputed revenue distributed after that date, and otherwise affirmed, without costs. Appeal from the order unanimously dismissed, without costs, as subsumed in the appeal from the judgment.
By letter dated November 20, 2003, the parties agreed to various provisions that would be triggered upon a final determination on defendants' prospective claim that a side agreement between plaintiff and decedent was invalid or otherwise unenforceable. The letter agreement essentially provided that if defendants prevailed on their "invalidity claim," 10% of the revenue distributed by the operating LLC to the holding LLC would be automatically reallocated from plaintiff to decedent's estate. Defendants asserted their invalidity claim in Surrogate's Court and on December 17, 2015, the Surrogate issued a final determination in defendants' favor.
After the Surrogate issued the order, plaintiff commenced this related declaratory judgment action. Defendants answered and asserted counterclaims for a declaratory judgment and breach of contract. The breach of contract counterclaim was premised on plaintiff's refusal to comply with provisions of the parties' letter agreement that were triggered by a final determination on defendants' invalidity claim, including the reallocation of the disputed revenue. Supreme Court granted summary judgment on defendants' breach of contract counterclaim (Eshaghian v Eshaghian, 2016 WL 8928904 [Sup Ct, NY County 2016], affd 146 AD3d 529 [1st Dept 2017], lv dismissed 29 NY3d 980 [2017]).
Contrary to plaintiff's position, Supreme Court properly determined that defendants were entitled to recoup the disputed revenue as damages on their breach of contract counterclaim and thus, they were entitled to prejudgment interest on that revenue (see CPLR 5001). However, defendants' breach of contract cause of action accrued on December 17, 2015, when their invalidity claim was finally determined, triggering the relevant provisions of the letter agreement. Thus, prejudgment interest should be calculated from December 17, 2015, on the disputed revenue distributed prior to that date and from the date of the distribution on the disputed revenue distributed after that date (see CPLR 5001[b]; Brushton-Moira Cent. School Dist. v Thomas Assoc[*2]., 91 NY2d 256, 259, 262 [1998]).
We have considered the parties' remaining arguments and find them unpersuasive.
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 15, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484630/ | Matter of Jackson v Main St. Am. Group (2022 NY Slip Op 06431)
Matter of Jackson v Main St. Am. Group
2022 NY Slip Op 06431
Decided on November 15, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 15, 2022
Before: Gische, J.P., Kapnick, Kern, Gesmer, Higgitt, JJ.
Index No. 800835/21 Appeal No. 16643 Case No. 2022-01345
[*1]In the Matter of Cedric Jackson, Petitioner-Respondent,
vMain Street American Group, Respondent-Appellant.
Gallo Vitucci Klar LLP, New York (Kim Townsend of counsel), for appellant.
Burns & Harris, New York (Mariel Crippen of counsel), for respondent.
Order, Supreme Court, Bronx County (Wilma Guzman, J.), entered February 10, 2022, which granted petitioner's motion to vacate an arbitration award and denied respondent's cross motion to confirm the arbitration award, unanimously reversed, on the law, without costs, petitioner's motion denied, and respondent's cross motion granted.
Contrary to respondent's contention, the lack of a transcript from the arbitration hearing does not, by itself, preclude judicial review of the arbitration award pursuant to CPLR 7511 (see e.g. Matter of Fried v Polacco, 190 AD3d 414, 414 [1st Dept 2021]). Nevertheless, petitioner's motion to vacate the arbitration award should have been denied. Review of an arbitration award pursuant to CPLR 7511(b) is limited, and an award will be upheld when the arbitrator "'offer[s] even a barely colorable justification for the outcome reached'" (Wien & Malkin LLP v Helmsley-Spear, Inc., 6 NY3d 471, 479 [2006]; see Matter of Rose Castle Redevelopment II, LLC v Franklin Realty Corp., 184 AD3d 230, 234 [1st Dept 2020], lv denied 36 NY3d 906 [2021]). Here, the arbitrator set forth a plausible basis for the award, including for the amount of damages for past and future pain and suffering. Petitioner's disagreements with the arbitrator's credibility determinations, and with his analysis of which cases and arbitration awards were comparable to the facts of this case, did not provide a sufficient basis for overturning the award (see Fried at 414).
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 15, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484642/ | Cohen v Trump Org. LLC (2022 NY Slip Op 06421)
Cohen v Trump Org. LLC
2022 NY Slip Op 06421
Decided on November 15, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 15, 2022
Before: Acosta, P.J., Kapnick, Mazzarelli, González, Rodriguez, JJ.
Index No. 651377/19 Appeal No. 16609 Case No. 2021-04476
[*1]Michael D. Cohen, Plaintiff-Appellant,
vTrump Organization LLC, Defendant-Respondent.
Gilbert LLP, Washington, DC (Wellford Hunter Winstead of the bar of the District of Columbia, admitted pro hac vice, of counsel), for appellant.
Robert & Robert PLLC, Uniondale (Clifford S. Robert of counsel), for respondent.
Order, Supreme Court, New York County (Joel M. Cohen, J.), entered November 12, 2021, which granted defendant's motion for summary judgment dismissing the amended complaint with prejudice, unanimously modified, on the law, to deny the motion as to the first cause of action for breach of a contractual indemnification provision insofar as plaintiff seeks indemnification for outstanding legal fees incurred in connection with certain matters (i.e., the Special Counsel and Congressional hearings, New York State Attorney General, and Manhattan District Attorney proceedings, and the proceeding related to FBI search warrants), and otherwise affirmed, without costs.
Under section 7.2 of defendant's operating agreement, plaintiff, as a former employee, is entitled, subject to the limitations and conditions provided in the terms of this section and in the Limited Liability Company Law, to indemnification for attorneys' fees actually incurred in connection with any threatened, pending, or completed "Proceeding" (i.e., any "claim, action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative"), as well as "any inquiry or investigation that could lead to a Proceeding," in which he was made a party, threatened to be made a party, or involved in "by reason of the fact" that he was an employee of defendant.
Plaintiff's claim for outstanding legal fees incurred in connection with the Special Counsel and Congressional hearings and New York State Attorney General and Manhattan District Attorney proceedings should not have been dismissed based on the finding that those fees were not, as a matter of law, incurred by reason of the fact that he had been an employee of defendant. The motion court strictly construed the indemnification provision and concluded that plaintiff did not become involved in the investigations by reason of the fact that he was an employee of the Trump Organization, since "the tether" from those investigations to the Trump Organization, as opposed to former President Trump, the Trump campaign, or other Trump ventures, is too tenuous to support indemnification under section 7.2. We find that, given the record evidence showing that the proceedings at issue concern, among other things, the activities of the Trump Organization, material issues of fact exist as to whether plaintiff has established the "nexus or causal connection" between the proceedings and his corporate capacity sufficient to give rise to the section 7.2 indemnification obligation for the fees incurred (Homestore, Inc. v Tafeen, 888 A2d 204, 213-214 [Del 2005]; see Crossroads ABL LLC v Canaras Capital Mgt., LLC, 105 AD3d 645 [1st Dept 2013]; Schlossberg v Schwartz, 43 Misc 3d 1224[A], 2014 NY Slip Op 50760[U], *13 [Sup Ct, Nassau County 2014]). The motion court correctly rejected defendant's other arguments for dismissing the claim for indemnification under section 7.2.
Likewise, claims for legal fees incurred in connection with the proceeding related [*2]to FBI search warrants used in the April 9, 2018, raids should not have been dismissed since there are issues of fact as to whether the fees were incurred in reviewing the materials for privilege and confidentiality concerns of the Trump Organization and its executives.
Issues of fact also preclude summary dismissal of the indemnification claim based on defendant's alleged oral agreements. Plaintiff claims that defendant made oral commitments to indemnify him for fees incurred in connection with the Special Counsel and Congressional proceedings, that the oral agreements involved a specific indemnification promise that was separate and distinct from the section 7.2 agreement to indemnify, that the oral agreements did not modify section 7.2, and thus they would apply regardless of the applicability of section 7.2.
The court correctly dismissed the remaining claims, including the cause of action for breach of the implied covenant of good faith and fair dealing.
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 15, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484644/ | CWCapital Cobalt VR, Ltd. v CWCapital Invs. LLC (2022 NY Slip Op 06423)
CWCapital Cobalt VR, Ltd. v CWCapital Invs. LLC
2022 NY Slip Op 06423
Decided on November 15, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 15, 2022
Before: Manzanet-Daniels, J.P., Webber, Mazzarelli, Friedman, Shulman, JJ.
Index No. 653277/18 Appeal No. 16663 Case No. 2021-04198
[*1]CWCapital Cobalt VR, Ltd., Plaintiff-Respondent,
vCWCapital Investments LLC, et al., Defendants-Appellants.
Venable LLP, New York (Gregory A. Cross of counsel), for appellants.
Quinn Emanuel Urquhart & Sullivan LLP, New York (Jonathan E. Pickhardt of counsel), for respondent.
Order, Supreme Court, New York County (Andrea Masley, J.), entered on or about September 7, 2021, which, to the extent appealed from, denied defendants' motion to renew their prior motion to dismiss the third, fifth, sixth, and eighth causes of action, unanimously affirmed, with costs.
The court properly denied defendants' motion to renew their motion to dismiss based on its finding that the orders in a related federal action (Matter of Trusts Established Under Pooling and Servicing Agreements Relating to Wachovia Bank Commercial Mortgage Trust Commercial Mortgage Pass-Through Certificates, Series 2007-C30 , 2020 WL 1304400, 2020 US Dist LEXIS 47847 [SD NY, March 19, 2020, No. 17-CV-1998 (KPF)], affd in part, revd in part sub nom. Appaloosa Inv. L.P.I. v Federal Home Loan Mtge. Corp. , 2022 WL 2720520, 2022 US App LEXIS 19424 [2d Cir, July 14, 2022, No. 20-1708]) issued after the denial of their motion to dismiss in this action, do not conclusively resolve all factual issues with respect to the "Stuy Town" claims asserted in the amended complaint. The order in the federal action, among other things, affirmed defendant CWCapital Asset Management LLC's entitlement to penalty interest. The Stuy Town claims here involve issues not premised entirely on the penalty interest issue or other issues resolved in the federal action.
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 15, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484659/ | [Cite as Epps v. State Farm Auto. Ins., 2022-Ohio-4084.]
COURT OF APPEALS OF OHIO
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
MICHELLE EPPS, :
Plaintiff-Appellant, :
No. 111378
v. :
STATE FARM AUTOMOBILE :
INSURANCE,
:
Defendant-Appellee.
JOURNAL ENTRY AND OPINION
JUDGMENT: AFFIRMED AND REMANDED
RELEASED AND JOURNALIZED: November 17 ,2022
Civil Appeal from the Cuyahoga County Court of Common Pleas
Case No. CV-21-955713
Appearances:
The Henry Law Firm and Eric W. Henry, for appellant.
Gallagher, Gams, Tallan, Barnes & Littrell L.L.P. and
James R. Gallagher, for appellee.
MICHELLE J. SHEEHAN, J.:
Plaintiff-appellant, Michelle Epps, appeals the trial court’s stay of
proceedings in her declaratory-judgment action seeking an order that her insurer,
State Farm Mutual Automobile Insurance (“State Farm”) has no subrogation rights
to settlement proceeds she negotiated with Allstate Insurance Co. (Allstate).
Because State Farm is subject to an arbitration agreement with Allstate regarding
any disputed subrogation rights, the trial court did not abuse its discretion in staying
the case pursuant to R.C. 2711.02(B) pending State Farm’s arbitration with Allstate.
I. PROCEDURAL HISTORY AND RELEVANT FACTS
On August 28, 2019, Michelle Epps was involved in an automobile
accident and suffered injuries. Epps was insured by State Farm. Robert Nieves, the
other motorist involved, was insured by Allstate. State Farm paid Epps $5,000
pursuant to the Medical Payments Coverage provision in State Farm’s insurance
policy issued to Epps.
On August 16, 2021, Epps’s counsel informed State Farm that Epps
wished to settle her claim with Nieves’s insurer, Allstate, and sought to “confirm her
repayment/subrogation obligation with State Farm for the medical payments
coverage.” On August 18, 2021, State Farm informed Epps’s counsel that she was
not authorized to make a claim for, collect, negotiate, or otherwise attempt in any
way to recover State Farm’s $5,000 subrogated interest for the medical-payments
coverage provided by State Farm.
On August 30, 2021, Epps settled her personal-injury claim with
Allstate. Included in the settlement agreement was a provision that Allstate would
hold $5,000 in abeyance, the amount of the medical-payments coverage, pending
Epps obtaining a release from State Farm of its subrogation claim for the $5,000.
On September 7, 2021, Epps’s counsel informed State Farm that
because State Farm refused Epps’s assistance in collecting its subrogated interest
from Allstate and the two-year statute of limitations expired for Epps to file a lawsuit
against Nieves, Epps’s counsel believed State Farm’s subrogated interest for the
medical-payments coverage also expired and State Farm no longer possessed a valid
subrogation interest. Counsel requested that State Farm release its subrogation
claim. On October 7, 2021, State Farm informed Epps that it would not release its
claim as it was in arbitration proceedings with Allstate to recover the $5,000
medical-payments coverage it had paid Epps.
On November 12, 2021, Epps filed a declaratory judgment action
against State Farm seeking an order from the court that “State Farm has no
subrogation rights against [Epps’s] car crash settlement where State Farm expressly
declined [Epps’s] assistance in collecting its subrogation interest and then failed to
timely initiate a civil action against the tortfeasor.”1
In answering Epps’s complaint, State Farm alleged that it was bound
by a mandatory intercompany arbitration agreement with Allstate in order to
1Epps did not join Allstate in the declaratory judgment action. State Farm indicated
at oral argument that it could not join Allstate in the action as it was required to
submit its claim in arbitration.
enforce its subrogation interest and its subrogation claim was perfected upon State
Farm filing its claim against Allstate with “Arbitration Forums, Inc.” on June 29,
2021. State Farm also filed a motion for stay of all proceedings pending its
arbitration with Allstate pursuant to R.C. 2711.02. Within the motion, State Farm
argued that “Ohio statutory and 8th Appellate District law provide that the stay of
proceedings requested by State Farm is mandatory, even though Plaintiff Epps is
not a party to the mandatory arbitration agreement.” Epps argued that State Farm
did not demonstrate that it was bound by an arbitration agreement and that, further,
because she was not subject to an arbitration agreement with State Farm, the trial
court could not stay the case for arbitration.
In reply to Epps’s argument that it did not present evidence that there
was an arbitration agreement, State Farm referred the trial court to a Specimen Copy
of the Arbitration Forums Medical Payment Subrogation Arbitration Agreement
attached to its amended answer. It further referred the trial court to screenshots
from Arbitration Forums Member Directory showing State Farm and Allstate to be
members of that intercompany-arbitration process, and Arbitration Forum, Inc.’s
Rules” effective August 1, 2021. State Farm also provided the trial court with a copy
of State Farm’s Medical Payments Subrogation Claim that was submitted to
arbitration.
The trial court granted State Farm’s motion for stay pending
arbitration, from which order Epps appeals.
II. LAW AND ARGUMENT
A. ASSIGNMENT OF ERROR
Pursuant to R.C. 2711.02(C), Epps appeals the stay of proceedings and
raises one assignment of error, which reads:
The trial court erred in granting defendant-appellee State Farm’s
motion to stay proceedings pending arbitration where plaintiff-
appellant Michelle Epps was neither a party to, nor a signatory of, an
arbitration agreement.
Epps argues that State Farm cannot bind Epps to an arbitration
agreement to which she is not a party. Epps also argues that State Farm did not
show that it was bound by an arbitration agreement where it attached only a
specimen agreement regarding arbitration. State Farm argues that it provided
sufficient evidence that it was bound to an arbitration agreement with Allstate. State
Farm further argues that there is a presumption in Ohio law favoring arbitration and
because it was required to arbitrate its subrogation claim with Allstate, the trial court
did not abuse its discretion by granting its motion to stay proceedings pursuant to
R.C. 2711.02(B).
B. STANDARD OF REVIEW AND APPLICABLE LAW
In this case, we are tasked with reviewing the propriety of the trial
court’s order to stay the proceedings. A trial court’s decision to stay proceedings
pending arbitration is reviewed for an abuse of discretion. Mak v. Silberman, 8th
Dist. Cuyahoga No. 95590, 2011-Ohio-854, ¶ 11, citing Brooks v. Doverwood
Estates, 8th Dist. Cuyahoga No. 90397, 2008-Ohio-3791, ¶ 7; Sikes v. Ganley
Pontiac Honda, Inc., 8th Dist. Cuyahoga No. 82889, 2004-Ohio-155. We will affirm
a decision to stay proceedings “[a]bsent a finding that the trial court's decision is
unreasonable, arbitrary, or unconscionable.” Id.
“Ohio has a strong public policy favoring arbitration of disputes, and
there is a presumption favoring arbitration that arises when the dispute falls within
the scope of an arbitration provision.” Franklin Dissolution L.P. v. Athenian Fund
Mgt., 8th Dist. Cuyahoga No. 110641, 2022-Ohio-623, ¶ 18. In furtherance of this
policy, R.C. 2711.02(B) requires a trial court to stay an action at the request of a party
in an action “brought upon any issue referable to arbitration.” (Emphasis added.)
R.C. 2711.02(B) specifically provides:
(B) If any action is brought upon any issue referable to arbitration
under an agreement in writing for arbitration, the court in which the
action is pending, upon being satisfied that the issue involved in the
action is referable to arbitration under an agreement in writing for
arbitration, shall on application of one of the parties stay the trial of
the action until the arbitration of the issue has been had in accordance
with the agreement, provided the applicant for the stay is not in
default in proceeding with arbitration.
C. THE TRIAL COURT DID NOT ABUSE ITS DISRECTION BY STAYING
THE PROCEEDINGS PENDING ARBITRATION
In her declaratory judgment action, Epps sought a ruling that State
Farm had no subrogation right to the $5,000 State Farm paid for medical-payments
coverage and that was included in her settlement with Allstate. State Farm asserted
that pursuant to the Medical Payment Subrogation Arbitration Agreement, it was
required to arbitrate any medical-payment subrogation claims with Allstate through
Arbitration Forums, Inc.
Epps argues that the trial court erred in granting the stay as she was
not a party to an arbitration agreement, and she is correct in stating that no one can
be bound by an arbitration agreement to which they are not a party. See Krafcik v.
USA Energy Consultants, 107 Ohio App.3d 59, 63, 667 N.E.2d 1027 (8th Dist.1995).
However, R.C. 2711.02(B) does not limit its mandate to stay proceedings to cases in
which all parties in a lawsuit are subject to an arbitration agreement. Rather,
R.C. 2711.02(B) mandates the trial court to stay proceedings where the lawsuit is
“brought upon any issue referable to arbitration.” This and other courts of appeals
have found that a trial court does not abuse its discretion in granting a stay where
some, but not all, parties in a lawsuit are subject to an arbitration agreement.
Krafcik at 63-64; Panzica Constr. Co. v. GRE Ins. Group, 8th Dist. Cuyahoga No.
79931, 2002-Ohio-2023, ¶ 15; Zellner v. Prestige Gardens Rehab. & Nursing Ctr.,
3d Dist. Union No. 14-18-14, 2019-Ohio-595, ¶ 42; Hoppel v. Feldman, 7th Dist.
Columbiana No. 09 CO 34, 2011-Ohio-1183, ¶ 49-50; Painesville Twp. Local School
Dist. v. Natl. Energy Mgt. Inst., 113 Ohio App.3d 687, 695, 681 N.E.2d 1369 (11th
Dist.1996), fn.2. As such, the trial court did not abuse its discretion in granting the
motion to stay where Epps was not a party to an arbitration agreement so long as
the requirements of R.C. 2711.02(B) were met.
R.C. 2711.02(B) requires the trial court to order a stay of proceedings
where it is 1) “satisfied” that there is a written arbitration agreement, and 2) where
an issue upon which the suit is brought is subject to that arbitration agreement. As
to the existence of a written arbitration agreement, State Farm submitted a series of
documents that when read together provided evidence in the record for the trial
court to be satisfied that State Farm and Allstate are members of an organization in
which they are bound by a written agreement to arbitrate medical-payment
subrogation claims.
As to whether an issue upon which the lawsuit was brought is subject
to the arbitration agreement, Epps sought a declaration from the trial court that
State Farm had no subrogation interest in the medical payments. That interest was
subject to an arbitration agreement with Allstate, and in fact, State Farm was
actively pursuing its interest in the medical payments made to Epps. Accordingly,
the mandate to stay the case pending arbitration in R.C. 2711.02(B) applies and we
do not find that the trial court abused its discretion by staying the proceedings.
The sole assignment of error is overruled.
III. CONCLUSION
Epps filed a declaratory-judgment action to have the trial court
determine that State Farm did not have a subrogation interest as to her settlement
agreement with Allstate. State Farm provided evidence that it was subject to an
arbitration agreement with Allstate for the recovery of its subrogated interest in the
medical payments made to Epps. Although Epps is not subject to the arbitration
agreement between State Farm and Allstate, R.C. 2711.02(B) mandates that
proceedings be stayed where an issue is subject to an arbitration agreement, not
where all parties in a lawsuit are subject to an arbitration agreement. As such, the
trial court did not abuse its discretion by staying the proceedings.
Judgment affirmed, and the case is remanded to the trial court.
It is ordered that appellee recover of appellant costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate issue out of this court directing the
common pleas court to carry this judgment into execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule
27 of the Rules of Appellate Procedure.
________________________________
MICHELLE J. SHEEHAN, JUDGE
FRANK DANIEL CELEBREZZE, III, P.J., and
KATHLEEN ANN KEOUGH, J., CONCUR | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484652/ | [Cite as State v. Thompson, 2022-Ohio-4081.]
COURT OF APPEALS OF OHIO
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
STATE OF OHIO, :
Plaintiff-Appellee, :
No. 111175
v. :
MICHAEL THOMPSON, :
Defendant-Appellant. :
JOURNAL ENTRY AND OPINION
JUDGMENT: AFFIRMED
RELEASED AND JOURNALIZED: November 17, 2022
Civil Appeal from the Cuyahoga County Court of Common Pleas
Case Nos. CR-15-599185-A and CR-18-633180-A
Appearances:
Michael C. O’Malley, Cuyahoga County Prosecuting
Attorney, and Sarah E. Hutnik, Assistant Prosecuting
Attorney, for appellee.
Michael Thompson, pro se.
EILEEN A. GALLAGHER, J.:
Defendant-appellant Michael Thompson, pro se, appeals the trial
court’s denial of his request for postconviction discovery. For the reasons that
follow, we affirm.
Factual Background and Procedural History
In 1990, in Cuyahoga C.P. No. CR-90-247277-ZA (“247277”),
Thompson pled guilty to aggravated assault and was sentenced to one-and-one-half
years in prison.
In September 2019, in Cuyahoga C.P. No. CR-18-633180-A
(“633180”), Thompson was found guilty of murder, aggravated murder and
kidnapping following a bench trial. He was sentenced to life in prison with the
possibility of parole after 20 years.
In October 2019, in Cuyahoga C.P. No. CR-15-599185-A (“599185”),
Thompson pled guilty to one count of sexual battery, was designated as a sexually
oriented offender for ten years and was sentenced to two years in prison, to be served
concurrently with his sentence in 633180.
Thompson appealed his convictions in 633180. On November 12,
2020, this court affirmed Thompson’s convictions. State v. Thompson, 8th Dist.
Cuyahoga No. 109110, 2020-Ohio-5257. Thompson did not appeal his convictions
in 599185.
On July 21, 2021, Thompson filed, pro se, a “motion to request a court
order for full discovery” (“motion for full discovery”) in all three cases. Thompson
argued that the state had violated Crim.R. 16 by failing to “cooperate with full
discovery” prior to trial and that his attorney “did not catch it.” He, therefore,
requested “full discovery should [he] go to federal court.”
In his motion, Thompson identified several pieces of evidence he
claimed he had not yet seen, including an autopsy report in 633180, duct tape, a
knife, a sock, a shoelace and a “record of [such] evidence” in 599185 and records
relating to a knife and “verify[ing]” witness statements in “217277” [sic]. Thompson
stated that he had written letters to the “evidence room” and the “clerk of courts”
“about evidence records” but that he had not received the records he had requested.
Thompson further asserted that he had filed a grievance against the
prosecutor and indicated that the prosecutor may have misled the trial court
regarding the existence of certain evidence. In support of his motion, Thompson
attached a copy of a letter he had received from the Disciplinary Counsel of the Ohio
Supreme Court (“Disciplinary Counsel”) dated May 15, 2021. The letter
acknowledged receipt of Thompson’s grievance but indicated that the Disciplinary
Counsel’s authority was limited to investigating alleged violations of the Ohio Rules
of Professional Conduct — not claims of prosecutorial misconduct as alleged by
Thompson — and that it had, therefore, closed its file regarding the matter.
The state opposed Thompson’s motion for full discovery, arguing that
Thompson was not entitled to postconviction discovery under Crim.R. 16(B) or
42(C). The state asserted that (1) Crim.R. 16 was limited to pretrial discovery and
(2) Crim.R. 42(C) applied only to capital cases and postconviction review of capital
cases and Thompson’s cases were not capital cases.
On July 30, 2021, the trial court summarily denied Thompson’s
motion for full discovery in 599185 and 633180 and stated that the court was
“without jurisdiction” to rule on the motion in CR 247277.1
Thompson filed, pro se, a motion for delayed appeal, asserting that he
did not receive notice of the trial court’s July 30, 2021 order denying his motion for
full discovery in 599185 and 633180 until December 7, 2021. This court granted the
motion.2 Thompson raises the following sole assignment of error for review:
Should the prosecution not be held accountable for statements and
claims of evidence during trial, the trial court dismissed my motions for
full discovery after trial, without giv[ing] any opinion. The prosecution
should want to clear up any claim of prosecutorial misconduct by the
defendant, or any other claim of violating a fair due process.
Law and Analysis
In his appellate brief, Thompson makes various general, unsupported
assertions regarding alleged prosecutorial misconduct and alleged ineffective
assistance of trial counsel relating to evidence and requests that this court “declare
* * * a mistrial” in 599185 and 633180. However, the only issue before us is
1 On May 31, 2022, the trial court entered an order in 247277, denying Thompson’s
motion for full discovery in that case as moot. Thompson has not appealed that ruling.
2 In ruling on Thompson’s motion for delayed appeal, this court noted: “Because
a petition for postconviction relief is civil in nature there is no right to a delayed appeal
under App.R .5(A). However, because appellant was never served with the trial court’s
ruling on the petition for postconviction relief, the appeal has been timely filed and shall
proceed as an appeal of right. * * * The trial court failed to direct the clerk of court to serve
the appellant with notice of the judgment per Civ.R. 58, therefore, the time to file the
appeal has been tolled and appellant’s appeal is timely filed.”
Thompson’s motion for full discovery and whether the trial court committed
reversible error in denying that motion.3
“It is well established that there is no right to discovery in
postconviction proceedings in non-capital cases.” State v. Taylor, 2021-Ohio-1670,
170 N.E.3d 1310, ¶ 68 (2d Dist.), citing State v. Hazel, 2d Dist. Clark No. 2018-CA-
39, 2018-Ohio-5274, ¶ 13-16 (trial court did not abuse its discretion in denying
defendant’s postconviction motion to compel production of documents where “there
was no basis for discovery as the matter was closed with no pending issues before
the trial court at the time the motion was filed” and there was “no right to discovery
in postconviction proceedings in non-capital cases”), and State v. Owensby, 2d Dist.
Montgomery No. 27607, 2018-Ohio-2967, ¶ 21 (“It is well established that a non-
capital defendant is not entitled to discovery in post-conviction proceedings.”); see
also State ex rel. Love v. Cuyahoga Cty. Prosecutor’s Office, 87 Ohio St.3d 158, 159,
718 N.E.2d 426 (1999) (“[T]here is no requirement of civil discovery in
postconviction proceedings.”); State v. Maxwell, 8th Dist. Cuyahoga No. 107758,
2020-Ohio-3027, ¶ 6 (“The long-standing rule in Ohio is that a convicted criminal
defendant has no right to additional or new discovery, whether under Crim.R. 16 or
any other rule, during postconviction relief proceedings.”); State v. Sowell, 8th Dist.
Cuyahoga No. 108018, 2020-Ohio-2938, ¶ 120 (recognizing “[t]he long-standing
rule in Ohio * * * that a convicted criminal defendant has no right to additional or
3 This court granted the state’s motion to strike pages 7 through 19 of appellant’s
brief because they consisted of letters that were not part of the trial court record.
new discovery during postconviction relief proceedings” but noting that former R.C.
2953.21(A)(1)(d) “now confers upon a common pleas court the discretion to permit
certain kinds of discovery by a capital petitioner upon ‘good cause shown’”); State v.
Quinn, 9th Dist. Medina No. 20CA0027-M, 2021-Ohio-1764, ¶ 17 (“[T]here is
generally no right to discovery in a post-conviction proceeding.”).
Discovery authorized under Crim.R. 16 is limited to the time of the
criminal trial. See, e.g., State ex rel. Love at 158-159 (court of appeals properly
denied defendant’s request for a writ of mandamus to compel prosecutor to provide
records, including ballistics and autopsy reports, relating to defendant’s criminal
trial that defendant claimed he needed to support his petition for postconviction
relief; defendant was “not entitled to the requested records under the Crim.R. 16
criminal discovery provisions because his criminal trial concluded long before his
requests”), citing State ex rel. Flagner v. Arko, 83 Ohio St.3d 176, 177, 699 N.E.2d
62 (1998), and Crim.R. 16(D).
Crim.R. 42(C) provides for access to file materials in capital cases and
the postconviction review of capital cases. See Crim.R. 42(C) (“In a capital case and
post-conviction review of a capital case, the prosecuting attorney and the defense
attorney shall, upon request, be given full and complete access to all documents,
statements, writings, photographs, recordings, evidence, reports, or any other file
material in possession of the state related to the case, provided materials not subject
to disclosure pursuant to Crim.R 16(J) shall not be subject to disclosure under this
rule.”). Postconviction discovery authorized under R.C. 2953.21(A)(1)(e) is likewise
limited to capital cases. See R.C. 2953.21(A)(1)(e) (“At any time in conjunction with
the filing of a petition for postconviction relief under [R.C. 2953.21 (A)] by a person
who has been sentenced to death, or with the litigation of a petition so filed, the
court, for good cause shown, may authorize the petitioner in seeking the
postconviction relief * * * to take depositions and to issue subpoenas and subpoenas
duces tecum in accordance with [R.C. 2953.21 (A)(1) (e), (A)(1) (f), and (C)] and to
any other form of discovery as in a civil action that the court in its discretion
permits.”).4
Because Thompson was not entitled to discovery after his convictions
under Crim.R. 16 or R.C. 2953.21(A)(1)(e), was not entitled to access to the state’s
file materials under Crim.R. 42(C) and has not identified any other basis upon which
he was entitled to obtain the “full discovery” sought, the trial court did not abuse its
discretion or otherwise err in denying his motion for full discovery.5 Thompson’s
assignment of error is overruled.
Judgment affirmed.
It is ordered that appellee recover from appellant the costs herein taxed.
The court finds there were reasonable grounds for this appeal.
4 The “expanded discovery” provisions of R.C. 2953.21(A)(1) were enacted in S.B.
139, effective April 6, 2017. See State v. Cole, 8th Dist. Cuyahoga No. 110076, 2021-Ohio-
2445, ¶ 7; Sowell at ¶ 120. Crim.R. 42(C) was adopted effective July 1, 2017.
5 Further, to the extent that Thompson’s motion for full discovery is regarded as a
petition for postconviction relief, it was untimely – even assuming it otherwise complied
with R.C. 2953.21. See R.C. 2953.21(A)(2)(a).
It is ordered that a special mandate issue out of this court directing the
Cuyahoga County Court of Common Pleas to carry this judgment into execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule
27 of the Rules of Appellate Procedure.
_______
EILEEN A. GALLAGHER, JUDGE
ANITA LASTER MAYS, J., CONCURS;
SEAN C. GALLAGHER, A.J., CONCURRING IN JUDGMENT ONLY (WITH
SEPARATE OPINION ATTACHED)
SEAN C. GALLAGHER, A.J., CONCURRING IN JUDGMENT ONLY:
Although I agree with the majority that Thompson was not entitled to
postconviction discovery under Crim.R. 16 or R.C. 2953.21(A)(1)(e), I would affirm
the judgment of the trial court because it had no jurisdiction to entertain his motion
for full discovery. Insofar as Thompson appears to assert a potential claim of
prosecutorial misconduct, the postconviction process does not grant a petitioner the
right to conduct discovery to acquire evidence to support a postconviction claim for
relief in non-capital cases. See State v. Taylor, 2021-Ohio-1670, 170 N.E.3d 1310,
¶ 68 (2d Dist.), citing State v. Owensby, 2d Dist. Montgomery No. 27607, 2018-
Ohio-2967, ¶ 19-21; see also State ex rel. Love v. Cuyahoga Cty. Prosecutor’s Office,
87 Ohio St.3d 158, 159, 718 N.E.2d 426 (1999). Additionally, the jurisdictional
requirements for an untimely petition for postconviction relief were not satisfied.
See R.C. 2953.23(A)(1). | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484648/ | 110 E. 138 Realty LLC v Rydan Realty, Inc. (2022 NY Slip Op 06450)
110 E. 138 Realty LLC v Rydan Realty, Inc.
2022 NY Slip Op 06450
Decided on November 15, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 15, 2022
Before: Manzanet-Daniels, J.P., Webber, Mazzarelli, Friedman, Shulman, JJ.
Index No. 24092/20E, 24427/20E Appeal No. 16657-16658 Case No. 2021-03509, 2022-01965
[*1]110 East 138 Realty LLC, Plaintiff-Respondent,
vRydan Realty, Inc., et al., Defendants-Appellants.
Rydan Realty, Inc., Plaintiff-Respondent,
v110 East 138 Realty LLC, Defendant-Appellant.
Abrams Fensterman, LLP, White Plains (Robert A. Spolzino of counsel), for appellants/respondent.
Slarskey LLC, New York (Evan Fried of counsel), for respondent/appellant.
Order, Supreme Court, Bronx County (Eddie J. McShan, J.), entered on or about May 21, 2021, which granted Rydan Realty, Inc.'s motion to dismiss the complaint as against it, unanimously affirmed, with costs. Order, same court and Justice, entered April 7, 2022, which, in an action by Rydan against 110 East 138 Realty LLC to retain a contract deposit as liquidated damages, granted Rydan's motion for summary judgment, unanimously affirmed, with costs.
In 2017, 110 East 138, as buyer, and Rydan, as seller, entered into a contract for the sale of a parcel of property. The contract stated that Rydan would deliver fee simple title to 110 East 138, subject to a list of exceptions in an attached Schedule B. 110 East 138 later learned that in 1983, New York State had appropriated a portion of the property (the 1983 appropriation). 110 East 138 sent Rydan a notice of termination, asserting that the 1983 appropriation prevented Rydan from being able to deliver marketable title. 110 East 138 then commenced this action, seeking damages for breach of contract, conversion, unjust enrichment, and fraud.
110 East 138's cause of action for breach of express warranty fails to state a claim because the parties agreed in their contract of sale that the provisions of any schedule to the contract would prevail over any inconsistent contract term (see Monaghan v Cole, 171 AD3d 558, 558-559 [1st Dept 2019]; CPS Operating Co. LLC v Pathmark Stores, Inc., 76 AD3d 1, 6 [1st Dept 2010], affd 18 NY3d 26 [2011]). The permitted exceptions of Schedule B contain several unambiguous disclosures of the 1983 appropriation — for example, an exception that includes the "covenant recorded at reel 1299, page 2083" (the 1995 covenant), which, in turn, specifically identifies the 1983 appropriation. The 1995 covenant also refers to a map that discloses the 1983 appropriation.
110 East 138's failure to terminate the agreement within the due diligence period specified in the parties' contract was fatal to its breach of express warranties claim, as 110 East 138 received the title report in or about November 2017 but did not serve its termination notice until May 12, 2020 (see Semerjian v Byer-White, 81 AD3d 919, 919 [2d Dept 2011]).
The fraud cause of action fails as duplicative of the contract claim, as it is based on the same facts that underlie the contract cause of action, is not collateral to the contract, and does not seek damages that would be unrecoverable under a contract measure of damages (Financial Structures Ltd. v UBS AG, 77 AD3d 417, 419 [1st Dept 2010]). The conversion claim was properly dismissed for the same reasons (see Cronos Group Ltd. v XComIP, LLC, 156 AD3d 54, 75 [1st Dept 2017]). The unjust enrichment cause of action is also barred, since the written sales contract governs the parties' dispute, and as a result, 110 East 138 cannot recover in quasi-contract (see Clark-Fitzpatrick, Inc. v Long Is. R.R. Co., 70 NY2d 382, 388 [1987]).
In its separate action against [*2]110 East 138 to retain the contract deposit as liquidated damages, Rydan established its entitlement to summary judgment, as collateral estoppel precluded 110 East 138 from raising arguments that Supreme Court rejected when it dismissed the complaint against Rydan in the first action (see Stewart Family LLC v Stewart, 184 AD3d 487, 491 [1st Dept 2020]). Contrary to 110 East 138's contention, the issues in both actions are, in fact, identical, and 110 East 138 had a full and fair opportunity to litigate them. Indeed, in both actions, 110 East 138 made the same arguments as to why it terminated the sale, and determining the propriety of that termination was necessary to support a finding in Rydan's favor in both actions; thus, the questions decided in the first action were central to the court's award of summary judgment in the second action (see id.). Furthermore, whether Rydan was entitled to retain the down payment was actually litigated and decided in the first action, when the court determined that 110 East 138 failed to terminate the agreement within the due diligence period, and for that reason, was not entitled to return of the down payment (see id.).
Finally, based on 110 East's failure to close the sale, the motion court properly awarded Rydan all the payments made under the contract and amendments to the contract (see Chateau D'If Corp. v City of New York, 219 AD2d 205, 208 [1st Dept 1996], lv denied 88 NY2d 811 [1996]). Under the contract, the term "down payment" included "[a]ll sums paid on account of the Purchase Price prior to Closing," and in the contract amendments, the parties agreed that adjournment payments were nonrefundable.
We have considered 110 East 138's remaining contentions and find them unavailing.
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 15, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484651/ | [Cite as State v. Viers, 2022-Ohio-4083.]
COURT OF APPEALS OF OHIO
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
STATE OF OHIO, :
Plaintiff- Appellee, :
No. 111303
v. :
NICHOLAS VIERS, :
Defendant-Appellant. :
JOURNAL ENTRY AND OPINION
JUDGMENT: AFFIRMED
RELEASED AND JOURNALIZED: November 17, 2022
Criminal Appeal from the Cuyahoga County Court of Common Pleas
Case No. CR-20-651437-A
Appearances:
Michael C. O’Malley, Cuyahoga County Prosecuting
Attorney, and Jennifer Driscoll and Carl Felice, Assistant
Prosecuting Attorneys, for appellee.
Cullen Sweeney, Cuyahoga County Public Defender, and
Jonathan Sidney, Assistant Public Defender, for
appellant.
MICHELLE J. SHEEHAN, J.:
Defendant-appellant, Nicholas Viers, appeals the trial court’s order
imposing consecutive sentences for two counts of endangering children. He argues
consecutive sentences are not warranted because of his limited criminal history and
the trial court failed to assign weight to the mitigating factors presented by the
defense. After a careful review of the record and applicable law, we affirm the trial
court’s judgment.
On June 27, 2020, Viers, age 19, was the primary caretaker for the
victim, his three-month-old biological daughter. On that day, the police received a
call from a hospital reporting a baby had sustained head injuries consistent with
shaken baby syndrome. The presentence-investigation report (“PSI”) indicates that,
when Viers brought the baby to the hospital, she was in critical condition; a social
worker told the police that the baby had a “subdural hematoma with shift,” which,
as the social worker described, “means the baby had blood in the brain.” The doctor
treating the baby stated, “it looks like a shake injury.” The doctors had to remove a
piece of the baby’s skull to relieve the pressure in her head, and she was required to
wear a helmet for a period of time after the hospital stay.
Following the police investigation of the incident, the grand jury
indicted Viers for four counts of endangering children (Counts 1 through 4) in
violation of R.C. 2919.22(B)(1), second-degree felonies, and one count of
endangering children (Count 5) in violation of R.C. 2919.22(A), a third-degree
felony. Count 1 specifies the offense resulted in serious physical harm: “brain
bleeds”; Count 2: “broken ribs”; Count 3: “failure to thrive”; Count 4: “bruises all
over the body”; and Count 5: “medical neglect.” Under a plea agreement, Viers
pleaded guilty to reduced charges of endangering children, both third-degree
felonies in violation of R.C. 2919.22(A), in Counts 1 and 2.1 The remaining counts
were nolled.
At sentencing, the state reported that it learned from the prosecutor for
the Cuyahoga Division of Children and Family Services that the victim still had
difficulties with the left side of her body, possibly due to a stroke that she suffered in
the incident. While able to walk, her gait was uneven and she had difficulties holding
objects in her left hand. The state also reported that, as indicated by the medical
records, there was a significant lifetime risk of “dysfunctional pituitary signals for
growth,” kidney disfunction, and problems with the circulation of blood. The state
reported that the victim had also sustained rib fractures, which she was healing from
at the time of the incident, and she also suffered from malnourishment and
dehydration.
The state additionally reported that when Viers was questioned by the
detectives regarding his daughter’s injuries at the hospital, he acted aggressively in
a physical manner towards the detectives and was arrested by the hospital police.
1R.C. 2919.22(B)(1) prohibits the conduct of “abusing the child” and the offense is a
second-degree felony when the conduct “results in serious physical harm to the child.”
R.C. 2919.22(E)(2)(d). R.C. 2919.22(A) prohibits the conduct of “[c]reating a substantial
risk to the health or safety of the child, by violating a duty of care, protection, or support,”
and the violation is a third-degree felony if it results in serious physical harm to the child.
Viers’s counsel noted that, as indicated in the mitigation for penalty
report prepared for his sentencing, Viers had a difficult childhood. He was removed
from his biological family and placed in foster care at age three due to the abuse by
his biological father. He was reunited with his biological father at one point but
returned to foster care after suffering continued abuse by his biological father, and
he was subsequently adopted when he was nine.
The trial court sentenced Viers to consecutive terms of 30 months in
prison for the two counts of endangering children. The court made the findings
required by R.C. 2929.14(C)(4) that consecutive sentences are necessary to protect
the public from future crimes; consecutive sentences are not disproportionate to the
seriousness of the offender’s conduct and to the danger the offender poses to the
public. The court emphasized the serious injuries sustained by the young victim. It
also noted the previous instances of domestic violence that Viers was involved in —
his adjudication for domestic violence as a juvenile in May 2017 and a charge against
him brought in the Cleveland Municipal Court in May 2020 — although the latter
was subsequently dismissed. The trial court found it significant that the prior
instances also related to domestic violence and consequently found that his history
of criminal conduct demonstrated that consecutive sentences are necessary to
protect the public from future crime by him.
Viers now appeals, raising the following assignments of error for our
review:
I. The trial court erred in imposing consecutive sentences on the basis
of insufficiently reliable information from outside the record in
violation of Mr. Viers’ right to due process.
II. The trial court erred in failing to assign weight to the substantial
mitigating grounds set forth by the defense.
III. The trial court erred in imposing consecutive sentences because
the record clearly and convincingly does not support its
R.C. 2929.14(C) findings in regards to Mr. Viers’ criminal history.
We address the first two assignments jointly, because they both
concern the consecutive sentences imposed by the trial court for his offenses.
Consecutive Sentences
The consecutive sentence statute, R.C. 2929.14(C)(4), provides that
the trial court can impose consecutive sentences if it finds that consecutive sentences
are necessary to protect the public from future crime or to punish the offender, that
such sentences would not be disproportionate to the seriousness of the conduct and
to the danger the offender poses to the public, and that one of the following applies:
(a) The offender committed one or more of the multiple offenses while
the offender was awaiting trial or sentencing, was under a sanction
imposed pursuant to section 2929.16, 2929.17, or 2929.18 of the
Revised Code, or was under post-release control for a prior offense.
(b) At least two of the multiple offenses were committed as part of one
or more courses of conduct, and the harm caused by two or more of
the multiple offenses so committed was so great or unusual that no
single prison term for any of the offenses committed as part of any of
the courses of conduct adequately reflects the seriousness of the
offender’s conduct.
(c) The offender’s history of criminal conduct demonstrates that
consecutive sentences are necessary to protect the public from future
crime by the offender.
An appellate court reviews felony sentences under the standard of
review set forth in R.C. 2953.08. State v. Marcum, 146 Ohio St.3d 516,
2016-Ohio-1002, 59 N.E.3d 1231, ¶ 22. Furthermore, R.C. 2953.08(G)(2) is the
exclusive means of appellate review of consecutive sentences. State v. Gwynne, 158
Ohio St.3d 279, 2019-Ohio-4761, 141 N.E.3d 169. Pursuant to R.C. 2953.08(G)(2),
we may increase, reduce, or otherwise modify a sentence or vacate a sentence and
remand for resentencing if we clearly and convincingly find that the record does not
support the sentencing court’s findings under R.C. 2929.14(C)(4), or the sentence is
otherwise contrary to law.
Accordingly, a consecutive sentence may be challenged in two ways.
The defendant can argue that consecutive sentences are contrary to law because the
court failed to make the necessary findings required by R.C. 2929.14(C)(4); or, the
defendant can argue that the record does not support the findings made under
R.C. 2929.14(C)(4). State v. Johnson, 8th Dist. Cuyahoga No. 102449, 2016-Ohio-
1536, ¶ 7.
In making the consecutive findings, a trial court is not required to give
reasons supporting its decision to impose consecutive sentences. State v. Bonnell,
140 Ohio St.3d 209, 2014-Ohio-3177, 16 N.E.3d 659, ¶ 27. Rather, “as long as the
reviewing court can discern that the trial court engaged in the correct analysis and
can determine that the record contains evidence to support the findings, consecutive
sentences should be upheld.” Id. at ¶ 29.
Here, the record reflects the trial court imposed consecutive
sentences based on the severity of the victim’s injuries and Viers’s prior domestic
violence conduct. Viers does not claim that the trial court failed to make the
requisite consecutive findings. Rather, under the first and second assignments of
error, he argues the record does not support the findings. Specifically, he argues
that the evidence in the record does not support a finding of a criminal history
justifying the consecutive sentences and that the trial court improperly relied on the
representation made by the state regarding the baby’s condition in imposing
consecutive sentences.
We address the trial court’s finding regarding his history of criminal
conduct first. The trial court noted two instances of domestic violence included in
the PSI: he had an adjudication for domestic violence as a juvenile in 2017 and a
charge brought in the municipal court for domestic violence in May 2020. Viers
alleged that the latter charge stemmed from an argument he had with his sister after
she blew smoke in his infant daughter’s face and he merely “slapped the cigarette
out of her hand,” but she called the police. We note that, while the trial court is
required to consider the PSI, it is not required to accept all of its content as true.
State v. Caraballo, 8th Dist. Cuyahoga No. 97915, 2012-Ohio-5725, ¶ 36, citing State
v. Mayor, 7th Dist. Mahoning No. 07 MA 177, 2008-Ohio-7011. While Viers
appeared to minimize his conduct in the case, the trial court specifically found it
significant that both prior cases involved domestic violence conduct.
Furthermore, although the municipal court case was subsequently
dismissed, as this court has pointed out, R.C. 2929.14(C)(4) requires the sentencing
court to consider a defendant’s “history of criminal conduct,” rather than
“convictions,” and we have held that the trial court is permitted to consider conduct
by a defendant that does not result in a conviction, provided the conduct is not the
sole basis for the sentence. State v. Steele, 8th Dist. Cuyahoga No. 105085, 2017-
Ohio-7605, ¶ 10, citing State v. Clayton, 8th Dist. Cuyahoga No. 99700, 2014-Ohio-
112, ¶ 16, and State v. Gray, 8th Dist. Cuyahoga No. 91806, 2009-Ohio-4200, ¶ 13.
See also State v. Hendrickson, 8th Dist. Cuyahoga No. 111064, 2022-Ohio-3324,
¶ 22. As this court explained in Steele, the use of different words indicates an
intention that the words possess different meanings; while a “conviction” is
composed of a finding of guilt and a sentence, “conduct” means the manner in which
a person behaves or acts. Id. at ¶ 15. See also State v. Curtis, 2d Dist. Miami
No. 2021-CA-19, 2022-Ohio-1691, ¶12 (by referring to an offender’s history of
criminal “conduct,” R.C. 2929.14(C)(4)(c) does not limit the trial court’s
consideration to the offender’s history of criminal convictions), citing State v. Hiles,
3d Dist. Union No. 14-20-21, 2021-Ohio-1622, ¶ 26. Even uncharged conduct can
be considered as a basis for establishing a history of criminal conduct for purposes
of imposing consecutive sentences. Steele at ¶ 11, citing State v. Thomas, 8th Dist.
Cuyahoga No. 101263, 2014-Ohio-5153, ¶ 27. “‘[P]rior arrests, facts supporting a
charge that resulted in an acquittal, and facts related to a charge that was dismissed
under a plea agreement’ are valid sentencing considerations.” Steele at ¶ 10, quoting
State v. Bodkins, 2d Dist. Clark No. 10-CA-38, 2011-Ohio-1274, ¶ 43. Pursuant to
the binding precedent, therefore, the trial court’s consideration of the May 2020
municipal court case, which was proximate in time to the present offense and also
involved domestic violence conduct, was not improper.
Regarding his juvenile adjudication for domestic violence, Viers
argues the adjudication should not be considered by the trial court to support
consecutive sentences, citing State v. Batiste, 2020-Ohio-3673, 154 N.E.3d 1220
(8th Dist.).
“It is well settled that a defendant’s juvenile record may be considered
as part of an offender’s ‘criminal history’ for R.C. 2929.14(C)(4) purposes in
determining whether to impose consecutive sentences.” State v. Grant,
2018-Ohio-1759, 111 N.E.3d 791, ¶ 42 (8th Dist.), citing State v. Carney, 1st Dist.
Hamilton No. C-160660, 2017-Ohio-8585, ¶ 19-20, State v. McCray, 8th Dist.
Cuyahoga No. 102852, 2015-Ohio-4689, ¶ 17-19, and State v. Bromagen, 1st Dist.
Hamilton No. C-120148, 2012-Ohio-5757, ¶ 8. We are aware that in State v. Hand,
149 Ohio St.3d 94, 2016-Ohio-5504, 73 N.E.3d 448, the Supreme Court of Ohio held
that a juvenile adjudication cannot be used to enhance a sentence. That decision,
however, did not involve the imposition of consecutive sentences under
R.C. 2929.14(C)(4). Grant at ¶ 42. Until further guidance from the Supreme Court
of Ohio, we are bound to follow the existing precedent.
Regarding Batiste, the majority of the panel recognized that juvenile
adjudications can be considered in adult court because they are “conduct” not
“convictions,” and that it is widely accepted that an offender’s juvenile history can
be used as prior criminal history for the purpose of imposing consecutive sentences.
The majority believed, however, that the “use of an offender’s juvenile criminal
history is generally reserved for instances where the offender has an extensive
juvenile history.” Batiste at ¶ 20-21. In that case, the trial court relied on a single
prior juvenile adjudication and the crimes charged in the case sub judice to find a
history of criminal conduct justifying consecutive sentences. The majority reasoned
that the defendant’s criminal history did not warrant consecutive sentences because
it consisted of a single juvenile adjudication and also because nine years had passed
since the juvenile case before the defendant was indicted in the present case. These
circumstances in Batiste are distinguishable. Viers, 19 at the time of the instant
offenses, had the juvenile adjudication for domestic violence only three years prior,
and the domestic violence charge was brought against him in the municipal court
only a month before the instant incident.
Viers also argues the trial court’s imposition of consecutive sentences
was based on unreliable information provided by the prosecutor at the sentencing
hearing.
Viers received consecutive sentences after he pleaded guilty to two
separate counts of endangering children in violation of R.C. 2919.22(A), committed
on June 27, 2020, and June 1, 2020, respectively. That statute penalizes the conduct
of “creat[ing] a substantial risk to the health or safety of the child, by violating a duty
of care, protection, or support.” The sentencing transcript reflects that after the trial
court announced the sentence of 30 months at Lorain Correctional Institute for each
count without expressly specifying whether the sentences were concurrent or
consecutive, the prosecutor asked the court for clarification. The court in turn asked
the prosecutor to clarify whether the two counts related to two incidents on separate
occasions. The prosecutor advised the court that the two counts related to separate
instances of endangering children. The prosecutor stated the following:
There were rib fractures that were healing. We have the head injury.
She was completely malnourished. She was underweight. She would
have died of dehydration and malnourishment had she not been so
badly injured and taken to the hospital with this skull fracture and the
hematoma in her head. She had a number of different injuries[.]
Viers argues the trial court relied on representations by the
prosecutor regarding the child’s severe malnutrition in imposing consecutive
sentences. We note, however, “‘R.C. 2929.19 grants broad discretion to the trial
court to consider any information relevant to the imposition of a sentence.’” State
v. Franklin, 8th Dist. Cuyahoga No. 107482, 2019-Ohio-3760, ¶ 31, quoting State v.
Asefi, 9th Dist. Summit No. 26931, 2014-Ohio-2510, ¶ 8. The consideration is
permissible as long as the information is not the sole basis for the sentence. Id. In
any event, our review of the transcript indicates the trial court, in imposing
consecutive sentences, placed great emphasis on the severity of the victim’s head
injuries and the fact that the two counts of endangering children stemmed from
separate occasions. While the prosecutor reported the victim suffered severe
malnutrition, the transcript does not reflect that the trial court considered or relied
on it in imposing consecutive sentences.
Viers also claims that his consecutive sentences were predicated on
the shaken baby syndrome the victim allegedly suffered, but he did not plead guilty
to an offense of endangering children involving a shaken baby syndrome. He argues
furthermore that there was no medical testimony or evidence establishing the baby’s
injuries were caused by shaking. Viers’s claim lacks merit. Viers pleaded guilty to
an amended Count 1, a third-degree felony, that specified that the violation resulted
in serious physical harm to the child: “brain bleeds.” Our review of the sentencing
transcript indicates the trial court, in imposing consecutive sentences, emphasized
that the victim suffered head injuries so severe as to require the removal of a piece
of her skull, that she was in a critical condition for a period of time, and that she
sustained injuries on two separate occasions. The transcript does not reflect the trial
court relied on the medical diagnosis of shaken baby syndrome as a reason for the
consecutive sentences.
Finally, Viers, pointing to page 51 of the sentencing transcript, claims
the trial court violated his due process right when it “repeatedly interrupted defense
counsel’s attempts to respond to the court’s reliance on the prosecutor’s
unsupported allegations and did not allow counsel to develop a complete record” in
support of concurrent sentences.
The cited portion of the transcript reflects that, after the trial court
clarified that the two prison terms for Counts 1 and 2 were to be served
consecutively, the defense counsel, while not disputing the victim’s injuries,
attempted to argue that the victim’s condition, including malnutrition, was not
solely Viers’s responsibility because she had two parents and multiple individuals
resided in the home. The trial court interrupted counsel’s line of argument, and after
asking a few questions, it interrupted counsel again and proceeded to make the
statutory findings justifying the consecutive sentences. It appears from the
transcript that Viers’s counsel attempted to develop the record to support a claim
that the sentences should not be consecutive because Viers was not solely
responsible for the victim’s condition. As we have explained above, the trial court,
in imposing consecutive sentences, placed emphasis on the fact that Viers pleaded
guilty to two offenses of endangering children committed on separate occasions.
The defense counsel’s argument that others might have also contributed to the
baby’s condition is irrelevant at this stage of the proceeding. As such, the trial court’s
interruption of defense counsel reflected in the cited portion of the transcript did
not amount to a deprivation of Viers’s due process right.
Our review of the transcript indicates the trial court made the
statutory findings and engaged in the correct analysis for its imposition of
consecutive sentences. While not required to, the trial court explained its reasons
for the findings and the record contains evidence to support the findings. Because
we will reverse or modify the consecutive sentences only if we clearly and
convincingly find the record does not support the sentencing court’s findings, we
affirm Viers’s consecutive sentences. The first and second assignments of error are
without merit.
Mitigation Factors
Under the third assignment of error, Viers argues the trial court erred
in failing to assign weight to the mitigating grounds presented by the defense, citing
R.C. 2929.12(C)(4).
In imposing a sentence for a felony, the trial court is to consider the
sentencing purposes set forth in R.C. 2929.11. R.C. 2929.11 provides that a sentence
imposed for a felony shall be guided by the overriding purposes of “protect[ing] the
public from future crime by the offender and others and punish[ing] the offender
using the minimum sanctions that the court determines accomplish those purposes
without imposing an unnecessary burden on state or local government resources.”
In determining the most effective way to comply with the purposes and principles
set forth in R.C. 2929.11, the sentencing court must consider the seriousness and
recidivism factors enumerated in R.C. 2929.12. State v. Mathis, 109 Ohio St.3d 54,
2006-Ohio-855, 846 N.E.2d 1, ¶ 38. R.C. 2929.12(B) and (C) set forth the
seriousness factors.
Viers argues the trial court failed to give meaningful consideration
and assign weight to mitigation factors as required by R.C. 2929.12(C). That section
states:
(C) The sentencing court shall consider all of the following that apply
regarding the offender, the offense, or the victim, and any other
relevant factors, as indicating that the offender’s conduct is less
serious than conduct normally constituting the offense:
***
(4) There are substantial grounds to mitigate the offender’s conduct,
although the grounds are not enough to constitute a defense.
Viers argues the trial court failed to assign weight to his biological
father’s physical and sexual abuse of him during his childhood as described in the
mitigation of penalty report. The report also indicates Viers had an unstable
childhood; he was placed in foster care between age three and nine before he was
adopted. The psychiatrist who prepared the report opined that Viers’s mental illness
of post-traumatic stress disorder was a significant factor in his commission of the
instant offenses.
Regarding R.C. 2929.11 and 2929.12, the Supreme Court of Ohio
recently reminded us of our limited role in reviewing a defendant’s claims that his
sentence is improper pursuant to R.C. 2929.11 and 2929.12.
Nothing in R.C. 2953.08(G)(2) permits an appellate court to
independently weigh the evidence in the record and substitute its
judgment for that of the trial court concerning the sentence that best
reflects compliance with R.C. 2929.11 and 2929.12. In particular,
R.C. 2953.08(G)(2) does not permit an appellate court to conduct a
freestanding inquiry like the independent sentence evaluation this
court must conduct under R.C. 2929.05(A) when reviewing a death
penalty-sentence.
State v. Jones, 163 Ohio St.3d 242, 2020-Ohio-6729, 169 N.E.3d 649, ¶ 42.
The record here reflects the trial court heard and considered the
mitigation argument advanced by the defense. While Viers complains that the trial
court failed to assign weight to the substantial mitigation factors, we are not free to
independently weight the sentencing factors in R.C. 2929.11 and 2929.12 or
substitute the trial court’s judgment. The trial court is vested with the discretion to
determine the weight to assign a particular statutory factor under R.C. 2929.12.
State v. Fisher, 10th Dist. Franklin No. 13AP-995, 2014-Ohio-3887, ¶ 16. That
discretion rests solely with the trial court. State v. Jones, 8th Dist. Cuyahoga
No. 104152, 2016-Ohio-8145, ¶ 14. Accordingly, we find no merit to the third
assignment of error.
Judgment affirmed.
It is ordered that appellee recover of appellant costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate issue out of this court directing the
common pleas court to carry this judgment into execution. The defendant’s
conviction having been affirmed, any bail pending appeal is terminated. Case
remanded to the trial court for execution of sentence.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27
of the Rules of Appellate Procedure.
_____________________________
MICHELLE J. SHEEHAN, JUDGE
FRANK DANIEL CELEBREZZE, III, P.J., and
KATHLEEN ANN KEOUGH, J., CONCUR | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484646/ | Bank of N.Y. Mellon v Nunez (2022 NY Slip Op 06418)
Bank of N.Y. Mellon v Nunez
2022 NY Slip Op 06418
Decided on November 15, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 15, 2022
Before: Gische, J.P., Kapnick, Kern, Gesmer, Higgitt, JJ.
Index No. 380670/07 Appeal No. 16640 Case No. 2022-00857
[*1]The Bank of New York Mellon, Formally Known as The Bank of New York, as Trustee for the Certificateholders CWABS, Inc. Asset-Backed Certificates, Series 2006-26, Plaintiff-Respondent,
vAlbania Nunez et al., Defendants, MAK Asset, Inc., Defendant-Appellant.
Fadullon Dizon Krul, LLP, Jericho (Alexander Krul of counsel), for appellant.
LOGS Legal Group LLP, Rochester (Austin T. Shufelt of counsel), for respondent.
Order, Supreme Court, Bronx County (Doris M. Gonzalez, J.), entered on or about November 18, 2019, which granted plaintiff's motion for summary judgment as against MAK Asset, Inc. as to all issues, except as to the issue of plaintiff's standing to commence this action, unanimously affirmed, without costs.
By order entered July 1, 2013, Supreme Court granted plaintiff's motion for a default judgment against defendant borrower Albania Nunez and the appointment of a referee to compute the amounts due plaintiff (see HF Mgt. Servs., LLC v Dependable Care, LLC, 198 AD3d 457, 458 [1st Dept 2021] ["It is well established that, by defaulting, a defendant admits all traversable allegations contained in the complaint, and thus concedes liability, although not damages"]). By order dated September 10, 2018, Supreme Court granted MAK leave to intervene; however, after a hearing, the court also found that Nunez had been properly served and denied her motion to vacate her default and dismiss this action. Thus, in the instant order appealed from, Supreme Court correctly found that Nunez was in default (see Adler v DLJ Mtge. Capital, Inc., 194 AD3d 633, 633 [1st Dept 2021]).
In taking title to the subject premises, MAK's intervention in this foreclosure action is premised only upon its "common-law right to redeem the mortgage prior to sale by tendering to the mortgagee the principal and interest due on the mortgage" (Polish Natl. Alliance of Brooklyn v White Eagle Hall Co., 98 AD2d 400, 405 [2d Dept 1983]). The arguments made challenging the court's finding of Nunez's default are unavailing.
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 15, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484645/ | Batista v Metropolitan Transp. Auth. (2022 NY Slip Op 06419)
Batista v Metropolitan Transp. Auth.
2022 NY Slip Op 06419
Decided on November 15, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 15, 2022
Before: Manzanet-Daniels, J.P., Webber, Mazzarelli, Friedman, Shulman, JJ.
Index No. 154553/18 Appeal No. 16653 Case No. 2021-4429
[*1]Emmanuel Batista, Plaintiff-Respondent,
vMetropolitan Transportation Authority, et al., Defendants-Appellants.
Anna J. Ervolina, Brooklyn (Timothy J. O'Shaughnessy of counsel), for appellants.
Mitchell Dranow, Sea Cliff, for respondent.
Order, Supreme Court, New York County (Suzanne Adams, J.), entered on or about October 8, 2021, which denied defendants' motion for summary judgment dismissing the complaint, unanimously reversed, on the law, without costs, and the motion granted. The Clerk is directed to enter judgment dismissing the complaint.
Plaintiff alleges that defendant bus driver was negligent in striking the rear corner of his vehicle when he made a left turn in front of the bus. Although plaintiff testified at his deposition that the bus was halfway down the block when he started to make the left turn, that testimony is contradicted by surveillance video from the bus, which confirms the bus driver's testimony that the bus had entered the intersection with a green light in its favor when plaintiff started to make the turn. The video, which was properly authenticated, demonstrates that plaintiff's testimony is incorrect, and thus does not raise a credibility issue for trial (see Carthen v Sherman, 169 AD3d 416, 417 [1st Dept 2019]). The video and the bus driver's testimony establish that plaintiff failed to yield the right of way, in violation of Vehicle and Traffic Law § 1141, and therefore was negligent per se (see Rohn v Aly, 167 AD3d 1054, 1056 [2d Dept 2018]; Ciraldo v County of Westchester, 147 AD3d 813, 813 [2d Dept 2017]).
As for defendant bus driver's comparative negligence, he testified that he was scanning traffic as he entered the intersection. The bus driver was entitled to anticipate that plaintiff "would obey the traffic law which required him to yield" (Fenster v Ellis, 71 AD3d 1079, 1081 [2nd Dept 2010]). The driver's deposition transcript, as well as the video surveillance footage of the accident, demonstrated prima facie that defendant driver was not comparatively negligent for failing to avoid the accident, as he had only seconds to react (see Rohn, 167 AD3d at 1056). In opposition, plaintiff did not offer any evidence as to what the bus driver could have done to avoid the accident or that he was negligently operating the bus, and speculative assertions are insufficient to raise an issue of fact (see Cardona v Fiorentina, 149 AD3d 495 [1st Dept 2107]; Maysonet v EAN Holdings, LLC, 137 AD3d 517, 518 [1st Dept 2016]).
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 15, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484650/ | [Cite as May v. May, 2022-Ohio-4091.]
COURT OF APPEALS
STARK COUNTY, OHIO
FIFTH APPELLATE DISTRICT
JUDGES:
MICHAEL MAY : Hon. Earle E. Wise, P.J.
: Hon. W. Scott Gwin, J.
Plaintiff-Appellee : Hon. Patricia A. Delaney, J.
:
-vs- :
: Case No. 2022 CA 00050
VIRGINIA MAY :
:
Defendant-Appellant : OPINION
CHARACTER OF PROCEEDING: Civil appeal from the Stark County Court of
Common Pleas, Case No. 2020 DR 382
JUDGMENT: Reversed and Remanded
DATE OF JUDGMENT ENTRY: November 17, 2022
APPEARANCES:
For Plaintiff-Appellee For Defendant-Appellant
JEFFREY JAKMIDES RAYMOND BULES
325 East Main Street 101 Central Plaza South, Ste. 1200
Alliance, OH 44601 Canton, OH 44702
Stark County, Case No. 2022 CA 00050 2
Gwin, J.,
{¶1} In this post-divorce action, appellant Virginia A. May [“Wife”] appeals the
March 31, 2022 Judgment Entry of the Stark County Court of Common Pleas, Domestic
Relations Division issuing a division of property order concerning its prior award of the
marital residence to the Wife as agreed by the appellee, Michael W. May [“Husband”] in
the parties Separation Agreement, and ordering Wife to divide the proceeds of the sale
of the residence with Husband.
Facts and Procedural History
{¶2} The parties were divorced on January 15, 2021 by Decree of Divorce. The
entry finalized an agreement entered upon the record November 19, 2020. The Decree
of Divorce provided,
This Court further finds that the parties have entered into a complete
agreement with respect to all previously contested matters. Both parties
consented to all of the terms of such agreement, in open Court. The Court
having had an opportunity to review the terms of the parties’ agreement
finds that the parties’ agreement with respect to all financial issues in the
within action is fair and equitable to each of the parties…Both parties
stipulated to this in open Court and the Court, having conducted an
independent review, concurs.
Judgment Entry/Decree of Divorce, filed Jan 15, 2021 at 1-2.
{¶3} The Decree of Divorce further contained the following agreement regarding
the marital property,
Stark County, Case No. 2022 CA 00050 3
Defendant Virginia A. May shall retain all right, title and interest in
and to the real property located at 5305 Aster Avenue, N.E., Canton, Ohio
44705 as her sole property, free and clear of any claim of Plaintiff with
respect thereto. Upon the filing of the within Judgment Entry, Plaintiff shall
execute a Quit Claim Deed transferring to Defendant all of his right, title and
interest in and to the aforesaid real property. Such Deed shall be escrowed
with Plaintiff's attorney until the closing of a refinancing transaction, by
Defendant, with respect to all mortgage loans secured by the aforesaid real
property. Within six months following the filing of the within Judgment Entry,
Defendant shall close a refinancing transaction with respect to all mortgage
loans secured by the aforesaid real property, for the purpose of removing
Plaintiff from all liability with respect thereto. In the course of such
refinancing transaction, Plaintiff’s counsel shall transfer to the closing agent
with respect to such refinancing transaction, Plaintiff's executed Quit Claim
Deed.
In the event that, within six months following the filing of the within
Judgment Entry, Defendant has not closed the aforesaid refinancing
transaction, this Court shall retain continuing jurisdiction over the ultimate
disposition of the aforesaid real property and, in such event, either party
may file a motion with this court in order to invoke such continuing
jurisdiction. Within thirty days following November 19, 2020, Plaintiff shall
vacate the real property located at 5305 Aster Avenue, N.E., Canton, Ohio
44705, and Defendant, thereafter, shall have exclusive possession of the
Stark County, Case No. 2022 CA 00050 4
aforesaid real property, subject to this Court's continuing jurisdiction in the
event that the aforesaid refinancing transaction cannot be closed by the
date specified in the within Judgment Entry.
Judgment Entry/Decree of Divorce at 2.
{¶4} At the time of the divorce, the financial affidavit of Husband indicated the
home had zero equity. T at 20-21; Defendant’s Exhibit G. The Wife’s financial affidavit
indicated approximately $9,800 in equity. T. at 25; Defendant’s Exhibit H. The Stark
County Auditor’s value of the property was $184,800. T. at 25, 63; Defendant’s Exhibit
F. Husband’s comparative market analysis listed the value of the home at $214,800. T.
at 24-25; Defendant’s Exhibit E.
{¶5} Husband vacated the residence on December 4 or 5, 2020. T. at 54.
Husband executed a quit claim deed to Wife on January 29, 2021. T. at 23; Defendant’s
Exhibit B. Husband made no mortgage payments subsequent to the divorce. T. at 66.
Husband contributed no services or money toward improving the property subsequent to
the divorce. T. at 55. Husband agreed that he took no interest in the property after the
divorce. T. at 67. Husband further testified that once the divorce was finalized, “It wasn’t
my house.” T. at 69.
{¶6} Wife worked to improve the property subsequent to the divorce. The trial
court found that Wife had expended $19,000.00 of her own funds to improve the real
estate’s value. Findings of Fact, Conclusions of Law and Decision, re: Disposition of
Marital Residence, filed Mar 31, 2022. [Docket Entry No. 66]. The trial court further found
that Wife contributed 560 hours of work on the property which when valued at the
minimum wage rate of $8.80 per hour amounted to a total contribution of $4,928.00. Id.
Stark County, Case No. 2022 CA 00050 5
{¶7} Wife testified that she had been granted a Covid-19 forbearance on the
mortgage. Under this program, Wife testified that she made mortgage payments of $300
on March 10, 2021, $250.00 on April 9, 2021, $1,180.67 on April 27, 2021 and $1,180.67
on May 24, 2021. T. at 17-18.
{¶8} Sometime in early to mid-July, 2021 while perusing a realtor’s online
listings, Husband discovered that the property had been listed for sale. T. at 55. He later
determined that a sale of the home was either pending or contingent. T. at 56. Husband
testified that he took no action at that time. Id.
{¶9} The home was sold within one week of being listed for sale. T. at 5.
However, the closing was not scheduled until August 30, 2021. See, Plaintiff’s Exhibit’s
12; 15. The home sold for $260,500. T. at 64; Defendant’s Exhibit L. The mortgage was
paid off on August 30, 2021. Id. The net proceeds of the sale were $65,569.99. T. at 6.
{¶10} On August 16, 2021, Husband filed a one paragraph motion captioned,
“Plaintiff’s Motion to Invoke Court’s Continuing Jurisdiction Over the Sale of Real
Property/ Motion for Order Dividing Real Estate Sale Proceeds” together with a notice of
an August 16, 2021 hearing date. No motion to stay the sale, or the closing was filed by
Husband or issued by the trial court.
{¶11} By Judgment Entry filed August 20, 2021, the trial court granted the
Husband’s motion and scheduled the motion for an evidentiary hearing on November 12,
2021. [Docket Entry No. 47]. The court did not issue an order to stay the sale of the
house or the closing scheduled for August 30, 2021.
Stark County, Case No. 2022 CA 00050 6
{¶12} The hearing took place upon the arguments of counsel before a magistrate
on November 12, 2021. At the conclusion of the hearing, the magistrate dismissed
Husband’s motion finding,
After considering oral arguments of counsel, the court will focus on
the interpretation of the language in the divorce decree; The decree gives
wife sole title and interest in the jointly owned real property; the decree
orders that the wife shall refinance the mortgage in her name within 6
months and, if she does not, then the court has continued jurisdiction to
consider what to do with the house; The intent of that paragraph was to
ensure that the property could be sold, and the mortgage could be paid off;
In that way, Husband would not be “harmed” by remaining responsible for
his portion of the mortgage owed; The court does not believe that the intent
of the language was to ensure that if Wife went ahead and sold the house,
paid off the mortgage through the sale, and made a profit, that Husband
would then have the right to a portion of that profit; Therefore, Husband’s
motion for an order to divide the sale proceeds of the home, which is Wife’s
asset, will be dismissed.
Judgement Entry Magistrate’s Decision, filed November 15, 2021 at 2 (emphasis added).
[Docket Entry No. 50].
{¶13} Husband filed objections to the magistrate’s decision on November 29,
2021. [Docket Entry No. 52]. Husband additionally filed a motion for relief from judgment
under Civ.R. 60(B)(4). [Docket Entry No. 53]. Wife filed a response to Husband’s
objection and the motion on December 13, 2021. [Docket Entry No. 54; 55].
Stark County, Case No. 2022 CA 00050 7
{¶14} The trial court denied Husband’s motion for relief from judgment; however,
the trial court reversed the decision of the magistrate and set the matter for an evidentiary
hearing. Judgment Entry, filed January 13, 2022. [Docket Entry No. 56].
{¶15} The evidentiary hearing took place on March 24, 2022. The trial court held
that the award of the home to Wife free and clear of any claim by the Husband was
contingent upon the Wife’s refinancing the home within six months, and that by failing to
do so she triggered the contingency. Therefore, the Decree required the court to
distribute the asset pursuant to R.C. 3105.171. The trial court concluded that Wife was
entitled to receive the value of her labor and expenditures which contributed to net
proceeds, but that the balance of the proceeds of $41,641.99 would be equally divided
between the parties.
Assignment of Error
{¶16} Wife raises one Assignment of Error,
{¶17} “I. THE TRIAL COURT ERRED IN DIVIDING THE PROCEEDS OF THE
SALE OF PROPERTY WHICH WAS AWARDED TO THE APPELLANT FREE AND
CLEAR OF ANY CLAIM BY APPELLEE AND QUITCLAIMED TO THE APPELLANT BY
THE APPELLEE, WITH THAT QUITCLAIM RECORDED AND ALL CLAIM OF
APPELLEE TO THE PROPERTY COMPLETELY EXTINGUISHED PRIOR TO THE
SALE.
Standard of Review
{¶18} After a divorce has been granted, the trial court is required to equitably
divide and distribute the marital estate between the parties and thereafter consider
whether an award of sustenance alimony would be appropriate. Teeter v. Teeter, 18 Ohio
Stark County, Case No. 2022 CA 00050 8
St.3d 76, 479 N.E.2d 890(1985), citing Wolfe v. Wolfe, 46 Ohio St.2d 399, 350 N.E.2d
413(1976). The trial court is vested with broad discretion in determining the appropriate
scope of these property awards. Berish v. Berish, 69 Ohio St.2d 318, 432 N.E.2d
183(1982). Although its discretion is not unlimited, it has authority to do what is equitable.
Cherry v. Cherry, 66 Ohio St.2d 348, 355, 421 N.E.2d 1293, 1298(1981). A reviewing
court should measure the trial court’s adherence to the test, but should not substitute its
judgment for that of the trier of fact unless, considering the totality of the circumstances,
it finds that the court abused its discretion. Section 3(B), Article IV of the Ohio
Constitution; App.R. 12; Briganti v. Briganti, 9 Ohio St.3d 220, 222, 459 N.E.2d 896, 898
(1984); Kaechele v. Kaechele, 35 Ohio St.3d 93, 94, 518 N.E.2d 1197, 1199(1988). “The
term ‘abuse of discretion’ connotes more than an error of law or judgment; it implies that
the court’s attitude is unreasonable, arbitrary or unconscionable.” Blakemore v.
Blakemore, 5 Ohio St.3d 217, 219,450 N.E.2d 1140, 1142(1983).
{¶19} As an appellate court, we review a trial court’s decision upon post-decree
motions under a standard of review of abuse of discretion. See, Kager v. Kager, 5th Dist.
Stark No. 2001CA00316, 2002-Ohio-3090, citing Miller v. Miller, 37 Ohio St.3d 71, 74,
523 N.E.2d 846 (1988); Murray v. Murray, 5th Dist. Licking No. 01-CA-00084, 2002-Ohio-
2505. An abuse of discretion can be found where the reasons given by the court for its
action are clearly untenable, legally incorrect, or amount to a denial of justice, or where
the judgment reaches an end or purpose not justified by reason and the evidence.
Tennant v. Gallick, 9th Dist. Summit No. 26827, 2014-Ohio-477, ¶35; In re Guardianship
of S .H., 9th Dist. Medina No. 13CA0066–M, 2013–Ohio–4380, ¶ 9; State v. Firouzmandi,
5th Dist. Licking No. 2006–CA–41, 2006–Ohio–5823, ¶54.
Stark County, Case No. 2022 CA 00050 9
Issue for Appellate Review: Whether the domestic relations court’s decision
awarding Husband a share of the proceeds from the post-decree sale of the marital
residence that the parties agreed in the Separation Agreement would be awarded solely
to Wife in exchange for removing Husband from all liability with respect to the mortgage
on said property is clearly untenable, legally incorrect or amounts to a denial of justice, or
whether the judgment reaches an end or purpose not justified by reason and the
evidence.
{¶20} In Jackson v. Jackson, this Court observed,
“Where the parties enter into a settlement agreement in the presence
of the court, such an agreement constitutes a binding contract.” Tyron v.
Tyron, 11th Dist. No. 2007–T–0030, 2007–Ohio–6928, ¶ 23 citing Walther
v. Walther, 102 Ohio App.3d 378, 383, 657 N.E.2d 332 (1st Dist.1995). “In
the absence of fraud, duress, overreaching or undue influence, or of a
factual dispute over the existence of terms in the agreement, the court may
adopt the settlement as its judgment.” Walther at 383, 657 N.E.2d 332.
“The enforceability of an in-court settlement agreement depends upon
whether the parties have manifested an intention to be bound by its terms
and whether these intentions are sufficiently definite to be specifically
enforced.” Tyron quoting Franchini v. Franchini, 11th Dist. No.2002–G2467,
2003–Ohio–6233, ¶ 9, citing Normandy Place Assoc. v. Beyer, 2 Ohio St.3d
102, 105–106, 443 N.E.2d 161 (1982). As with usual contract interpretation,
the court’s role is to give effect to the intent of the parties. The court must
examine the contract as a whole and presume that the intent of the parties
Stark County, Case No. 2022 CA 00050 10
is reflected in the language of the contract. In addition, the court looks to
the plain and ordinary meaning of the language used in the contract unless
another meaning is clearly apparent from the contents of the agreement.
When the language of a written contract is clear, a court may look no further
than the writing itself to find the intent of the parties. “As a matter of law, a
contract is unambiguous if it can be given a definite legal meaning.” Sunoco,
Inc. (R & M) v. Toledo Edison, Co., 129 Ohio St.3d 397, 2011–Ohio–2720,
953 N.E.2d 285, ¶ 37 citing Westfield Ins. Co. v. Galatis, 100 Ohio St.3d
216, 2003–Ohio–5849, 797 N.E.2d 1256, ¶ 11.
5th Dist. Richland No. 12CA28, 2013-Ohio-3521, ¶22.
{¶21} This Court has emphasized that “[n]either a change of heart nor poor legal
advice is a ground to set aside a settlement agreement.” Pastor v. Pastor, 5th Dist. No.
04 CA 67, 2005–Ohio–6946, ¶ 18, citing Walther v. Walther, 102 Ohio App.3d 378, 383,
657 N.E.2d 332 (1st Dist.1995); Jackson, ¶24.
{¶22} In the case at bar, it should be noted that pursuant to the explicit terms of
the agreement reached between Husband and Wife, Husband gave Wife “all right, title
and interest” in the subject property as “her sole property.” In exchange Wife agreed to
remove Husband from his liability with respect to any mortgage loans. The continuing
jurisdiction of the domestic relations court only encompassed “the ultimate disposition of
the aforesaid real property” in the event Wife did not remove Husband’s liability under the
mortgage “within six months.”
{¶23} We can find no provision within the Separation Agreement that prohibits
Wife from selling the property, as opposed to refinancing the property, and paying off the
Stark County, Case No. 2022 CA 00050 11
mortgage. No provisions were set forth in the Separation Agreement that in the event
Wife were to sell the property and satisfy the mortgage, Husband would be entitled to
share in any profit from the sale. The marital residence provision was patently part of the
quid pro quo of dividing marital assets.
{¶24} In the instant action, the record is devoid of any evidence Husband entered
into the Separation Agreement as a result of fraud, undue influence, duress, or coercion.
Husband voluntarily relinquished all of his interest in the marital residence to Wife.
Husband could have contested the matter and asked the trial court to order the property
sold, and any proceeds divided between the parties. He did not; rather, Husband’s only
request was to be relieved of his liability on the mortgage. The paperwork for the sale of
the property was completed and the mortgage was extinguished on August 30, 2021,
approximately one month after the six-month period. However, Husband admitted that a
sale was pending during the six-month period the trial court granted Wife to refinance the
property. We find Husband received the benefit of his bargain when Wife paid off the
mortgage on August 30, 2021. To utilize a sports analogy, if a basketball player launches
the ball toward the goal and the buzzer sounds while the ball is still in the air, the goal will
count even though the basket was not actually completed before time expired.
{¶25} On March 31, 2022 at the time the trial court’s entry was filed, the trial court
could not exercise jurisdiction “over the ultimate disposition of the aforesaid real property”
for the reason that neither Husband nor Wife owned the property and, in fact, had not
owned the property since August 30, 2021. Clearly, on March 31, 2022 the trial court
could not order the title or the property be brought back before the court for disposition
because title now rested in a third party.
Stark County, Case No. 2022 CA 00050 12
{¶26} Nor could the trial court effectuate a disposition of the Husband’s liability
under the terms of the mortgage. The purpose of the provision that Wife remove Husband
from all liability with respect to the mortgage had been fulfilled on August 30, 2021, some
seven months before the trial court’s decision in this matter.
{¶27} The evidence in the record is clear, it was not until Husband discovered that
Wife stood to make a profit from the sale of the home that Husband developed any interest
in the property subsequent to the divorce.
{¶28} We find the trial court’s decision concerning the disposition of the proceeds
from the Wife’s sale of her property, filed March 31, 2022, arbitrarily voided the terms and
the clear intent of the Separation Agreement concerning the marital residence to which
the parties had agreed. We cannot find that the intent of the language concerning the
refinancing of the property was to ensure that if Wife sold the house, paid off the mortgage
through the sale, and made a profit, that Husband would then have the right to a portion
of that profit. Husband’s liability under the mortgage had already been extinguished and
the property had already been transferred seven months before the time that the trial
court held the evidentiary hearing and issued its decision. Thus, the trial court’s decision
could have no effect on either the disposition of the “real property,” or the Husband’s
liability under the mortgage for that property. We cannot find any language in the
Separation Agreement or in R.C. 3105.171 that mandates the trial court order the
proceeds of the sale of Wife’s asset to be divided with Husband after the property had
been transferred to a third party and the mortgage had been paid-off.
{¶29} The sole basis for the trial court’s decision was that the sale had not been
finalized before the expiration of the six-month time period. We find this reason to be
Stark County, Case No. 2022 CA 00050 13
arbitrary and to effectively divest Wife of an asset that Husband had voluntarily given her
free and clear of any claim of his. At the time of the trial court’s decision Wife no longer
owned the property and Husband’s liability under the terms of the mortgage had been
extinguished for over seven months. Thus, the intent of the Separation Agreement had
been fulfilled.
{¶30} We find the trial court’s disposition of the proceeds from the sale of Wife’s
property to be clearly untenable, legally incorrect, and amounts to a denial of justice.
Further the trial court’s judgment reaches an end or purpose not justified by reason and
the evidence.
{¶31} Appellant-Wife’s sole Assignment of Error is sustained.
{¶32} Section 3(B)(2), Article IV of the Ohio Constitution, gives this Court the
power to affirm, reverse, or modify the judgment of an inferior court. Accordingly, we hold
that all proceeds from the sale of the residence located at 5305 Aster Avenue, NE,
Canton, Ohio 44705 are the property of Wife free and clear of any claim by Husband.
Stark County, Case No. 2022 CA 00050 14
{¶33} The judgment of the Stark County Court of Common Pleas, Domestic
Relations Division is reversed and this case is remanded for proceedings in accordance
with our Opinion and the law.
By Gwin, J.,
Wise, Earle, P.J., and
Delaney, J., concur | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484653/ | [Cite as State v. Sanchez-Sanchez, 2022-Ohio-4080.]
COURT OF APPEALS OF OHIO
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
STATE OF OHIO, :
Plaintiff-Appellee, :
No. 110885
v. :
ELDER SANCHEZ-SANCHEZ, :
Defendant-Appellant. :
JOURNAL ENTRY AND OPINION
JUDGMENT: AFFIRMED IN PART, VACATED IN PART
AND REMANDED
RELEASED AND JOURNALIZED: November 17, 2022
Criminal Appeal from the Cuyahoga County Court of Common Pleas
Case No. CR-20-648576-A
Appearances:
Michael C. O’Malley, Cuyahoga County Prosecuting
Attorney, and Carl J. Mazzone, Assistant Prosecuting
Attorney, for appellee.
Cullen Sweeney, Cuyahoga County Public Defender, and
Aaron T. Baker, Assistant Public Defender, for appellant.
EILEEN A. GALLAGHER, J.:
Defendant-appellant Elder Sanchez-Sanchez (“Sanchez”) appeals his
convictions from the Cuyahoga County Court of Common Pleas. A jury found
Sanchez guilty of rape, gross sexual imposition and illegal use of a minor in nudity-
oriented material or performance. Sanchez argues that his convictions were not
supported by sufficient evidence and were against the manifest weight of the
evidence, that his trial counsel was ineffective, that the trial court was biased against
him and that the trial court erred in permitting certain testimony and issuing a jury
instruction on flight as consciousness of guilt.
For the reasons that follow, we find that there was insufficient evidence
presented to sustain a conviction for illegal use of a minor in nudity-oriented
material and we, therefore, vacate that conviction. We affirm Sanchez’s other
convictions, although we find that the trial court erred in issuing a flight instruction.
I. Factual and Procedural Background
On March 10, 2020, a Cuyahoga County Grand Jury returned an
indictment charging Sanchez with rape through digital penetration (Count 1), gross
sexual imposition through “touch[ing] breasts” and “tongue kiss[ing]” (Counts 2–3)
and illegal use of a minor in nudity-oriented material or performance (Count 4). The
rape count contained a “furthermore clause” specifying that the alleged victim was
between 10 and 13 years old and Sanchez compelled her to submit by force or threat
of force. The crimes were alleged to have taken place between on or about June 1,
2019, and November 10, 2019. The charges all relate to the same minor female —
J.T. — who was 11 and 12 years old during the time covered by the indictment.
After lengthy pretrial proceedings, a trial on the charges began on
August 10, 2021.
A. Voir Dire
1. The Trial Court’s Removal of Juror No. 18
Outside of the jury panel’s presence, the lead prosecutor informed the
court that his co-counsel told him one of the prospective jurors — juror No. 18 —
“was making heavy signs and making comments to the side that would indicate she
doesn’t want to be here” each time the prosecutor asked a question or moved on to
another prospective juror. The prosecutor stated that he raised the issue because he
intended to question the prospective juror about these observations.
The prosecutor’s co-counsel described what she witnessed as follows:
Your Honor, I heard her yawning and saying — every time [the
prosecutor conducting voir dire] would ask another question, she
would say this is crazy, oh, this is crazy. The way she was saying it was
as if she was sick of being here and sick of him questioning jurors.
The court asked defense counsel for comment and counsel responded,
“I mean I guess we can get to her when we get to her * * *.”
The court then told the parties the following:
Quite frankly, in my 40 some years of practice in trial litigation, when
we had a juror like that, what I normally had done, and what I learned
from other judges, was we would wait until the end and we’ll excuse
them for cause from the court, and just make her go through the whole
day anyway and then she doesn’t get paid either. * * * I am not sending
her home at 9:30 [a.m.] That’s like a gift.
The prosecutor then stated that he was not asking for juror No. 18 to be
removed yet and defense counsel said, “I want to see. * * * Let’s get to the bottom of
it now rather than later.”
The court instructed counsel to “[t]alk to her now so she’s quiet. If I
forget, you remind me, I am going to remove her for cause if she ever gets up to
there, you know what I mean, because a juror with that kind of attitude is not going
to be a juror that would participate in the deliberations in the proper open-minded
situation.”
The court called juror No. 18 into the courtroom and the court,
prosecution and defense questioned her about the allegations. Juror No. 18
admitted that she and a couple other prospective jurors were talking before the
lunch break about how hungry they were and about when they would be permitted
to go to lunch. Juror No. 18 denied sighing heavily, making comments and talking
with any prospective jurors about the prosecution’s voir dire questions. She testified
that whatever comments she may have made do not relate to the merits of the case;
they were just talking about food.
The court then called juror No. 17 and juror No. 19 into the courtroom
— the prospective jurors whom juror No. 18 reported were talking about lunch.
Juror No. 17 similarly denied that there was heavy sighing or
comments along the lines of “this is crazy” and “come on” in response to voir dire
questioning. Juror No. 17 recalled “some people prior to lunch getting hungry
because the time had ran over.” Juror No. 17 did not recall any comments or
gestures about anything going on with the voir dire itself, and she did not recall if
she made an audible sigh. She reported that she had no feelings about sitting
through the voir dire process and had no reservations about sitting on a jury.
Juror No. 19 also testified that she did not recall any prospective juror
making audible noises or comments regarding the voir dire.
The parties’ use of peremptory challenges brought juror No. 18 into
the prospective petit jury.1 The state asked her how she felt when she heard the
charges read, and she testified that she was excited to be there and “to know that I
have a chance to come into court and present myself on a case.”
After the parties’ inquiry of juror No. 18 was complete, the court called
counsel up to a side bar, noted that the parties were out of peremptory challenges
and asked what the parties wanted to do with juror No. 18. The state asked that she
be removed for cause, stating as follows:
I feel that her tenor and demeanor are stark contrast to what they are
now. She feels almost over eager to serve on the jury. I believe it’s
making up for what she heard from us this morning. I have no reason
to disbelieve what [my co-counsel] disclosed to me during the course of
my voir dire the other day. At this time I don’t know that she’s an
appropriate juror for this case.
Defense counsel objected to removing the prospective juror for cause,
arguing that juror No. 18 reported no bias for or against any party and that she did
not make any disqualifying comments during voir dire. Counsel noted that the
jurors they questioned had been consistent with each other and denied hearing
anything; what little they reported saying “didn’t involve much.” Counsel also did
not agree that juror No. 18 seemed overly eager and he argued that, even if she was,
that would not be a basis for removing her for cause.
1 Juror No. 18 was renumbered as juror No. 10 when she was brought into the
prospective petit jury. For consistency, we continue to refer to her as juror No. 18.
The court stated that it did not find juror No. 18 credible when
answering questions earlier in the day about the allegations of making audible sighs
and, further, was bothered “that she said she was excited by hearing the indictment.”
Defense counsel stated that he understood juror No. 18 to mean that she was excited
to be a part of the process itself, not that she was excited by the nature of the
allegations. The prosecutor stated that he believed juror No. 18 was not being honest
“from the start.”
The court noted the defense’s objection and removed juror No. 18 for
cause, reasoning:
Well, I’ll say that the reason I announced that I would remove her for
cause this morning is because I found her to be totally lacking
credibility to those questions that were asked of her this morning. I
think I have to stand by my ruling. * * * I did announce it to both of
you. * * * I even considered maybe not even calling her up except I
chose to call her up solely to not embarrass her in front of the rest of
the jurors because we had not done that with anyone else. That’s the
sole reason I let her take the seat.
2. Defense Counsel’s Discussion of Sanchez’s Immigration
Status
Defense counsel, while questioning the venire, engaged in the
following line of questioning:
[DEFENSE COUNSEL]: [I]llegal immigration has been a hot topic for
the last few years. I think the judge touched on it. Would you agree?
JUROR NO. 14: Yes.
[DEFENSE COUNSEL]: You will hear rhetoric basically saying that all
illegal immigrants are rapists, drug dealers or murderers?
JUROR NO. 14: Yes.
[DEFENSE COUNSEL]: You have heard it?
JUROR NO. 14: Yes.
[DEFENSE COUNSEL]: I am not saying you would agree with it?
JUROR NO. 14: Right.
[DEFENSE COUNSEL]: Some people do believe that. Do you believe
that?
JUROR NO. 14: I do not believe that.
[DEFENSE COUNSEL]: Does anyone hear [sic] on the panel believe
that? You are going to hear that Elder Sanchez-Sanchez is illegally
here. We’re not going to hide that fact. Does anyone on this panel
believe that that will affect their ability to decide whether my client is
guilty or not guilty?
No prospective juror reported that Sanchez’s lack of legal immigration
status would affect their ability to decide guilt or innocence. After a peremptory
challenge brought a new prospective juror into the jury box, defense counsel asked
the new venireperson if they would hold Sanchez’s presence in the country without
legal status against him. The prospective juror answered that he would not. The
state also repeated the line of questioning with another prospective juror who came
to the jury box as a result of peremptory challenges:
[PROSECUTOR]: You heard Mr. Rodriguez state that his client is here
illegally, correct?
JUROR NO. 4: Yes.
[PROSECUTOR]: How do you feel about that?
JUROR NO. 4: I have no animosity toward that situation.
[PROSECUTOR]: So you won’t feel bad for him because he is not here
legally and that the system itself, The State of Ohio is picking on him
for that reason?
JUROR NO. 4: I don’t think so.
The jury was impaneled, the trial court gave preliminary instructions
and the parties’ counsel gave opening statements.
B. The State’s Case
The state called four witnesses in its case-in-chief at trial.
1. The Examination of J.T.
J.T. testified on direct examination that she was born in 2007 and
lived in the same home for her entire life, along with her parents — “Father” and
“Mother” — and a sibling. She said that Father and Sanchez’s brother met several
years ago and became friends. On cross-examination, she admitted that Sanchez’s
brother still works for Father and they remain friends. She said she sees the brother
frequently and had even seen him on the day of her testimony at trial.
J.T. testified that she met Sanchez and Sanchez’s daughter one day
when Mother and J.T. went to bring lunch to Father and Father’s coworkers. She
said Sanchez was working with Father at the time; Sanchez’s daughter was waiting
in a car for Sanchez to finish work. On cross-examination, J.T. admitted that
Sanchez was a single father and was living with his daughter in an apartment at the
time. She admitted that Sanchez was trying to do the best to care for his daughter
and had brought her to work because he had no one to care for her while he was
working.
J.T. said Mother and J.T. brought Sanchez’s daughter home with
them that day, fed her and offered her clothes and a shower. She said Sanchez later
came to pick up his daughter and sometime thereafter asked if J.T.’s family could
routinely watch his daughter during the day when he went to work with Father. On
cross-examination, J.T. admitted that there were times that Sanchez’s daughter
would spend the night at her house; in fact, the daughter would spend weeks at her
house. J.T. could not remember how long Sanchez’s daughter stayed with them.
J.T. admitted that she would see Sanchez around her house; she and her parents
would talk together with Sanchez.
J.T. testified that Sanchez gave her his cell-phone number when J.T.
asked to take his daughter to another family member’s house so that she could reach
him if needed. J.T. said that the next day was Father’s Day and Sanchez’s daughter
called him from J.T.’s phone to wish him well; she said that is how Sanchez got J.T.’s
cell-phone number. J.T. said that, thereafter, she and Sanchez began
communicating with each other through calls and text messages. J.T. could not
remember who called whom first but said they came to speak together alone every
night over the phone. J.T. described that Sanchez would call her, ask her about her
day and tell her that she was pretty. She testified that he would ask “why I didn’t go
with him a night, and after that, I’ll keep on asking for more * * *.”
J.T. testified that one day, weeks after Father’s Day, there came a time
when her parents left the house for some reason while Sanchez and Sanchez’s
daughter were visiting. She said she took a shower and dried off in the bathroom
while her parents were out. She described what happened next as follows:
[PROSECUTOR]: Where did you get dressed?
[J.T.]: In the bedroom. [so in original transcript]
[PROSECUTOR]: [J.T.], what were you wearing after you got dressed
in the bathroom?
[J.T.]: I was wearing short pants and a shirt.
[PROSECUTOR]: Did you have on underwear?
[J.T.]: Yes.
[PROSECUTOR]: And were you wearing a bra at that time?
[J.T.]: Yes.
[PROSECUTOR]: And were you wearing a sports bra or a regular bra?
[J.T.]: A sports bra.
[PROSECUTOR]: So [J.T.], what happened when you came out of the
bathroom? First of all, which door did you come out of?
[J.T.]: From the hallway.
[PROSECUTOR]: What happened then?
[J.T.]: He is coming up the stairs.
[PROSECUTOR]: When you say he, do you mean Elder?
[J.T.]: Yes.
[PROSECUTOR]: Okay.
[J.T.]: He was coming up the stairs and I asked him what he was doing.
He never responds.
[PROSECUTOR]: Had Elder, as far as you know, ever been on that
floor of your house?
[J.T.]: No.
[PROSECUTOR]: Did Elder have any reason to be on the floor of that
house that you know of?
[J.T.]: No.
[PROSECUTOR]: Does the first floor of your house have a bathroom
on it?
[J.T.]: Yes.
[PROSECUTOR]: So were the guests that day using the bathroom on
the first floor?
[J.T.]: Yes.
[PROSECUTOR]: What happened when you encountered Elder?
[J.T.]: I asked him what he was doing upstairs. He didn’t answer. He
just pushed me inside the bathroom again.
[PROSECUTOR]: Now, [J.T.], when you say he pushed you, what do
you mean?
[J.T.]: He went to here and pushed me back.
[PROSECUTOR]: When you say here, just because I have to describe
what you’re gesturing, did he use one hand or 2?
[J.T.]: 2.
[PROSECUTOR]: Where on your body did he shove you, push you?
[J.T.]: On my shoulders.
[PROSECUTOR]: Now, [J.T.], did he push you backwards into the
bathroom?
[J.T.]: Yes, he pushed me back and turned me around.
***
[PROSECUTOR]: At that time, [J.T.], was your back against the wall
or was Mr. Sanchez against the wall?
[J.T.]: I was against the wall.
[PROSECUTOR]: Did he say anything to you?
[J.T.]: No.
[PROSECUTOR]: What did he do next?
[J.T.]: He took off my pants.
[PROSECUTOR]: Was he standing or did he get down to do that?
[J.T.]: He was standing.
[PROSECUTOR]: What happened next?
[J.T.]: He took off my underwear and then he took off my shirt, and I
asked him what he was doing. He just told me to shut up.
[PROSECUTOR]: He told you to shut up?
[J.T.]: Yes.
[PROSECUTOR]: What were you doing with your hands or arms at
that time?
[J.T.]: I was trying to block it myself.
[PROSECUTOR]: What did he do?
[J.T.]: He was just trying to take off my shirt the whole time, and he
was telling me I couldn’t do nothing basically.
[PROSECUTOR]: Were you able to block * * * Mr. Sanchez from
touching you?
[J.T.]: No.
[PROSECUTOR]: What did he do?
[J.T.]: He took off my underwear and my sports bra and he started
touching me.
[PROSECUTOR]: So before he started touching you, were you naked
at that time?
[J.T.]: I didn’t have any pants on.
[PROSECUTOR]: Was your shirt still on?
[J.T.]: Yes.
[PROSECUTOR]: Did he take your shirt off?
[J.T.]: At the end, yeah.
***
[PROSECUTOR]: Now, [J.T.], before we took our break this afternoon,
you were standing against the wall in between the plant and the door
that goes to the guest bedroom, and at this time you had your pants
down. Mr. Sanchez, what was he doing with his arms at that point?
[J.T.]: He started touching my private part.
[PROSECUTOR]: When you say private part, what do you mean?
[J.T.]: My lower part.
[PROSECUTOR]: Would that be — are you familiar with the term
vagina?
[J.T.]: Yeah.
[PROSECUTOR]: Is that the part that he was touching?
[J.T.]: Yes.
[PROSECUTOR]: [J.T.], when he was touching your vagina, what part
of it was he touching?
[J.T.]: Can you repeat the question?
[PROSECUTOR]: Did he touch the outside of it?
[J.T.]: No.
[PROSECUTOR]: Where did he touch?
[J.T.]: He put his finger inside.
[PROSECUTOR]: He put his finger inside?
[J.T.]: Yes.
[PROSECUTOR]: [J.T.], is that something you wanted to happen?
[J.T.]: No.
[PROSECUTOR]: Is that something you asked to happen? Did you ask
for that?
[J.T.]: No.
[PROSECUTOR]: Did you try to say anything at that point?
[J.T.]: I have just telling him to stop, but he just kept on saying shut
up, so —
[PROSECUTOR]: Did there come a time where he removed his finger
from inside you?
[J.T.]: Yes.
[PROSECUTOR]: What did he do with his hands next?
[J.T.]: He touched my breasts.
[PROSECUTOR]: And did he touch your breasts outside of your
clothes or inside of your clothes?
[J.T.]: Inside of my clothes.
[PROSECUTOR]: Did he go underneath your shirt?
[J.T.]: Yes.
[PROSECUTOR]: Was he underneath your bra as well?
[J.T.]: Yes.
[PROSECUTOR]: Can you describe how he touched you?
[J.T.]: He like — like if you were grabbing something, like that.
***
[PROSECUTOR]: You said he grabbed it or them?
[J.T.]: Yes.
[PROSECUTOR]: What were you doing with your arms at the time he
was then grabbing your breasts?
[J.T.]: Tried to push him off.
[PROSECUTOR]: Were you successful at pushing him off?
[J.T.]: No.
J.T. testified that she did not remember Sanchez trying to kiss her
during this encounter. On cross-examination, J.T. continued describing the
encounter as follows:
[DEFENSE COUNSEL]: He removes your pants, right?
[J.T.]: Yes.
[DEFENSE COUNSEL]: All the way off?
[J.T.]: Yes.
[DEFENSE COUNSEL]: And he inserts his finger inside of you,
correct?
[J.T.]: Yes.
She said the attack ended when her phone rang and Sanchez let go of
her and left the room. She said that Sanchez told her not to say anything “and left
me a message telling me if I said something, he was going to kill my mom and dad.”
According to J.T.’s testimony, at the time of this alleged encounter,
J.T. and Sanchez were “friends” on the social-networking site Facebook and
communicated over the application’s messaging feature, Facebook Messenger. She
said they were also communicating through text messages and over the application
WhatsApp. On cross-examination, J.T. admitted that, at school and through her
parents, she was taught about “bad and good touching.” She admitted that she knew
that what Sanchez did to her in the bathroom was wrong. She further admitted that
she nevertheless continued communicating with Sanchez for months after the
alleged assault. Defense counsel asked her, “And at that point you were no longer
scared of Elder, right?” She answered, “Yes.”
J.T. testified that after this alleged encounter in the bathroom,
Sanchez would ask for pictures of her, “normal pictures” like selfies. She said
Sanchez would also say, through text messages, that she was pretty and “[w]hy I
can’t be his a day,” which J.T. understood to be Sanchez asking why she would not
sleep with him “[l]ike a boyfriend and girlfriend.” J.T. said she always told him no.
J.T. testified that Sanchez at some point began asking J.T. for “naked
pictures.” She said she declined at first, but Sanchez insisted. She described that he
would ask her why she would not send them and promise that he would erase them
and “nothing will happen.” She continued as follows:
[PROSECUTOR]: [J.T.], at any point in time, did you take any nude
photos of yourself?
[J.T.]: Yes.
[PROSECUTOR]: And was this before you were 13 years old?
[J.T.]: Yes.
[PROSECUTOR]: Was this while you were 11?
[J.T.]: Yes.
[PROSECUTOR]: What about when you were 12?
[J.T.]: At 12 it was when we first blocked him.
***
[PROSECUTOR]: Going back to when you were 11, let’s take one step
back, [J.T.] How many times did you send nude photos to Mr. Sanchez-
Sanchez?
[J.T.]: Like around two or three.
[PROSECUTOR]: I know this is difficult and probably a little awkward.
Can you describe the photos that you took of yourself?
[J.T.]: I have — just like on my phone, I would take pictures. I don’t
remember if I used the mirror, but I think I did.
[PROSECUTOR]: Okay.
[J.T.]: I just took the pictures and just sent it.
[PROSECUTOR]: Were you wearing any clothes at all in those photos?
[J.T.]: No.
[PROSECUTOR]: You were completely naked?
[J.T.]: Yes.
[PROSECUTOR]: No underwear?
[J.T.]: No.
[PROSECUTOR]: No bra?
[J.T.]: No.
[PROSECUTOR]: No shirt?
[J.T.]: No.
[PROSECUTOR]: Was your face visible in those photos?
[J.T.]: I think.
J.T. testified that she took these photographs with her iPhone, sent
the message through an application — not regular text messages — and then deleted
the photographs and the messages after sending them from her phone. She said she
also deleted Sanchez’s messages requesting the nude photographs.
J.T. testified that Sanchez sent her one picture of himself which she
described as a picture of his lap when he was wearing underwear.
Mother came to learn that Sanchez was communicating with J.T. and
told J.T. to block Sanchez. On cross-examination, J.T. admitted that she was no
longer afraid of Sanchez at the time her parents confronted her about the text
messages but she did not tell them about the alleged assault in the bathroom. She
further admitted that Father confronted Sanchez about the text messages but
allowed Sanchez to continue working for him.
J.T. initially testified that, after Mother told her to block Sanchez, J.T.
never talked to him again. But after the prosecutor admonished J.T. that “[w]e need
you to be honest,” J.T. admitted that she continued to talk with Sanchez after Mother
told her not to do so; they kept talking to each other through WhatsApp. J.T.
explained that she believed she had fallen in love with Sanchez. She said the nature
of their communications at this time was “like hi, how are you, fine, and you, like
you’re pretty today, thank you.” She admitted that she continued texting with
Sanchez, despite knowing that she would get in trouble for doing so. She said that,
on days that she did not initiate the text conversation, Sanchez would text her first.
J.T. said that Mother and Father at some point were able to monitor
what she did with her phone and saw some of the continued messages going back
and forth between J.T. and Sanchez. She said Mother and Father confronted her
again, told her to stop and asked her why she had not stopped when they initially
told her to stop. She said they warned her that “this is going to be worse than it was.”
J.T. said Sanchez was present during this second confrontation. J.T.
described the confrontation as follows:
[Mother] sat us both down, and she was telling us that what we were
doing was wrong and that that was wrong and he shouldn’t have done
that, and then she just kept on saying that what happened to her, it was
almost like this, but different, and he said that it was never going to
happen again. After that, he went back to work with my dad, and I was
upstairs.
On cross-examination, J.T. admitted that her parents were “pretty
mad” during the second confrontation about the text messages. She said she had
not seen Sanchez in person since that confrontation until seeing him at trial.
J.T. said she did not tell her parents during this confrontation that
Sanchez had requested, and she had sent, nude photographs of herself. She said she
also did not tell them about the attack in the bathroom. She testified that she did
not tell them because she was scared “[t]hat something bad would happen to my
parents.”
J.T. said that Mother and Father came to figure out “what happened
with the photos,” but she does not know how they figured it out. She said her parents
told a cousin who tried to talk to J.T. about “the photos.” J.T. testified that she did
not tell the cousin about “the photos” or “anything else that was going on.” She said
that she tried to tell the cousin about the encounter in the bathroom, but her parents
walked into the room, so she stopped.
J.T. and Sanchez continued communicating electronically after the
second confrontation. J.T. testified that she “completely fell in love with him, and I
knew that it was wrong, but I kept on doing it.”
J.T. identified photographs of text messages she said she exchanged
with Sanchez through the WhatsApp application on October 5, 2019. She identified
a photograph of herself holding a cousin. She said that this was an example of the
kind of “non-nude photographs” that she would send Sanchez; she said that Sanchez
had not requested this photograph, she just sent it on her own. She testified that
Sanchez sent her a “winking face emoji” during the conversation. She related that
several messages had been deleted by Sanchez, and she explained that if Sanchez
deleted a message from his application, the message would also be deleted in her
application.
She said her parents discovered the ongoing communication and
confronted J.T. a third time. J.T. told them that she was sorry and would not do it
again, but her parents told her it was “too late” because they had reported the
situation to the police. On cross-examination, J.T. admitted that Mother was “really
upset” and yelled at J.T. during this third confrontation about the ongoing
communication.
J.T. identified several messages her mom had sent to Sanchez from
her phone, pretending to be her, including a message asking Sanchez if he was
sleeping.
J.T. said that nothing happened with the police at that time.
She testified that when she went back to school, she was called into an
office. She said the school employee told her that somebody had called her and told
her “what was happening;” J.T. believes that Mother had called the school. She said
during this conversation she finally disclosed the assault. She continued as follows:
[PROSECUTOR]: Somebody had referred something to the school?
[J.T.]: Yes.
[PROSECUTOR]: And is that the first time you really told anybody the
full story of what happened in the bathroom?
[J.T.]: Yes.
[PROSECUTOR]: After you told the school, did the police get involved?
[J.T.]: Yes.
On cross-examination, J.T. admitted that she told her parents about
the incident in the bathroom after she got out of school and after her parents told
her that they had gone to the police.
J.T. said her parents met with the police first, then J.T. met with two
people and described her interactions with Sanchez. She said she told those
interviewers about “what happened.” J.T. did not recall what time of year she met
with these two people but said it was “a long time” after the encounter in the
bathroom.
On cross-examination, J.T. admitted that she loves her parents very
much and does not like to disappoint them. She further admitted that she does not
like to be in trouble and, when she gets in trouble, she is sad. She testified that her
parents never spanked her. She admitted that her parents want to protect her. She
also testified that she recalled her parents reporting Sanchez to immigration
authorities and thought her parents wanted Sanchez to be deported.
2. The Examination of Mother2
Mother testified that she met Sanchez through Sanchez’s brother and
that Sanchez came to work for Father’s tree-cutting company. She said she also met
Sanchez’s daughter, who she thought was around seven years old at the time. She
said she invited the daughter to stay at her home. She related that J.T. would take
care of Sanchez’s daughter, they played together and the daughter would sleep in
J.T.’s room. Mother did not know specifically how long the daughter slept in their
home but it was longer than a week. Mother said Sanchez would come to visit his
daughter and, when he did, he would interact with J.T. as well.
Mother testified that she and Father held a family get-together
“around the summertime” while Sanchez’s daughter was staying with them. She
said Sanchez attended the get-together. Mother said that Sanchez and J.T. were
both in the home’s living room at some point during the get-together, but this was
not out of the ordinary because Sanchez’s daughter was also there. From her
perspective, she said, they were “just chatting.” Mother said she did not see anything
out of the ordinary that day. But she said that sometime after this get-together, her
sister-in-law called her with a concern about J.T.’s interaction with Sanchez. After
the call, Mother decided to “be more attentive of everything that was happening”
2 Mother testified through an interpreter.
and to keep a closer eye on J.T. when Sanchez was around. She testified that she did
not remember observing any unusual behaviors from J.T., but she did note that J.T.
was on her phone more often.
Mother testified that between one and two months after this get-
together, she and Father returned home early in the morning after dropping off a
rented machine to find Sanchez texting from his cell phone in their garage. She said
that they saw J.T. in the living room when they went inside, holding her phone in
her hands. She said she and Father found this unusual because J.T. was awake hours
earlier than she normally would be. Mother testified that by this point, “[w]e already
knew something was going on.” She said Father grabbed the phone from J.T.’s
hands and gave it to Mother. Mother said she saw a message on the phone that said,
“[I]t’s been a long time that I have seen you, I’m here at your house, make me some
coffee.” She admitted that the messages she saw were not sexual in nature.
Mother testified that she became very angry and spoke to J.T. “very
strongly.” She said she told J.T. that if “something was going on,” J.T. should have
come to them. She said she asked J.T. what the text messages were about and J.T.
responded that Sanchez called her because he wanted some coffee and she went to
give him the coffee. Mother said she told J.T. in no uncertain terms that this type of
text messaging was not permitted. Mother said she spanked J.T. twice. Mother
testified that she does not normally spank J.T. and the punishment made J.T. very
nervous.
Mother testified that Sanchez saw Mother and Father disciplining J.T.
from outside and came to the kitchen door. Mother said she told Sanchez “that I
was not about to allow him or anyone else to disrespect my daughter.” She said she
told him that she had gone through something hard “that marked me for the rest of
my own life and that I did not want that to happen to my daughter * * *.” Mother
said she warned Sanchez that the next time he text messaged J.T., Mother was going
to report him to the police. She testified that Sanchez asked her to forgive him and
assured her “that nothing else was going to happen * * * and that that was not going
to happen again.”
Mother testified that Sanchez continued working for Father after this
confrontation. Mother said that Sanchez had come to their house many times
between the summer get-together, but after the confrontation in the family garage,
he had never come inside. Mother stated that after this confrontation in the garage,
the arrangement was that “[h]e kept on working, but away from my house’s reach.”
Mother testified that the family took a road trip with Sanchez,
Sanchez’s wife and Sanchez’s two children for about a half hour to go to a river at
some point that year.
Mother admitted that she did not notice any drastic behavioral
changes in J.T. as the summer went by although J.T. did seem more quiet. She said
that sometimes J.T. would be really upset, but she attributed this to “a teenage
thing.” Mother said she did not see anything that would indicate that there were
ongoing communications between Sanchez and J.T.
Mother testified that sometime later, in the late summer or early fall
after J.T. started school, Mother and Father checked J.T.’s phone again. She said
they saw that Sanchez was texting J.T. as they were looking at the phone. Mother
said she was very angry and communicated with Sanchez, pretending to be J.T.
Mother testified that Sanchez was asking J.T. for something but Mother did not
know what he was requesting. She said Sanchez tried calling the phone but she did
not answer.
Mother identified photographs she had taken of J.T.’s phone,
documenting the messages she saw and the phone call. Mother denied sending the
text message asking Sanchez whether he was sleeping. Mother said she talked to
J.T. to find out what Sanchez was asking for in the messages and she came to learn
that Sanchez was asking for money. Mother said J.T. did not report that Sanchez
had asked her for anything besides money.
Mother said she went to immigration authorities the next day and
gave them J.T.’s cell phone and laptop. She said she saw Sanchez there. Mother
said she then went to the police department, but the police told her they could not
take a report because Mother did not have any suspicious photographs or other
physical evidence.
Mother described a conversation in which she asked J.T. whether J.T.
had ever sent Sanchez any photographs. She said J.T. did not want to talk to Mother,
which Mother found unusual because J.T. talked to her a lot. At some point after
this conversation, J.T. did tell Mother that she had sent nude photographs to
Sanchez. Mother said she did not ask any follow-up questions of J.T. about these
photographs but did ask J.T. whether there had been any physical contact between
her and Sanchez. Mother said J.T. seemed nervous and did not answer. Mother
told J.T. that if J.T. were not open and honest, her parents were not going to be able
to help her. J.T. then “disclosed what happened to [her].”
Mother said she then talked to Father and J.T.’s school and J.T.
started going to therapy. Mother said she was then able to go back to the police
department and file a report, after which a detective followed up with Mother,
Father and J.T.
3. The Examination of Father3
Father said that he recently had a “bad accident” and forgets things as
a result.
Father testified that he owns a tree-cutting business. He said that he
knew Sanchez’s brother for “around 15 years” and came to meet and employ Sanchez
in 2019 through that brother.
Father testified that there was a day where he and Mother came home
from making a delivery to find Sanchez in their garage, texting. Father said that he
saw Sanchez coming out of their house and confronted him, asking him what he was
doing there. Father said he went inside and found J.T. awake in their living room,
“which had never happened before.” Father testified that he did not believe J.T. was
3 Father testified through an interpreter.
texting that day. Father asked J.T. what she was doing and J.T. was “obviously very
nervous.” Father said that J.T. said Sanchez was “just drinking coffee.” Father at
first testified that he could not recall whether he grabbed J.T.’s phone that day. He
later confirmed that he did not take her phone that day but he said he did confront
her. Father testified that Mother was not present when this happened.
Father could not remember what happened next, but said, “I do know
that we went through immigration to report him, but I don’t know if that happened
right around that time. I don’t really remember.”
Father testified that there came a time where he took J.T.’s phone. He
could not remember when he took the phone, explaining that “I don’t really
remember well.” He could not say whether this happened at the beginning of the
summer, in the middle of the summer, or at the end of the summer. Nevertheless,
he testified that he looked at J.T.’s phone, gave the phone to Mother and saw text
messages between Sanchez and J.T. on the phone. Father said he “didn’t pay a lot
of attention” to the messages “because I gave the phone to my wife.” He said the
messages may not have referred to sex, “but they were not appropriate conversations
for a child.” Father could not recall what the messages said, though. Father said
that he “think[s]” he talked to J.T. after seeing these messages but was not really
sure. Father at first said he thought that J.T. told him about sending nude pictures
after this first confrontation, but later said it might have been a couple weeks later.
Father could not recall whether Sanchez was present when they took
J.T.’s phone but said he thinks he and Mother confronted Sanchez the next day.
Father said that he and Mother were angry and did not want Sanchez
texting their daughter; they wanted to protect her. Father said that Mother gave J.T.
“[two] spankings.” Father said they made it clear to both Sanchez and J.T. that they
did not want them communicating with each other.
Father admitted that he continued working with Sanchez after this
confrontation for “[a] couple more days.”
Father admitted that Sanchez accompanied Father’s family on a trip
to a river. Father could not recall if the trip was before, or after, the confrontation
about the text messages.
Father said a long period of time, probably a couple months, passed
before he saw a second set of text messages between J.T. and Sanchez. Father said
he did not think J.T. and Sanchez had any physical contact in those two months. He
said he did not check J.T.’s phone during that time and believed that they were not
communicating with each other. Father said he did not notice any behavioral
changes in J.T. during that time.
Father testified that he was the first person to notice that there were
more messages between J.T. and Sanchez after this two-month period. He said he
did not look at the content of the text messages and gave the phone to Mother so
that she could read the messages. He testified that Mother then pretended to be J.T.
in order to discover the topics about which Sanchez and J.T. were talking.
Father said he does not remember seeing any reference to anything
sexual in the messages, but he said he “was very upset.” Father said he asked J.T.
about the text messages and J.T. told him the conversation was about money. Father
testified that he did not believe that explanation. Father said that he and Mother
were both angry and upset when they confronted J.T. Father said that J.T. knew
that she was not supposed to be texting Sanchez and was disobeying her parents by
doing so.
Father testified that Sanchez had continued working for him up to this
point.
Father said that he and Mother went to immigration authorities with
J.T.’s laptop and cell phone to report Sanchez’s contact with J.T. Father testified
that they decided to go to immigration authorities because they knew that Sanchez
“was illegally here” and would be reporting “to immigration” that day. He said they
saw Sanchez at “the immigration building.” Father said he believed that Sanchez
knew that Father was there that day to report him. Father said that he and Mother
were told that the situation “was a matter for the police.”
Father said that Sanchez stopped working for him after they reported
Sanchez to immigration authorities.
Father testified that the police were not able to take a report, initially.
He said the police were only able to make a report after the school social worker
made a report. Father could not remember if he spoke with the police after the social
worker made this report.
The state asked Father questions about Sanchez leaving Cleveland and
Father testified as follows:
[PROSECUTOR]: So once the police were able to do something about
it later on, did you become aware that they were looking for Elder?
[FATHER]: Yes.
[PROSECUTOR]: Do you know if Elder was still located in Cleveland
at the time?
[FATHER]: He was.
[PROSECUTOR]: Did there come a time where you learned that Elder
was no longer in Cleveland?
[FATHER]: Yes.
[PROSECUTOR]: How did you find that out, and I don’t want to know
what somebody told you. How did you find out?
[FATHER]: I was having a conversation with a person that is a family
member of Elder’s. This person said where Elder was now.
[PROSECUTOR]: Did you learn where Elder was?
[FATHER]: No.
[PROSECUTOR]: Did you eventually learn where Elder was?
[FATHER]: Yes.
[PROSECUTOR]: And did you provide that information to the police?
[FATHER]: The person who told me where he was is the one that told
the detective where he was.
[PROSECUTOR]: And do you know where the police found Elder?
[FATHER]: In New York, but I wouldn’t know the address.
On cross-examination, Father said he remembered hosting an event
in the summer of 2019 but said he could not remember if it was a birthday party,
just a family gathering or something different. Father testified that Sanchez
attended the party with Sanchez’s daughter. Father said that he “was not really
paying attention to what may have been going on” at the party. Father testified that
he could not remember whether he saw anything out of the ordinary between
Sanchez and J.T. at that party. Father admitted that he continued to employ
Sanchez after this party.
Father testified, on cross-examination, as follows:
[DEFENSE COUNSEL]: You stayed in communication with Elder,
correct?
[FATHER]: Not all the time. Sometimes. I wanted to be aware of his
whereabouts.
[DEFENSE COUNSEL]: Enough for you to send a picture of your
broken leg?
[FATHER]: I really don’t see why I wouldn’t.
[DEFENSE COUNSEL]: This is after these allegations have come out,
right?
[FATHER]: Yes, but even though I knew what had happened, I never
really thought that he was capable of doing something like that. I
thought of him as my friend still. I never really believed that he would
be able to do something like that.
[DEFENSE COUNSEL]: So on December 1st, 2019 after all these
allegations have been brought forth, you did believe he was capable of
doing it, correct?
[FATHER]: I don’t know what to tell you.
4. The Examination of Detective Richard Tusing
Detective Richard Tusing, now a homicide detective, testified that he
has worked for the Cleveland Police Department for 28 years, first as a patrol officer
for 20 years and he then joined the Sex Crimes and Child Abuse Unit as a detective.
He said he was in that unit for seven and one-half years, during which time he
investigated the allegations against Sanchez.
Tusing testified that on November 10, 2019, J.T.’s family reported an
alleged rape involving J.T. and Sanchez. He said he was assigned to follow up on
that report. He said he did “research background checks” on everyone who was
listed in the report and arranged to have J.T. interviewed.
Tusing testified that Mother and Father brought J.T. to a child-
advocacy center for a forensic interview on November 19, 2019 with an interviewer
from the Cuyahoga County Division of Children and Family Services. Tusing said
he and his partner, another detective, observed the interview from another room.
Tusing admitted on cross-examination that this interview was
recorded, and he heard J.T. tell the interviewer that Sanchez had kissed her. Tusing
admitted that Sanchez was on trial for gross sexual imposition for allegedly kissing
J.T. and he repeated that J.T. told them in her interview that Sanchez had kissed her
in the bathroom. Tusing said he does not consider it to be inconsistent that J.T.
testified at trial that Sanchez had not kissed her during the encounter in the
bathroom.
Tusing further testified on cross-examination that J.T. told the
interviewer that the assault in the bathroom stopped when Sanchez’s daughter came
back into the house “because they had come back from the beach or somewhere”
and she was looking for J.T. or Sanchez. Tusing said he did not recall J.T. telling the
interviewer that the assault stopped when her phone rang. On redirect, Tusing
testified that, in his experience, child victims “will remember different key parts of
an incident” as time goes on.
Tusing testified that in his years working in the sex-crimes unit, he
had the opportunity to work with sexual assault nurse examiners (“SANE nurses”).
Tusing said that the family’s report to law enforcement in this case occurred a few
months after the alleged rape. He further testified that there is no need to have a
SANE nurse examine a patient after the passage of a few months “because you’re not
going to be able to retrieve any type of evidentiary evidence after 72 to 96 hours.”
On cross-examination, Tusing admitted that the SANE nurse is specifically trained
to do a physical examination of a patient, retrieve DNA evidence if available,
photograph possible injuries and administer a “rape kit.” Tusing further admitted
that a victim — like an 11-year-old girl — could possibly experience “some tearing”
during a sexual assault. On redirect, Tusing said there is no evidentiary value in
having an alleged crime victim undergo a SANE examination two months after an
alleged offense.
Tusing testified that he interviewed Mother at the child advocacy
center. Tusing admitted that he did not ask Mother about what she knew about the
alleged assault in the bathroom; he said he did not ask her because she did not
witness the alleged assault and was not home at the time it allegedly occurred.
Tusing testified that he interviewed Father at the family’s home. He
said he had to interview Father at home because Father “was working a lot, and he
wasn’t able to make it in” for an interview. Tusing said that on one occasion, Father
also was bedridden with a broken leg during an interview.
Tusing testified that he did not photograph the bathroom in J.T.’s
home because “I didn’t see that it was anything because months later of anything of
really evidentiary value of actually doing that.” On cross-examination, Tusing
admitted that detectives are generally trained to take photographs of crime scenes
when there is an opportunity to do so. He further admitted that he never went into
the bathroom, despite knowing that the bathroom was the alleged crime scene.
Tusing further admitted that he never asked for the clothes that J.T. was wearing
during the alleged assault, even though he could have asked for them and submitted
them to a laboratory. Tusing said he felt it had been too long since the assault for
any evidence to be collected from the clothing but he did admit that he never asked
the family if those clothes had been washed since the alleged assault. On redirect,
Tusing testified that the state laboratory would decline to process clothing collected
two months after an alleged assault.
Tusing testified on cross-examination that Mother and Father had
given J.T.’s Chrome Book and cell phone to immigration authorities. Tusing said
that law enforcement attempted to forensically examine the devices. Tusing said
that law enforcement were not able to complete the examination on the Chrome
Book. He said that he did not believe any text messages or photographs were
recovered from the examination of the cell phone. On redirect, Tusing testified that
material that has been deleted by a user is not always recoverable from a cell phone.
Tusing testified that he, or his partner, obtained search warrants for
accounts on the social-media applications Instagram and Facebook. He admitted
that he did not seek a search warrant for the application WhatsApp, despite knowing
that there were communications between J.T. and Sanchez through WhatsApp. He
admitted that he did not seek a search warrant or a subpoena for any cell-phone
records, despite knowing J.T.’s phone number and despite knowing Sanchez’s
phone numbers. He further admitted that there was a possibility that if he had done
so, he may have obtained text messages.
Tusing testified that he came to learn through this investigation that
Sanchez was 29 years old and had been living a short drive from J.T.’s home. Tusing
could not remember the exact address, but he said he knew it was off of Storer
Avenue on the west side of Cleveland.
Tusing testified that law enforcement obtained an arrest warrant for
Sanchez and attempted to execute the warrant in November or early December
2019. Tusing described his knowledge of the circumstances of that attempt as
follows:
[DETECTIVE TUSING]: I informed the supervisor at what is called our
NICE unit. They would go out and look for people with — that we issue
arrest warrants for. I related what information I had, and they went
out and attempted to locate him.
***
[PROSECUTOR]: Based on their attempt, what did you learn?
[DETECTIVE TUSING]: I learned that they went to Mr. Sanchez’s
house, attempted to arrest him. They couldn’t — they could see signs
in the house that somebody was there, but they were unable to get in
[so in original transcript] to answer the door.
***
[PROSECUTOR]: Did another attempt to arrest Mr. Sanchez-Sanchez
on that warrant — was another attempt made?
[DETECTIVE TUSING]: We wound up learning that he had fled the
state.
[PROSECUTOR]: When did you learn that?
[DETECTIVE TUSING]: It was shortly after, a day, maybe 2 days. I
know it was very shortly after, within a week [of] the NICE unit going
out to his house to arrest him.
Tusing continued testifying on cross-examination as follows:
[DEFENSE COUNSEL]: You get an arrest warrant, correct?
[DETECTIVE TUSING]: Yes.
[DEFENSE COUNSEL]: And there is an intent to go arrest [Sanchez]
at the home that you believe he lived at, correct?
[DETECTIVE TUSING]: Yes.
***
[DETECTIVE TUSING]: To the best of my knowledge, they related
information to me that they believed people were in the house, but
nobody would answer the door.
[DEFENSE COUNSEL]: You were not there, correct?
[DETECTIVE TUSING]: I was not there.
[DEFENSE COUNSEL]: You have no information, no personal
knowledge, whether [Sanchez] was at that house that night, do you?
[DETECTIVE TUSING]: I don’t believe anybody does, because nobody
answered the door.
[DEFENSE COUNSEL]: That’s my point. We don’t know if [Sanchez]
was there that night or not there that night, right?
[DETECTIVE TUSING]: Correct.
Tusing testified that Father received information in February 2020
that Sanchez had gone to New York. Tusing said Father “provided me with [a]
possible location in New York for him.” Tusing said he passed the information on
to a law-enforcement “fugitive unit” that has federal resources to locate people who
may be outside of Cuyahoga County. Tusing said that this unit, in turn, contacted
authorities in New York. Tusing testified that authorities were able to locate and
arrest Sanchez in New York state. Tusing said he thought the U.S. Marshals arrested
Sanchez, through the U.S. Marshals’ Violent Fugitive Task Force. Tusing said the
arrest had nothing to do with Sanchez’s immigration status and immigration
authorities were not involved in the arrest. Tusing admitted on cross-examination
that Sanchez had not resisted arrest in New York and, in fact, waived extradition
back to Ohio.
As to how Father received information on Sanchez’s location,
Detective Tusing testified as follows:
[PROSECUTOR]: Detective Tusing, did you ever inquire as to how
[Father] obtained the information as to where Mr. Sanchez-Sanchez
was?
[DETECTIVE TUSING]: Yes.
[PROSECUTOR]: How so?
[DETECTIVE TUSING]: How did I acquire it?
[PROSECUTOR]: Did you learn how it was acquired?
[DETECTIVE TUSING]: Yes.
[PROSECUTOR]: How was it acquired?
[DETECTIVE TUSING]: [Father] had talked to people that he knew in
New York and offered a reward for his location.
The state rested its case after the detective’s testimony.
C. The Motion for Acquittal and the Defense Case
After the close of the state’s case, the state moved for a nolle prosequi
as to Count 3, which had alleged that Sanchez committed gross sexual imposition by
kissing J.T. The defense indicated that it had no objection to that motion. As a result
of the nolle prosequi, the illegal-use-of-a-minor-in-nudity-oriented-material charge
was renumbered as Count 3.
Sanchez moved for acquittal on all the charges pursuant to Crim.R.
29. The trial court denied the motion.
The defense did not present a case.
The state then admitted 15 exhibits, with no objection from the
defense.
D. Closing Arguments and Jury Instructions
The defense objected to the court’s intent to provide a jury
instruction regarding flight. The trial court overruled the objection and instructed
the jury as follows after closing arguments and the defense’s renewed motion for
acquittal:
Testimony has been admitted indicating that the Defendant fled the
scene. You’re instructed that the Defendant’s flight alone does not raise
a presumption of guilt. But it may tend to indicate the Defendant[’]s
consciousness or awareness of guilt.
If you find that the facts do not support that [so in original transcript]
the Defendant[’]s flight or if you find that some other motive prompted
the Defendant’s conduct or if you’re unable to decide what the
Defendant[’]s motivation was, then you should not consider the
evidence for any purpose.
However, if you find that the facts support that the Defendant engaged
in such conduct and if you decide that the Defendant was motivated by
a consciousness or an awareness of guilt, you may, but are not required,
to consider that evidence in deciding whether the Defendant is guilty of
the crimes charged. You alone will determine what weight, if any, to
give to the evidence.
During the closing argument, defense counsel stated that “Elder
[Sanchez-Sanchez] came to Cleveland illegally from Honduras with his 7-year-old
daughter.” Counsel argued that Mother and Father wanted Sanchez to be deported,
which is why they reported Sanchez to immigration authorities. He argued that
“[t]hey knew he is illegally here, and we’re going to get him deported.”
As it relates to the state’s argument that Sanchez fled to New York to
avoid arrest and prosecution, defense counsel argued that Sanchez went to New
York, not to avoid arrest for assaulting J.T., but rather, because “he is here illegally
with a 7-year-old child” and “because he was scared of immigration and eventually
getting deported.”
Sanchez renewed his motion for acquittal after closing arguments.
The state did not object to the timing of the renewed motion. The trial court allowed
the motion and denied it, finding Sanchez’s guilt or innocence to be a question for
the jury.
E. The Verdict
After deliberating, the jury returned its verdict. The jury found
Sanchez guilty of rape, gross sexual imposition and illegal use of a minor in nudity-
oriented material or performance. With regard to the rape conviction, the jury
further found that Sanchez compelled J.T. to submit by the use of force or the threat
of force and that J.T. was less than 13 years old at the time of the offense. With
regard to the gross-sexual-imposition conviction, the jury further found that J.T.
was less than 13 years old at the time of the offense.
The defense requested that the jury be polled and each juror
confirmed the verdicts.
F. The Sentence and Appeal
The case proceeded to sentencing on September 14, 2021. Sanchez
addressed the trial court, maintaining his innocence, and the state submitted impact
letters from J.T., Mother and Father. The trial court sentenced Sanchez to
imprisonment for 25 years to life on Count 1 (rape), five years on Count 2 (gross
sexual imposition) and six years on Count 3 (illegal use of a minor in nudity-oriented
material or performance, formerly Count 4). The court imposed the sentences
concurrently and gave Sanchez credit for over a year and half of pretrial detention.
Sanchez appealed, raising the following seven assignments of error
for review:
First Assignment of Error: The trial court erred by failing to grant a
judgment of acquittal pursuant to Crim.R. 29(A), on all three
remaining counts of the indictment, and thereafter entering a
judgment of conviction of that offense which was not supported by
sufficient evidence, in derogation of Mr. Sanchez’s right to due process
of law, as protected by the Fourteenth Amendment to the United States
Constitution.
Second Assignment of Error: The trial court erred by entering a
judgment of conviction, on all three remaining counts of the
indictment, that was against the manifest weight of the evidence, in
derogation of Mr. Sanchez’s right to due process of law, as protected by
the Fourteenth Amendment to the United States Constitution.
Third Assignment of Error: The trial court committed structural error,
in violation of the Due Process Clause of the United States Constitution,
when present on the bench was a judge who was not impartial, but
rather was biased against Mr. Sanchez.
Fourth Assignment of Error: The trial court abused its discretion in
giving the jury a flight instruction when there was no evidence that Mr.
Sanchez attempted to evade prosecution.
Fifth Assignment of Error: Trial counsel for Mr. Sanchez failed to
provide effective assistance of counsel, guaranteed by both the United
States Constitution and the Ohio Constitution.
Sixth Assignment of Error: The trial court committed plain error, in
violation of both the rule against hearsay, and Mr. Sanchez’s right to
confrontation under the United States Constitution, when it admitted
testimony regarding reward money offered by Father.
Seventh Assignment of Error: The cumulative effect of multiple errors
at trial, even if singularly not sufficient to warrant reversal, together
deprived [Sanchez] of a fair trial and a denial of due process.
II. Law and Analysis
A. First Assignment of Error — Sufficiency of the Evidence
Sanchez contends that the state did not present sufficient evidence to
support a conviction and he says the trial court should, therefore, have granted his
Crim.R. 29(A) motion for acquittal on each of the rape, gross-sexual-imposition and
illegal-use-of-a-minor counts.
A Crim.R. 29(A) motion for acquittal tests the sufficiency of the
evidence. State v. Hill, 8th Dist. Cuyahoga No. 98366, 2013-Ohio-578, ¶ 13. Crim.R.
29(A) mandates that the trial court issue a judgment of acquittal where the state’s
evidence is insufficient to sustain a conviction for an offense. Crim.R. 29(A) (the
trial court “shall order the entry of a judgment of acquittal of one or more offenses
* * * if the evidence is insufficient to sustain a conviction of such offense or
offenses”); State v. Taylor, 8th Dist. Cuyahoga No. 100315, 2014-Ohio-3134, ¶ 21.
Accordingly, we apply the same standard of review to a trial court’s denial of a
defendant’s motion for acquittal as we use when reviewing sufficiency of the
evidence. Id. at ¶ 22–23 (“Crim.R. 29(A) and sufficiency of evidence review require
the same analysis.”), citing Cleveland v. Pate, 8th Dist. Cuyahoga No. 99321, 2013-
Ohio-5571.
A challenge to the sufficiency of the evidence supporting a conviction
requires a determination of whether the state has met its burden of production at
trial. State v. Hunter, 8th Dist. Cuyahoga No. 86048, 2006-Ohio-20, ¶ 41, citing
State v. Thompkins, 78 Ohio St.3d 380, 390, 678 N.E.2d 541 (1997). Whether the
evidence is legally sufficient to support a verdict is a question of law. Thompkins at
386.
An appellate court’s function when reviewing the sufficiency of
evidence to support a criminal conviction is to examine the evidence admitted at
trial to determine whether such evidence, if believed, would convince a reasonable
juror of the defendant’s guilt beyond a reasonable doubt. Id.; see also State v.
Bankston, 10th Dist. Franklin No. 08AP-668, 2009-Ohio-754, ¶ 4 (noting that “in a
sufficiency of the evidence review, an appellate court does not engage in a
determination of witness credibility; rather, it essentially assumes the state’s
witnesses testified truthfully and determines if that testimony satisfies each element
of the crime”). The appellate court must determine ‘“whether, after viewing the
evidence in a light most favorable to the prosecution, any rational trier of fact could
have found the essential elements of the crime proven beyond a reasonable doubt.”’
State v. Leonard, 104 Ohio St.3d 54, 2004-Ohio-6235, 818 N.E.2d 229, ¶ 77,
quoting State v. Jenks, 61 Ohio St.3d 259, 574 N.E.2d 492 (1991), paragraph two of
the syllabus.
The elements of an offense may be proven by direct evidence,
circumstantial evidence or both. See, e.g., State v. Wells, 8th Dist. Cuyahoga No.
109787, 2021-Ohio-2585, ¶ 25, citing State v. Durr, 58 Ohio St.3d 86, 568 N.E.2d
674 (1991). “Direct evidence exists when ‘a witness testifies about a matter within
the witness’s personal knowledge such that the trier of fact is not required to draw
an inference from the evidence to the proposition that it is offered to establish.”’
Wells at ¶ 25, quoting State v. Cassano, 8th Dist. Cuyahoga No. 97228, 2012-Ohio-
4047, ¶ 13. Circumstantial evidence is “evidence that requires ‘the drawing of
inferences that are reasonably permitted by the evidence.’” Wells at ¶ 25, quoting
Cassano at ¶ 13; see also State v. Hartman, 8th Dist. Cuyahoga No. 90284, 2008-
Ohio-3683, ¶ 37 (“[C]ircumstantial evidence is the proof of facts by direct evidence
from which the trier of fact may infer or derive by reasoning other facts in
accordance with the common experience of mankind.”) Circumstantial evidence
and direct evidence have “equal evidentiary value.” Wells at ¶ 26, citing State v.
Santiago, 8th Dist. Cuyahoga No. 95333, 2011-Ohio-1691, ¶ 12.
We address Sanchez’s argument as to each count of conviction, in
turn.
1. There was Sufficient Evidence to Support the Rape
Conviction
Ohio Revised Code Section 2907.02 states, in relevant part, that a
person commits rape by “engag[ing] in sexual conduct with another * * * when * * *
[t]he other person is less than thirteen years of age, whether or not the offender
knows the age of the other person.” R.C. 2907.02(A)(1)(b).
“Sexual conduct” includes, among other things, “the insertion,
however slight, of any instrument, apparatus, or other object into the vaginal * * *
opening of another” without the privilege to do so. R.C. 2907.01(A). The insertion
of a finger into another person’s vaginal opening — digital penetration — is “sexual
conduct.” E.g., State v. Jackson, 2015-Ohio-5490, 63 N.E.3d 410, ¶ 44 (2d Dist.)
(victim testified that the defendant twice “fingered her vagina on the inside”); State
v. White, 3d Dist. Seneca No. 13-16-21, 2017-Ohio-1488, ¶ 36 (victim testified that
the defendant “put his fingers down in [her] vagina”); State v. Smith, 10th Dist.
Franklin No. 03AP-1157, 2004-Ohio-4786, ¶ 19 (victim testified that the defendant
“put his finger in her ‘pee-pee’”).
If a person purposely compels a victim who is at least 10 years old but
less than 13 years old to submit to sexual conduct by force or threat of force, then
the offender is subject to a mandatory sentence of imprisonment for 25 years to life.
R.C. 2971.03(B)(1)(c).
Sanchez argues that the evidence was not sufficient to allow a
reasonable jury to conclude beyond a reasonable doubt that Sanchez inserted his
finger into J.T.’s vagina. He contends that the rape conviction relies solely on the
testimony of J.T., who was 11 or 12 years old at the time the alleged digital
penetration occurred and who testified about the alleged incident when she was
13 years old. Sanchez argues that the state laid no foundation to establish that J.T.
knew what her vagina was — as opposed to, say, her labia or other genital structures
— and the testimony the state elicited from J.T. about the alleged penetration was
vague. Sanchez’s position is that it would be unreasonable to assume that a child as
young as J.T. knows enough about their anatomy to distinguish their vagina from
other genital structures around the vagina in the absence of testimony establishing
that knowledge.
Sanchez argues that J.T.’s testimony was vague with respect to where
Sanchez touched J.T. We disagree.
“[A] victim’s testimony alone is sufficient to support a rape
conviction.” (Citation omitted.) State v. Roan, 8th Dist. Cuyahoga No. 108917,
2020-Ohio-5179, ¶ 21.
Moreover, Ohio courts have consistently held that if the force of an
object — like a finger — causes a victim’s labia to spread, that is sufficient
penetration to constitute “sexual conduct” under the statute; it is not necessary for
an object to penetrate into the vagina. E.g., Roan at ¶ 20 (“‘[E]vidence of slight
penetration, entering the vulva or labia, is sufficient to support a rape conviction.”’),
quoting State v. Falkenstein, 8th Dist. Cuyahoga No. 83316, 2004-Ohio-2561, ¶ 16;
State v. Artis, 6th Dist. Lucas No. L-19-1267, 2021-Ohio-2965, ¶ 97 (“[A]lthough
perhaps medically imprecise[,] legally[] the vagina begins at the external genitalia,
not some deeper internal structure.”).4
Even assuming arguendo that J.T. did not know enough about
anatomy to distinguish her vagina from other genital structures, her testimony
makes clear that Sanchez touched the “inside” of her “lower” “private part,” as
opposed to the “outside” of it. She further confirmed that Sanchez “insert[ed] his
finger inside of [her].” Viewing the evidence in the light most favorable to the state
— as we must — this testimony was sufficient to establish actionable penetration.
Sanchez refers us to State v. Ferguson — 5 Ohio St.3d 160, 450
N.E.2d 265 (1983) — but that case does not require reversal here. In Ferguson, the
4 See also State v. Strong, 1st Dist. Hamilton Nos. C-100484 and C-100486, 2011-
Ohio-4947, ¶ 54 (“[P]enetration of the labia was sufficient to prove penetration of the
vagina for purposes of satisfying the element of sexual conduct as defined in R.C.
2907.01(A) * * * the labia is the anterior of the female genital organ.”); State v. Svoboda,
1st Dist. Hamilton Nos. C-190752 and C-190753, 2021-Ohio-4197, ¶ 35 (testimony that
the defendant put his fingers “towards the upper part on the vagina on the inside of, like,
the skin there” was sufficient evidence of penetration); State v. Wright, 2d Dist. Miami
No. 2021-CA-17, 2022-Ohio-1786, ¶ 164–65; State v. Patterson, 5th Dist. Tuscarawas No.
2020 AP 12 0025, 2021 Ohio App. LEXIS 2361 (July 12, 2021), ¶ 24 (“Courts have
consistently held that vaginal penetration is proved when any object is applied with
sufficient force to cause the labia majora to spread.”); State v. Melendez, 9th Dist. Lorain
No. 08CA009477, 2009-Ohio-4425, ¶ 9–13; State v. Sanchez, 11th Dist. Ashtabula No.
2018-A-0097, 2020-Ohio-5576, ¶ 47 (“[I]nsertion of an object inside a female’s vulva or
labia, without penetration into the vaginal cavity itself, constitutes ‘sexual conduct’ to
establish rape.”).
only evidence presented as to penetration was the victim’s statement that “we had
intercourse a couple times.” Ferguson at 167. The victim did not testify that she and
the defendant had sexual intercourse, nor did she testify about the extent of any
penetration. Id. at 167–68. The Ohio Supreme Court held that the evidence was
insufficient to sustain a rape conviction, noting that sexual intercourse was only one
of the accepted definitions of the word “intercourse.” Id. The court reasoned that
“we will not draw inferences against the accused from what must be characterized
as vague and ambiguous testimony.” The court stated that “it is the state’s burden
to prove an accused’s guilt beyond a reasonable doubt, not ours,” and while it may
be unpleasant for a victim to describe a sexual attack in court, “we must reinforce
the need to have the events described with sufficient clarity to establish the
offender’s guilt beyond a reasonable doubt.” Id. at 168, fn. 6.
Here, though, we are not required to draw any inferences against
Sanchez to find actionable penetration. J.T. specifically testified that Sanchez
touched the “inside” of her “lower” “private part.” She testified that she knew what
the word “vagina” meant and said that Sanchez touched the inside of her vagina. As
discussed above, even if this testimony were ambiguous about whether Sanchez
physically penetrated J.T.’s vagina (as opposed to her labia), J.T. was able to
differentiate between the “outside” and the “inside” of her genitals and she
specifically said Sanchez touched the “inside.” If believed, this testimony would be
sufficient to support a conclusion that Sanchez penetrated J.T.’s vagina as that word
is used in the statute.
The state presented evidence that J.T. was less than 13 years old at
the time of the sexual conduct.
J.T. also testified that Sanchez compelled the sexual conduct by
force. Among other things, J.T. testified that Sanchez pushed her into the bathroom,
turned her around, took off her clothes, penetrated her and then threatened to kill
her parents if she disclosed the encounter. She testified that during the assault, she
tried to block herself from Sanchez’s touch and push him away but he overcame her
efforts and persisted in touching her.
There was, therefore, sufficient evidence for the jury to find that
Sanchez raped J.T. while she was less than 13 years old and purposely compelled the
sexual conduct through force or threat of force.
We overrule Sanchez’s first assignment of error as it relates to his
conviction for rape.
2. There was Sufficient Evidence to Support the Gross-
Sexual-Imposition Conviction
Ohio Revised Code Section 2907.05 states, in relevant part, that a
person commits gross sexual imposition by “hav[ing] sexual contact with another
* * * when * * * [t]he other person * * * is less than thirteen years of age, whether or
not the offender knows the age of that person.” R.C. 2907.05(A)(4).
“Sexual contact” means, in relevant part, “any touching of an
erogenous zone of another, including * * * if the person is a female, a breast, for the
purpose of sexually arousing or gratifying either person.” R.C. 2907.01(B).
We readily find sufficient evidence here. J.T. testified that when she
was less than 13 years old, Sanchez pushed her into a bathroom, took off her clothes
and “grabb[ed]” her breasts under her shirt and bra. A rational trier of fact could
find that Sanchez did this for his own sexual arousal and gratification.
We overrule Sanchez’s first assignment of error as it relates to his
conviction for gross sexual imposition.
3. There was Insufficient Evidence to Support the
Conviction for Illegal Use of a Minor in Nudity-Oriented
Material or Performance
In most circumstances, it is illegal for a person to “create, direct,
produce, or transfer any material or performance that shows [a] minor * * * in a state
of nudity.”5 R.C. 2907.323(A)(1). In relevant part, “nudity” includes “the showing,
representation, or depiction of human * * * female genitals, pubic area, or buttocks
with less than a full, opaque covering, or of a female breast with less than a full,
opaque covering of any portion thereof below the top of the nipple * * *.”
R.C. 2907.01(H).
Sanchez’s argument on appeal6 is focused on whether there was
sufficient evidence that the photographs J.T. allegedly took of herself and sent to
5 There are enumerated circumstances in which it is not illegal to do so,
R.C. 2907.323(A)(1)(a)–(b), but these circumstances are not relevant here.
6 The state’s and Sanchez’s Crim.R. 29 arguments at trial focused on whether
Sanchez’s solicitation of “naked photographs” could be considered “creat[ing], direct[ing],
produc[ing], or transfer[ring]” nudity-oriented material. Sanchez’s trial counsel argued
that even if Sanchez received a photograph of J.T. nude, “[r]eceiving is not the same thing
as creating, directing or producing or transferring material.” The state argued that J.T.
created the “nude photos” at Sanchez’s direct request and Sanchez’s solicitation should
Sanchez were “nudity-oriented material.” Sanchez argues that J.T.’s testimony was
the only evidence presented about the contents of the photographs she allegedly sent
to him and she did not testify that those photographs showed her genitals, pubic
area, buttocks or breasts below the top of the nipple. Sanchez says that the state’s
evidence is not sufficient to sustain a conviction for illegal use of a minor in nudity-
oriented material or performance. We agree.
On direct examination, J.T. testified that after the assault in the
bathroom, Sanchez asked her to send him pictures of herself. She said that at first,
he asked for “normal pictures” like “selfies.” She said she did send him “selfies.”
The state introduced one such photograph, which J.T. identified as depicting her
and her cousin. J.T. said that he would also send her messages saying that she was
pretty and “[w]hy don’t I go sleep with him a day.”
J.T. testified that Sanchez then began asking her for “naked
pictures.” She said that she initially declined, but Sanchez insisted, telling her that
he would erase the photographs “and nothing will happen.”
J.T. continued testifying as follows about the “nude photos” she sent
to Sanchez:
therefore be considered “direct[ing]” nudity-oriented material. Because we find that there
was insufficient evidence as to the “nudity-oriented material” element, we need not
determine on this appeal whether a defendant who merely solicits and receives a nude
photograph of a minor — without otherwise facilitating the creation of the photograph or
transferring the photograph — can be considered to have “created, directed, produced, or
transferred” the photograph.
[PROSECUTOR]: [J.T.], at any point in time, did you take any nude
photos of yourself?
[J.T.]: Yes.
***
[PROSECUTOR]: I know this is difficult and probably a little awkward.
Can you describe the photos that you took of yourself?
[J.T.]: I have — just like on my phone, I would take pictures. I don’t
remember if I used the mirror, but I think I did.
[PROSECUTOR]: Okay.
[J.T.]: I just took the pictures and just sent it.
[PROSECUTOR]: Were you wearing any clothes at all in those photos?
[J.T.]: No.
[PROSECUTOR]: You were completely naked?
[J.T.]: Yes.
[PROSECUTOR]: No underwear?
[J.T.]: No.
[PROSECUTOR]: No bra?
[J.T.]: No.
[PROSECUTOR]: No shirt?
[J.T.]: No.
[PROSECUTOR]: Was your face visible in those photos?
[J.T.]: I think.
The state did not introduce any of the alleged nude photographs into
evidence, nor did the state introduce any of Sanchez’s alleged requests for “naked
pictures.” J.T. testified that she deleted Sanchez’s requests and the nude
photographs from her phone. No one else testified about what those photographs
depicted and, therefore, J.T.’s testimony is the sole source of direct evidence about
what those photographs depicted.
We find that J.T.’s testimony is vague and ambiguous as to what the
photographs actually depicted, beyond J.T.’s face. She testified that she was
“completely naked” when she took the photographs but her testimony could
describe photographs that are not nudity-oriented material. For example, this
testimony could describe photographs of just J.T.’s face; photographs of J.T.’s face
and bare shoulders; photographs of J.T.’s face, shoulders and breasts only above the
top of the nipples or photographs of J.T.’s back from the waist up, with J.T. looking
backwards over her shoulder into the mirror. The testimony could describe
photographs where electronic stickers or some other electronic filter covers the body
parts that would otherwise trigger criminal liability. Even if J.T. were completely
naked when she took the photographs, if the photographs did not depict one or more
enumerated body parts, they were not nudity-oriented material. See R.C.
2907.01(H).
Thus, to sustain Sanchez’s conviction, we would have to “draw
inferences against the accused from what must be characterized as vague and
ambiguous testimony.” Ferguson, 5 Ohio St.3d at 167–168, 450 N.E.2d 265.
The state argues that a reasonable factfinder could draw the
necessary inference from the circumstantial evidence presented. Sanchez solicited
“naked pictures” from J.T. after he assaulted her. When she said no, he insisted,
promising her that he would delete them “and nothing will happen.” J.T.
purportedly deleted the photographs that were sent. Sanchez sent J.T. a photograph
of his lap, in which he was wearing only underwear.
J.T. and Mother both testified that Mother made it clear to J.T. and
Sanchez that they were not allowed to communicate with each other. Mother told
Sanchez that if she caught him texting J.T. again, she would go to the police. Sanchez
and J.T. were thus already motivated to hide their communications. On the record
before us, we cannot say that deleting the photographs is an indication that the
photographs were nudity-oriented material. In fact, a reasonable factfinder may
have drawn the opposite inference from the circumstantial evidence about the
photographs’ content. J.T. may have been more likely to leave her pubic area,
breasts below the top of the nipples and buttocks out of the photographs because
she was hesitant to send naked pictures to Sanchez in the first place.
The state refers us to State v. Sotelo in support of its argument.
Sotelo, 6th Dist. Lucas No. L-19-1240, 2020-Ohio-5368. The nature of the videos in
that case, though, was not in dispute; the defendant conceded that the videos were
child pornography. Id. at ¶ 52. The issue in Sotelo was whether the evidence was
sufficient to establish that the defendant knew that the videos were child
pornography when she disseminated them. Id. The appeals court reasoned that
there was sufficient evidence that she did know, because she admitted that she saw
a thumbnail image of a child, a forensic examination revealed that she had deleted
the videos and she sent a text message acknowledging that she had sent an illicit
image of a “preteen.” Id.
Here, Sanchez has not conceded that any of the photographs J.T.
sent him were nudity-oriented material and the only evidence presented about these
photographs was that J.T. was naked when she took them and she thinks they
showed her face. After a careful review of the record, we find that there is insufficient
evidence for a reasonable factfinder to conclude beyond a reasonable doubt that the
photos were “nudity-oriented material.”
The state has elicited sufficiently detailed testimony in other cases
where the photographs at issue were not introduced into evidence. In State v.
Murphy, for example, the state did not admit the photograph at issue into evidence
but it elicited the following testimony from the victim-witness at trial:
Q: Did [Defendant] ever take a photograph of you, [M.A.]?
A: Yes, he did.
Q: Would you tell the jury about that?
A: One night [Defendant] walked into my bedroom, and he had a
camera with him, and he undressed me, and laid me on the bed with
my arms and legs spread, and he told me to stay still, and he took about
three or four pictures.
Q: What type of camera was this?
A: I’m pretty sure it was a Polaroid because the pictures came right
out.
Q: You said that — did he take your clothes off?
A: Yes, he did.
Q: And so you had no clothes on?
***
A: Yes.
Q: And how did he ask you to place yourself on the bed?
A: He placed me. I didn’t move, I was too scared to move.
Q: So what did he do? How did he lay you out?
A: My arms and legs were spread.
Q: Okay. So — I have to ask you this[:] * * * your vagina could be seen?
A: Yes.
***
Q: And did the camera, did it have a flash on it or no flash?
A: It had a flash on it.
Q: And what did he do after he took the photographs?
A: He put the photos in his pocket, his shirt pocket, and he left my
room, and I got dressed.
State v. Murphy, 9th Dist. Summit No. 23467, 2007-Ohio-4532, ¶ 14.
The state bears the burden of proof and we find that this is a situation
where we “must reinforce the need to have the events described with sufficient
clarity to establish the offender’s guilt beyond a reasonable doubt.” Ferguson, 5
Ohio St.3d at 168, 450 N.E.2d 265, fn. 6.
Viewing the evidence in the state’s favor, as we must, there was
insufficient evidence presented to sustain a conviction for illegal use of a minor in
nudity-oriented material.7 Therefore, the trial court erred by denying Sanchez’s
motion for acquittal on that count
We sustain Sanchez’s first assignment of error as it relates to his
conviction for illegal use of a minor in nudity-oriented material.
B. Second Assignment of Error — Manifest Weight of the Evidence
Sanchez contends that his convictions were against the manifest
weight of the evidence.
A manifest-weight challenge attacks the credibility of the evidence
presented and questions whether the state met its burden of persuasion at trial.
State v. Whitsett, 8th Dist. Cuyahoga No. 101182, 2014-Ohio-4933, ¶ 26 (citing
Thompkins, 78 Ohio St.3d at 387, 678 N.E.2d 541; State v. Bowden, 8th Dist.
Cuyahoga No. 92266, 2009-Ohio-3598, ¶ 13.
When considering an appellant’s claim that a conviction is against
the manifest weight of the evidence, the court of appeals sits as a “‘thirteenth juror’”
and may disagree “‘with the factfinder’s resolution of the conflicting
testimony.’” Thompkins at 387, quoting Tibbs v. Florida, 457 U.S. 31, 42, 102 S.Ct.
2211, 72 L.Ed.2d 652 (1982). The reviewing court must examine the entire record,
weigh the evidence and all reasonable inferences, consider the witnesses’ credibility
7 The state does not argue that Sanchez could be convicted of illegal use of a minor
for soliciting a nude photograph from J.T., even if J.T. sent him photographs that did not
depict nudity as that term is defined in the statute. We are aware of at least one case in
which a defendant was convicted of attempted illegal use of a minor in nudity-oriented
material for soliciting a photograph of a minor’s erect penis, when no such photograph was
actually sent. State v. Dellifield, 3d Dist. Hardin No. 6-18-06, 2018-Ohio-4919. But
Sanchez was not charged with or convicted of a criminal attempt.
and determine whether, in resolving conflicts in the evidence, the trier of fact clearly
lost its way and created such a manifest miscarriage of justice that the conviction
must be reversed and a new trial ordered. Thompkins at 387, citing State v. Martin,
20 Ohio App.3d 172, 485 N.E.2d 717 (1st Dist.1983). In conducting this review, this
court remains mindful that the credibility of witnesses and the weight of the
evidence are matters primarily for the trier of fact to assess. State v. DeHass, 10
Ohio St.2d 230, 227 N.E.2d 212 (1967), paragraphs one and two of the syllabus.
Reversal on manifest-weight grounds is reserved for the ‘“exceptional case in which
the evidence weights heavily against the conviction.”’ Thompkins at 387, quoting
Martin, supra.
Sanchez contends that there was no evidence presented at trial
corroborating J.T.’s allegations about the assault in the bathroom. Sanchez points
out that there was no physical evidence and that the police did not collect J.T.’s
clothing or visit the crime scene. He further points out that the forensic review of
J.T.’s cell phone revealed nothing of evidentiary value. He directs us to Mother’s
testimony that she saw nothing out of the ordinary on the day that J.T. was with
Sanchez and Father’s testimony that he did not notice any behavioral changes in J.T.
following the alleged incident.
After identifying what he sees as the weaknesses in the state’s case,
Sanchez contends that the defense theory of the case was well supported by the
evidence. Specifically, Sanchez argues that J.T. fabricated the assault in the
bathroom to avoid her parents’ disappointment and mitigate discipline after she was
caught — for a third time — continuing an inappropriate texting relationship with
an older man whom she believed she loved. Sanchez points out that J.T. adamantly
denied that her parents spanked her when both her Mother and Father testified that
they did spank her. We also note that J.T. admitted that she did not like
disappointing her parents or getting in trouble and knew that her texting
relationship with Sanchez was wrong and went against her parents’ clear
instructions. She also admitted that she did not tell her parents about the alleged
assault until after her parents caught her for the third time and had already gotten
the police involved in the case. Sanchez contends that J.T. had strong motivation to
lie when she described the assault for the first time.
In reviewing the record, there are some inconsistencies in the state’s
case and in the witnesses’ testimony. The timeline of events is not exactly clear or
completely consistent between the state’s witnesses. J.T. testified that Mother sent
one of the text messages in the state’s exhibits but Mother denied sending the
message. The descriptions of the several confrontations about the continuing text
messages were not completely consistent between J.T., Mother and Father. The
detective testified that J.T. initially reported that Sanchez kissed her during the
assault but J.T. testified that he did not kiss her. The detective further testified that
J.T. initially reported that the assault stopped when Sanchez’s daughter came back
into the house but J.T. testified that the assault stopped when her phone rang.
Father testified that he recently suffered a bad accident and cannot remember things
well. He further admitted that he continued texting with Sanchez even after J.T.
alleged that Sanchez raped her, testifying that “even though I knew what had
happened, I never really thought that [Sanchez] was capable of doing something like
that. I thought of him as my friend still. I never really believed that he would be
able to do something like that.” When defense counsel asked him whether he
believed J.T. as of December 2019, after all the allegations had come out, Father’s
response was “I don’t know what to tell you.”
In looking at the record as a whole, though, we cannot say that
Sanchez’s rape or gross sexual imposition convictions were against the manifest
weight of the evidence. A defendant is not entitled to reversal merely because certain
aspects of witness testimony are inconsistent or contradictory. E.g., State v. Wade,
8th Dist. Cuyahoga No. 90029, 2008-Ohio-4574, ¶ 38 (“‘A conviction is not against
the manifest weight of the evidence solely because the [factfinder] heard
inconsistent testimony.’”), quoting State v. Asberry, 10th Dist. Franklin No. 04AP-
1113, 2005-Ohio-4547, ¶ 11; State v. Mann, 10th Dist. Franklin No. 10AP-1131, 2011-
Ohio-5286, ¶ 37 (“‘While [a factfinder] may take note of the inconsistencies and
resolve or discount them accordingly, * * * such inconsistencies do not render [a]
defendant’s conviction against the manifest weight or sufficiency of the evidence.’”),
quoting State v. Nivens, 10th Dist. Franklin No. 95AP09-1236, 1996 Ohio App.
LEXIS 2245 (May 28, 1996).
J.T.’s testimony was materially consistent with respect to Sanchez
pushing her into the bathroom, inserting his finger into her vagina and groping her
breasts. J.T. testified that she did not immediately report the assault because she
was afraid of Sanchez and because she felt that she was in love with him. “There is
no requirement that a rape victim’s testimony be corroborated as a condition
precedent to conviction.” See State v. Daniels, 8th Dist. Cuyahoga No. 92563, 2010-
Ohio-899, ¶ 59.
Sanchez argued his case to the jury, highlighting the inconsistencies
he saw in the state’s case and argued that J.T. was motivated to lie about the assault.
The jury was free to reject any portion of the state’s evidence or J.T.’s testimony that
was inconsistent or otherwise unbelievable. The jury chose to believe her.
After a thorough review of the record, and after considering
Sanchez’s appellate arguments, we cannot say that this is an exceptional case where
the trier of fact clearly lost its way and created a manifest miscarriage of justice such
that a conviction must be reversed. We, therefore, overrule Sanchez’s second
assignment of error.
C. Third Assignment of Error — Judicial Bias
Sanchez contends that the trial court’s treatment of juror No. 18
during jury selection was spiteful and arbitrary. He says the trial court’s removal of
juror No. 18 assisted the state by giving it a de facto extra peremptory challenge and
is evidence that the trial court was biased against Sanchez. Sanchez says the trial
court thus committed structural error, in violation of the Due Process Clause of the
United States Constitution.
“A structural error is a violation of the basic constitutional
guarantees that define the framework of a criminal trial * * *.” State v. West, Slip
Opinion No. 2022-Ohio-1556, ¶ 2. A structural error cannot be harmless and is
grounds for automatic reversal where a party raised an objection to the error in the
trial court. See id. The defense objected to juror No. 18’s removal for cause during
voir dire.
“[A] criminal trial before a biased judge is fundamentally unfair and
denies a defendant due process of law.” State v. LaMar, 95 Ohio St.3d 181, 2002-
Ohio-2128, 767 N.E.2d 166, ¶ 34; see also State v. Sanders, 92 Ohio St.3d 245, 2001-
Ohio-189, 750 N.E.2d 90 (“The presence of a biased judge on the bench is, of course,
a paradigmatic example of structural constitutional error, which if shown requires
reversal without resort to harmless-error analysis.”). “The term ‘biased’ ‘implies a
hostile feeling or spirit of ill will or undue friendship or favoritism toward one of the
litigants or his attorney, with the formation of a fixed anticipatory judgment on the
part of the judge, as contradistinguished from an open state of mind which will be
governed by the law and the facts.”’ State v. Cepec, 149 Ohio St.3d 438, 2016-Ohio-
8076, 75 N.E.3d 1185, ¶ 73, quoting State ex rel. Pratt v. Weygandt, 164 Ohio St.
463, 132 N.E.2d 191 (1956), paragraph four of the syllabus.
Trial judges routinely encounter prospective jurors who do not see
the value of serving on a jury, are distracted by pressing concerns in their lives when
they are called to serve, or otherwise express that they do not want to serve on a jury.
A trial court has wide discretion over the manner in which voir dire is
accomplished — see, e.g., State v. Davis, 116 Ohio St.3d 404, 2008-Ohio-2, 880
N.E.2d 31, ¶ 54 — and experienced judges will develop their own practices to address
these situations.
While we do not endorse the trial court’s treatment of juror No. 18,
we readily conclude that there was no manifestation of judicial bias against Sanchez
and we find no basis here to reverse the matter for a new trial.8 We “presume that a
judge is unbiased and unprejudiced in the matters over which [the judge] presides,
and ‘the appearance of bias or prejudice must be compelling in order to overcome
the presumption.’” Cleveland v. Goodman, 8th Dist. Cuyahoga Nos. 108120 and
108678, 2020-Ohio-2713, ¶ 18, quoting State v. Eaddie, 8th Dist. Cuyahoga No.
106019, 2018-Ohio-961, ¶ 18. There is no compelling appearance of bias or
prejudice here. The trial court’s reasoning for removing juror No. 18 was that the
court did not view juror No. 18’s answers during voir dire to be honest. Sanchez
points to no other judicial conduct throughout the course of the trial that he
contends shows bias against the defense.
We conclude that the trial court’s removal of juror No. 18 does not
indicate that the court harbored a “hostile feeling or spirit of ill will or undue
friendship or favoritism toward one of the litigants or his attorney.”
8 Sanchez does not claim that the removal of juror No. 18 warrants reversal even
in the absence of judicial bias. We nevertheless note that the Ohio Supreme Court has
held that “an erroneous excusal for cause, on grounds other than the [prospective juror’s]
views on capital punishment, is not cognizable error, since a party has no right to have
any particular person sit on the jury.” Sanders at 249. Thus, even if the trial court erred
in dismissing juror No. 18 for cause when she and her fellow jurors denied that anyone
was making concerning statements during voir dire, “an erroneous excusal cannot cause
the seating of a biased juror and therefore does not taint the jury’s impartiality.” Id.
We, therefore, overrule Sanchez’s third assignment of error.
D. Fourth Assignment of Error – Flight Instruction
The trial court gave the following jury instruction over the defense’s
objection:
Testimony has been admitted indicating that the Defendant fled the
scene. You’re instructed that the Defendant’s flight alone does not raise
a presumption of guilt. But it may tend to indicate the Defendant[’]s
consciousness or awareness of guilt.
If you find that the facts do not support that [so in original transcript]
the Defendant[’]s flight or if you find that some other motive prompted
the Defendant’s conduct or if you’re unable to decide what the
Defendant[’]s motivation was, then you should not consider the
evidence for any purpose.
However, if you find that the facts support that the Defendant engaged
in such conduct and if you decide that the Defendant was motivated by
a consciousness or an awareness of guilt, you may, but are not required,
to consider that evidence in deciding whether the Defendant is guilty of
the crimes charged. You alone will determine what weight, if any, to
give to the evidence.
Sanchez contends that the trial court erred in giving this instruction
because “there was no evidence that Mr. Sanchez attempted to evade prosecution.”
We review the trial court’s instruction for an abuse of discretion.
E.g., State v. Howard, 8th Dist. Cuyahoga No. 100094, 2014-Ohio-2176, ¶ 35.
As a general matter, a trial court must “‘fully and completely give all
jury instructions which are relevant and necessary for the jury to weigh the evidence
and discharge its duty as the trier of fact.”’ State v. White, 142 Ohio St.3d 277, 2015-
Ohio-492, 29 N.E.3d 939, ¶ 46, quoting State v. Comen, 50 Ohio St.3d 206, 553
N.E.2d 640 (1990), paragraph two of the syllabus; State v. Joy, 74 Ohio St.3d 178,
181, 657 N.E.2d 503 (1995). A requested jury instruction should ordinarily be given
— at least in substance — if it is a correct statement of the law, applicable to the facts
of the case and if reasonable minds might reach the conclusion sought by the
requested instruction. E.g., State v. Adams, 144 Ohio St.3d 429, 2015-Ohio-3954,
45 N.E.3d 127, ¶ 240; State v. Crawford, 2016-Ohio-7779, 73 N.E.3d 1110, ¶ 14 (8th
Dist.).
Sanchez does not contend that the court’s flight instruction misstated
the law. The instruction largely mirrors the pattern jury instruction on
consciousness of guilt in the Ohio Jury Instructions. See 2 OJI CR 409.13.9 Sanchez
instead argues that the instruction is inapplicable to the facts of the case and that
there was insufficient evidence to support the instruction. We agree.
9 The pattern jury instruction reads as follows:
Testimony has been admitted indicating that the defendant (fled the [scene]
[describe jurisdiction]) (escaped from custody) (resisted arrest) (falsified
his/her identity) (changed appearance) (intimidated a witness) (attempted to
conceal a crime) (describe other conduct). You are instructed that (describe
defendant’s conduct) alone does not raise a presumption of guilt, but it may
tend to indicate the defendant’s (consciousness) (awareness) of guilt. If you
find that the facts do not support that the defendant (describe defendant’s
conduct), or if you find that some other motive prompted the defendant’s
conduct, or if you are unable to decide what the defendant’s motivation was,
then you should not consider this evidence for any purpose. However, if you
find that the facts support that the defendant engaged in such conduct and if
you decide that the defendant was motivated by (a consciousness) (an
awareness) of guilt, you may, but are not required to, consider that evidence
in deciding whether the defendant is guilty of the crime(s) charged. You
alone will determine what weight, if any, to give to this evidence.
2 OJI CR 409.13.
As a preliminary matter, we are mindful that erroneous flight
instructions have been a particular concern in this district in recent years. As we
have stated previously:
The frequency with which flight instructions issues are being raised on
appeal is troubling. Although a number of recent decisions from this
court have made it clear that the flight instruction is often being
wrongly given, the state keeps requesting it in cases where the
instruction is unwarranted. And even though the instructions are
requested by prosecuting attorneys, the error lies with the trial court
continuing to give the flight instruction without regard to our
established precedent.
State v. Hartman, 8th Dist. Cuyahoga No. 105159, 2018-Ohio-2641, ¶ 50.
Here, we find two errors with the instruction the trial court gave.
First, there was insufficient evidence to support the inference that the instruction
allows. Second, the instruction as given does not accurately apply to the facts at
issue in the case.
Flight from justice “may be indicative of a consciousness of guilt.”
State v. Taylor, 78 Ohio St.3d 15, 27, 676 N.E.2d 82 (1997).10 “Flight from justice
means some escape or affirmative attempt to avoid apprehension.” State v. Wesley,
8th Dist. Cuyahoga No. 80684, 2002-Ohio-4429, ¶ 19. Flight is more than merely
10The U.S. Court of Appeals for the Sixth Circuit has described that flight evidence
is admissible under an inferential chain “‘(1) from the defendant’s behavior to flight; (2)
from flight to consciousness of guilt; (3) from consciousness of guilt to consciousness of
guilt concerning the crime charged; and (4) from consciousness of guilt concerning the
crime charged to actual guilt of the crime charged.’”). United States v. Suggs, 822 Fed.
Appx. 422 (6th Cir.2020), quoting United States v. Dillon, 870 F.2d 1125, 1127 (5th
Cir.1989). In federal courts in the Sixth Circuit, “a flight instruction is improper unless the
evidence is sufficient to furnish reasonable support for all four of the necessary inferences.”
United States v. Wilson, 385 Fed. Appx. 497, 501 (6th Cir.2010).
leaving the scene of the crime — it would be unrealistic to expect persons who
commit crimes to remain on the scene for ready apprehension. State v. Santiago,
8th Dist. Cuyahoga No. 95516, 2011-Ohio-3058, ¶ 30. Flight in this context requires
the defendant to appreciate that he has been identified as a person of interest in a
criminal offense and is taking active measures to avoid being found. State v. Ramos,
8th Dist. Cuyahoga No. 103596, 2016-Ohio-7685, ¶ 28. The trier of fact may infer
that such circumstances show that the defendant is avoiding the police only because
he knows that he is guilty and wishes to avoid the inevitable consequences of his
crime. Id.
The evidence presented at trial was that Sanchez left Ohio for New
York approximately one month after seeing Mother and Father at the office of
immigration authorities. Law enforcement attempted to execute an arrest warrant
at what they believed was Sanchez’s home and while officers believed that there were
people inside the house, no one answered the door. Father came to learn of
Sanchez’s location in New York after offering a reward for his location. Law
enforcement agents located, and arrested, Sanchez in New York. Sanchez did not
resist arrest and waived extradition.
These circumstances do not clearly show that Sanchez appreciated
that he had been identified as a person of interest in a criminal offense and was
taking active measures to avoid arrest.
As an initial matter, Sanchez did not leave for New York until months
after the alleged assault in the bathroom. Father testified that Sanchez stayed in
Ohio for a month even after seeing Mother and Father at the immigration office.
While the “admissibility of evidence of flight does not depend upon how much time
passes between the offense and the defendant’s flight” — State v. Hand, 107 Ohio
St.3d 378, 402, 2006-Ohio-18, 40 N.E.2d 151 — evidence of flight to support an
inference of guilt ‘“should generally be limited to situations when the activities
associated with flight occur at a time and place near the criminal activity for which
the defendant is on trial.”’ (Emphasis added.) State v. Robinson, 10th Dist. Franklin
No. 17AP-853, 2019-Ohio-558, ¶ 31, quoting State v. White, 2d Dist. Montgomery
No. 26093, 2015-Ohio-3512, ¶ 48, 37 N.E.3d 1271; see also State v. Martin, 10th
Dist. Franklin Nos. 96APA04-450 and 96APA04-459, 1996 Ohio App. LEXIS 5851,
30–31 (flight evidence admissible where defendant left the state immediately after
the crime had been committed); State v. Jackson, 9th Dist. Lorain No. 11CA010012,
2012-Ohio-3524, ¶ 17–18 (flight instruction warranted where the defendant left the
state shortly after the crime was committed); State v. Pryor, 5th Dist. Stark No.
2017CA00122, 2018-Ohio-2712, ¶ 46–47 (same); State v. Villa, 9th Dist. Lorain No.
05CA008773, 2006-Ohio-4529, ¶ 28–31 (flight instruction warranted where law
enforcement sought the defendant for questioning within a day of the crime being
committed and could not find him in the county, and where the defendant was
arrested in another state several weeks later).
There is also no evidence that Sanchez took any steps to conceal
where he was going or to conceal himself once he was in New York. Compare Pryor
at ¶ 46–47 (defendant lied to his girlfriend about where he was going and why he
was leaving); State v. McCarty, 5th Dist. Stark No. 2014CA00142, 2015-Ohio-1440,
¶ 36–38 (instruction appropriate where the defendant’s mother said the defendant
knew about the criminal investigation and left the state after telling the mother he
was going out with friends); Martin at 30–31 (defendant changed his appearance
and lived under an assumed name after he left the state).
Finally, the detective testified that Sanchez did not resist arrest when
apprehended by law enforcement agents in New York and waived extradition back
to Ohio for prosecution. See State v. Jackson, 8th Dist. Cuyahoga No. 100125, 2014-
Ohio-3583, ¶ 48 (flight instruction erroneous where, among other things, defendant
did not flee from, resist or protest his arrest in any way when police apprehended
him).
At best, there is evidence that Sanchez might have known that law
enforcement was seeking him in connection with a criminal investigation involving
J.T. when he left for New York. The detective testified that officers went to what
they believed was his home to arrest him and for some reason thought that someone
was home at the time but this was never confirmed through entry into the premises.
But what is not clear is whether Sanchez knew he was wanted by the police. The
state did not elicit any testimony substantiating that police went to Sanchez’s home
or that there was anyone, let alone Sanchez, at the house when police arrived.
Viewing the evidence as a whole, we cannot say that it is “clear the
defendant took affirmative steps to avoid detection and apprehension.” State v.
Gulley, 8th Dist. Cuyahoga No. 109045, 2020-Ohio-3597, ¶ 26. Therefore, it was
error for the trial court to instruct the jury on flight as consciousness of Sanchez’s
guilt.
Even if there had been sufficient evidence to support a flight
instruction, the trial court’s instruction did not apply to the evidence the state
presented. The trial court instructed the jury that “[t]estimony has been admitted
indicating that the Defendant fled the scene.” (Emphasis added). At oral argument,
the state defended this characterization of the evidence by pointing out that there
were several “scenes” that the jury could have reasonably found that Sanchez fled,
including J.T.’s home, the bathroom where she said the assault occurred and the
locations where J.T. took the photographs of herself to send to Sanchez. But again,
merely leaving the scene of a crime is not flight from justice. E.g., State v. Santiago,
8th Dist. Cuyahoga No. 95516, 2011-Ohio-3058, ¶ 30.
“Fled the scene” is the first of many options provided in the pattern
jury instruction on flight in the Ohio Jury Instructions. “While OJI is widely used
in this state, its language should not be blindly applied in all cases.” State v.
Burchfield, 66 Ohio St.3d 261, 263, 611 N.E.2d 819 (1993). If a trial court is going
to use the pattern jury instruction, it still must tailor the instruction to accurately
apply to the evidence presented. The trial court did not do so here.
Having concluded that the trial court erroneously instructed the jury
on flight as consciousness of guilt, we must now determine whether the error
requires reversal for a new trial. “‘A reviewing court may not reverse a conviction in
a criminal case due to jury instructions unless it is clear that the jury instructions
constituted prejudicial error.’” Jackson, 8th Dist. Cuyahoga No. 100125, 2014-
Ohio-3583, at ¶ 46, quoting State v. McKibbon, 1st Dist. Hamilton No. C-010145,
2002-Ohio-2041, ¶ 4. To determine whether an erroneous instruction was
prejudicial, a reviewing court must examine the jury instructions as a whole. State
v. Shepherd, 8th Dist. Cuyahoga No. 102951, 2016-Ohio-931, ¶ 25, citing State v.
Harry, 12th Dist. Butler No. CA2008-01-013, 2008-Ohio-6380, ¶ 36. A jury
instruction constitutes prejudicial error where it results in a manifest miscarriage of
justice. State v. Hancock, 12th Dist. Warren No. CA2007-03-042, 2008-Ohio-5419,
¶ 13. Conversely, though, errors, defects, irregularities or variances that do not affect
substantial rights are to be disregarded. Crim.R. 52(A).
After reviewing the jury instructions as a whole, we cannot say that
the trial court’s instruction on flight resulted in a manifest miscarriage of justice.
The instruction given, although improper, allowed the jury to make its own
conclusion regarding whether Sanchez fled from law enforcement and to consider
his motivations for doing so. The instruction correctly advised that if the jury
concluded that Sanchez fled, it should not consider evidence of that flight unless it
also found that the flight was motivated by a consciousness of guilt. Further, the
instruction advised the jury that it may, but is not required to, consider the evidence
of flight in deciding whether Sanchez is guilty. State v. Hill, 8th Dist. Cuyahoga No.
99186, 2013-Ohio-3245, ¶ 31; see also State v. St. John, 2d Dist. Montgomery No.
27988, 2019-Ohio-650, ¶ 106 (commenting that a flight instruction “is all but
innocuous” because “‘[t]he flight instruction explains the limited use of the flight
evidence and clearly says that the jury may consider the defendant’s flight only if it
finds that he was ‘motivated by a consciousness or awareness of guilt.’ And even if
the jury finds that this motivated him, the instruction says that it is still not required
to consider the flight evidence.’”), quoting White, 2015-Ohio-3512, 37 N.E.3d 1271,
at ¶ 51.
The defense did not object to the introduction of testimony
establishing the fact that Sanchez left Ohio for New York sometime after J.T.’s family
reported the assault to police. Both parties argued their views of that evidence to
the jury in their closing arguments. The defense argued that Sanchez went to New
York because he was in fear of being deported as he was in the country without legal
status with his seven-year-old daughter. The defense pointed out that Sanchez did
not resist arrest or fight extradition. The state argued that Sanchez fled Ohio for
New York because he knew J.T. had finally disclosed the sexual assault to the police.
Accordingly, while the trial court abused its discretion in issuing the
flight instruction, we find the instruction was harmless beyond a reasonable doubt.
We, therefore, overrule Sanchez’s fourth assignment of error.
E. Fifth Assignment of Error — Ineffective Assistance of Counsel
Sanchez contends that his trial counsel was ineffective because (1)
counsel told the jury several times that Sanchez was in the United States “illegally,”
and (2) counsel failed to object to or attempt to remedy the detective’s testimony
that Father offered people in New York reward money for Sanchez’s location.
A criminal defendant has the right to effective assistance of counsel.
Strickland v. Washington, 466 U.S. 668, 686, 104 S.Ct. 2052, 80 L.Ed.2d 674
(1984). In order to establish a claim of ineffective assistance of counsel, a defendant
must demonstrate that (1) the performance of defense counsel was seriously flawed
and deficient and (2) the result of defendant’s trial or legal proceeding would have
been different had defense counsel provided proper representation. Id.
In evaluating counsel’s performance on a claim of ineffective
assistance of counsel, the court must give great deference to counsel’s performance
and “indulge a strong presumption” that counsel’s performance “falls within the
wide range of reasonable professional assistance.” Strickland at 689; see also State
v. Powell, 2019-Ohio-4345, 134 N.E.3d 1270, ¶ 69 (8th Dist.) (‘“A reviewing court
will strongly presume that counsel rendered adequate assistance and made all
significant decisions in the exercise of reasonable professional judgment.”’), quoting
State v. Pawlak, 8th Dist. Cuyahoga No. 99555, 2014-Ohio-2175, ¶ 69.
As a general matter, defense counsel’s tactical decisions and trial
strategies — even “debatable” ones — do not constitute ineffective assistance of
counsel. See, e.g., State v. Black, 8th Dist. Cuyahoga No. 108001, 2019-Ohio-4977,
¶ 35; State v. Foster, 8th Dist. Cuyahoga No. 93391, 2010-Ohio-3186, ¶ 23; see also
State v. Conway, 109 Ohio St.3d 412, 2006-Ohio-2815, 848 N.E.2d 810, ¶ 101, 111.
Reviewing courts “will ordinarily refrain from second-guessing strategic decisions
counsel make at trial,” even where trial counsel’s strategy was “questionable” and
even where appellate counsel argues that they would have defended against the
charges differently. State v. Myers, 97 Ohio St.3d 335, 2002-Ohio-6658, 780
N.E.2d 186, ¶ 152; State v. Mason, 82 Ohio St.3d 144, 169, 694 N.E.2d 932 (1998);
State v. Quinones, 8th Dist. Cuyahoga No. 100928, 2014-Ohio-5544, ¶ 25.
Here, trial counsel’s decision to raise the issue of Sanchez’s lack of
legal immigration status was clearly part of the defense strategy. Sanchez’s defense
was focused on challenging the credibility of the state’s witnesses, highlighting the
lack of corroborating physical evidence and arguing that the matter was poorly
investigated. In attacking the credibility of the state’s witnesses, the defense argued
that J.T. had motivations to lie and that Mother and Father were trying to get
Sanchez deported from the country. The fact that Sanchez was in the country
without legal status was part of that argument.
Defense counsel may also have anticipated that Sanchez’s
immigration status would come out in the prosecution’s case in chief to explain why
Mother and Father made their initial report to immigration authorities and may
have wanted that information to be provided by the defense.
Defense counsel was concerned that members of the venire may
harbor biases that would cause them to infer guilt from Sanchez’s immigration
status, based upon his voir dire and by addressing Sanchez’s status in voir dire,
counsel was potentially able to identify any such bias.
Finally, defense counsel offered Sanchez’s fear of deportation to
explain why Sanchez left Ohio for New York. Sanchez’s immigration status was
clearly relevant to that argument.
Sanchez argues on appeal that it was “completely unnecessary” for
defense counsel to raise Sanchez’s immigration status at trial but we will not second-
guess trial counsel’s strategy. Myers, 97 Ohio St.3d 335, 2002-Ohio-6658, 780
N.E.2d 186, at ¶ 152.
Sanchez also contends that trial counsel was ineffective because
counsel failed to object to the detective’s testimony that Father offered reward
money for Sanchez’s location.
“Objecting is a tactical decision.” E.g., State v. Frierson, 8th Dist.
Cuyahoga No. 105618, 2018-Ohio-391, ¶ 25, citing State v. Johnson, 7th Dist.
Jefferson No. 16 JE 0002, 2016-Ohio-7937, ¶ 46. Accordingly, “‘the failure to make
objections is not alone enough to sustain a claim of ineffective assistance of
counsel.”’ E.g., Frierson at ¶ 25, quoting Conway, 109 Ohio St.3d 412, 2006-Ohio-
2815, 848 N.E.2d 810, at ¶ 103.
“[E]xperienced trial counsel learn that objections to each potentially
objectionable event could actually act to their party’s detriment. * * * In
light of this, any single failure to object usually cannot be said to have
been error unless the evidence sought is so prejudicial * * * that failure
to object essentially defaults the case to the state. Otherwise, defense
counsel must so consistently fail to use objections, despite numerous
and clear reasons for doing so, that counsel’s failure cannot reasonably
have been said to have been part of a trial strategy or tactical choice.”
State v. Johnson, 112 Ohio St.3d 210, 2006-Ohio-6404, 858 N.E.2d 1144, ¶ 140,
quoting Lundgren v. Mitchell, 440 F.3d 754 (6th Cir.2006).
Here, Sanchez does not contend that trial counsel consistently failed
to use objections throughout the trial. Instead, he argues that (1) the state’s case was
so weak that there is a reasonable possibility that the jury’s verdict relied on a
conclusion that Sanchez fled Ohio to avoid prosecution and (2) the jury’s conclusion
that Sanchez fled was likely based on the detective’s testimony that Father had
offered a reward for Sanchez’s location.
Sanchez also argues that the detective’s testimony undercut the
defense’s ability to rely upon Father’s courtroom testimony that he stayed in touch
with Sanchez because he did not believe that Sanchez was capable of an assault like
J.T. described. Sanchez argues that this testimony was important to the defense and
was undercut significantly by the detective’s testimony that Father had offered a
reward for Sanchez’s whereabouts.
After a careful review of the record, we cannot say that the detective’s
testimony about the reward offer was “‘so prejudicial * * * that failure to object
essentially default[ed] the case to the state.”’ See Johnson, 112 Ohio St.3d 210,
2006-Ohio-6404, 858 N.E.2d 1144, at ¶ 140, quoting Lundgren, 440 F.3d 754. As
discussed further below, beyond the one reference to the reward offer in the
detective’s direct examination, neither party referred to the offer again during the
trial — including during closing argument. The defense was able to, and did, make
effective use of Father’s testimony in its closing argument.
We, therefore, overrule Sanchez’s fifth assignment of error.
F. Sixth Assignment of Error — Hearsay and Confrontation Clause
Sanchez contends that the trial court erred in admitting Detective
Tusing’s testimony that Father “had talked to people that he knew in New York and
offered a reward for his location.” Sanchez says that this statement was inadmissible
hearsay and he further argues that allowing the testimony violated his Confrontation
Clause rights.
Because Sanchez’s trial counsel did not object to this testimony, we
review only for plain error. E.g., State v. Johnson, 8th Dist. Cuyahoga No. 105424,
2018-Ohio-1387, ¶ 27, citing State v. Rogers. 143 Ohio St.3d 385, 2015-Ohio-2459,
38 N.E.3d 860, ¶ 21–25. Crim.R. 52(B) provides that “[p]lain errors or defects
affecting substantial rights may be noticed although they were not brought to the
attention of the court.” To prevail on a claim of plain error, the defendant must
demonstrate that but for the error, the outcome of the proceedings clearly would
have been different. State v. Long, 53 Ohio St.2d 91, 372 N.E.2d 804 (1978),
paragraph two of the syllabus; Rogers at ¶ 22. We have applied the plain error
doctrine to instances where the appellant failed to object to an alleged confrontation
clause error at trial. See, e.g., State v. McFeeture, 2015-Ohio-1814, 36 N.E.3d 689
(8th Dist.)
The Sixth Amendment to the U.S. Constitution provides in relevant
part that “[i]n all criminal prosecutions, the accused shall enjoy the right * * * to be
confronted with the witnesses against [the accused].” The United States Supreme
Court held that the Confrontation Clause bars “admission of testimonial statements
of a witness who did not appear at trial unless [the witness] was unavailable to
testify, and the defendant had had a prior opportunity for cross-examination.”
Crawford v. Washington, 541 U.S. 36, 53–54, 124 S.Ct. 1354, 158 L.Ed.2d 177
(2004).
1. For Confrontation Clause purposes, a testimonial statement includes
one made “under circumstances which would lead an objective witness
reasonably to believe that the statement would be available for use at a
later trial.”
2. In determining whether a statement is testimonial for Confrontation
Clause purposes, courts should focus on the expectation of the
declarant at the time of making the statement; the intent of a
questioner is relevant only if it could affect a reasonable declarant’s
expectations.
State v. Stahl, 111 Ohio St.3d 186, 2006-Ohio-5482, 855 N.E.2d 834, paragraphs
one and two of the syllabus, quoting Crawford at 52.
Sanchez asserts that the detective’s testimony leads to the necessary
conclusion that Father told the detective that he had offered the reward money and
this was a testimonial statement that should not have been admitted. The state
argues that the detective’s testimony did not contain a testimonial statement and
was offered solely to explain the detective’s investigation.
We need not decide whether the detective’s testimony included
inadmissible hearsay or a testimonial statement that implicates the Confrontation
Clause because, even if allowing this testimony had been an error, it is not clear that
the outcome of the proceedings would have been different had the testimony been
stricken and, therefore, there is no plain error.
Beyond the one reference to the reward offer in the detective’s direct
examination, neither party referred to the reward again during the trial. We note
that the state did not refer to the reward in its closing argument or in its rebuttal
argument even after the defense argued to the jury that Father kept in touch with
Sanchez after J.T. had made the allegations against Sanchez because Father did not
believe his own daughter. The testimony about the reward also did not directly
undercut J.T.’s testimony about the assault. After a careful review of the record, we
cannot say that the jury’s verdict would clearly have been different if the jury had
not heard that Father offered reward money to people he knew in New York to
discover Sanchez’s location.
We, therefore, overrule Sanchez’s sixth assignment of error.
G. Seventh Assignment of Error — Cumulative Error
Sanchez argues that the alleged errors described in his first six
assignments of error cumulatively deprived him of his constitutional right to a fair
trial.
Pursuant to the doctrine of cumulative error, a conviction will be
reversed where the cumulative effect of errors in a trial deprives a defendant of the
constitutional right to a fair trial even though each of numerous instances of trial-
court error does not individually constitute cause for reversal. State v. Baker, 8th
Dist. Cuyahoga No. 95300, 2011-Ohio-2784, ¶ 59, citing State v. Garner, 74 Ohio
St.3d 49, 656 N.E.2d 623 (1995).
In order to find cumulative error present, we first must find that
multiple errors were committed at trial. We then must find a reasonable probability
that the outcome of the trial would have been different but for the combination of
the separately harmless errors. State v. Djuric, 8th Dist. Cuyahoga No. 87745, 2007-
Ohio-413, ¶ 52. To affirm in spite of multiple errors, we would have to determine
that the cumulative effect of the errors is harmless beyond a reasonable doubt. State
v. Williams, 8th Dist. Cuyahoga No. 94261, 2011-Ohio-591, ¶ 25, citing State v.
DeMarco, 31 Ohio St.3d 191, 195, 509 N.E.2d 1256 (1987) (stating that the errors
can be considered harmless if there is overwhelming evidence of guilt or other
indicia that the errors did not contribute to the conviction).
Here, Sanchez merely references the arguments addressed in his first
six assignments of error. The error pertaining to the conviction for illegal use of a
minor in nudity-oriented material was addressed and sustained in the first
assignment of error. As discussed above, we have only found one other error in the
trial, that being the trial court’s issuance of a flight instruction, which we concluded
was harmless. The trial court explained to the jury that each charge is separate and
distinct; it instructed the jury to consider each count and the evidence applicable to
each count separately. We presume the jury followed that instruction. E.g., State v.
Treesh, 90 Ohio St.3d 460, 480, 739 N.E.2d 749 (2001). Under these
circumstances, we find no reason to conclude that the court’s erroneous denial of
Sanchez’s Crim.R. 29 motion as to Count 3 compounded the trial court’s erroneous
flight instruction to the extent that Sanchez was deprived of the constitutional right
to a fair trial as to Counts 1 and 2.
We, therefore, overrule Sanchez’s seventh assignment of error.
III. Conclusion
We affirm the judgment of the trial court in part and we vacate it in
part.
Having sustained Elder Sanchez-Sanchez’s first assignment of error
as it relates to his conviction for illegal use of a minor in nudity-oriented material,
we vacate that conviction and remand this matter for the trial court to issue a new
journal entry reflecting that this conviction has been vacated for insufficient
evidence.11
Having overruled all of Sanchez’s assignments of error as it relates to
his convictions for rape and gross sexual imposition, we affirm those convictions.
It is ordered that the appellant and the appellee share the costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate issue out of this court directing the
Cuyahoga County Court of Common Pleas to carry this judgment into execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27
of the Rules of Appellate Procedure.
EILEEN A. GALLAGHER, JUDGE
FRANK DANIEL CELEBREZZE, III, P.J., and
CORNELIUS J. O’SULLIVAN, JR., J., CONCUR
11
Because we vacated Sanchez’s conviction for illegal use of a minor in nudity-
oriented material, his other assignments of error as it relates to that conviction are moot.
App.R. 12(A)(1)(c). | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484657/ | [Cite as In re C.P., 2022-Ohio-4087.]
COURT OF APPEALS OF OHIO
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
In Re C.P. :
: No. 111445
A Minor Child :
:
[Appeal by C.P.] :
JOURNAL ENTRY AND OPINION
JUDGMENT: VACATED; REMANDED
RELEASED AND JOURNALIZED: November 17, 2022
Civil Appeal from the Cuyahoga County Court of Common Pleas
Juvenile Division
Case No. DL-19-104819
Appearances:
Timothy Young, Ohio Public Defender, and Lauren
Hammersmith, Assistant Public Defender, for appellant.
Michael C. O’Malley, Cuyahoga County Prosecuting
Attorney, and Warren W. Griffin, Assistant Prosecuting
Attorney, for appellee.
MARY J. BOYLE, J.:
Appellant, C.P., challenges the judgment of the Cuyahoga County
Court of Common Pleas, Juvenile Division, that classified him as a Tier II sex
offender, contending that the juvenile court did not have jurisdiction to classify C.P.
just prior to his release from the Ohio Department of Youth Services (“ODYS”). He
asserts that the court acted in violation of R.C. 2152.82 when it classified him prior
to his release rather than at the time of his juvenile disposition. C.P. also challenges
the court’s imposition of the Public Qualified Juvenile Registrant classification as
unconstitutional. For the reasons set forth below, we vacate the March 9, 2022
judgment entry classifying C.P. both as a Tier II sex offender and Public Qualified
Juvenile Registrant and remand to the juvenile court. The court’s November 21,
2019 dispositional judgment entry remains the final adjudication in this case.
I. Facts and Procedural History
In April 2019, a complaint was filed in juvenile court alleging that
then 15-year-old C.P. was a delinquent child for committing two counts of rape,
felonies of the first degree if committed by an adult, and two counts of gross sexual
imposition (“GSI”), felonies of the third and fourth degree if committed by an adult.
C.P. admitted the allegations of the complaint as amended: two counts of sexual
battery, one count of GSI, and the remaining count were nolled. The magistrate
adjudicated him delinquent and ordered C.P. to a sex-offender assessment and the
ODYS Committee for review and recommendation. The matter was continued for a
disposition hearing. After the conclusion of the dispositional hearing in November
2019, the magistrate committed C.P. to ODYS for a minimum period of 1 year,
maximum to his 21st birthday, and ordered that he complete a sex-offender
treatment program. The juvenile court adopted the magistrate’s decision on
November 21, 2019.1 This final judgment entry made no mention of any sex-
offender classifications regarding C.P. (Judgment Entry, November 19, 2019.) C.P.
was admitted to ODYS in December 2019.2
In November 2021, the juvenile court magistrate held a hearing on
the matter of C.P.’s registration in advance of his December 2, 2021 release date
from ODYS. C.P objected to the classification at the hearing. The magistrate noted
the objection and continued with the classification. At the conclusion of the hearing,
the magistrate classified C.P. as a Tier II sex offender. In the accompanying journal
entry, the magistrate’s decision classified C.P. as a Tier II sex offender and a Public
Qualified Juvenile Registrant. (Judgment Entry, Nov. 30, 2021.) C.P. filed
objections to the magistrate’s decision, arguing that the court does not have
jurisdiction to classify him as a Tier II sex offender because the court did not comply
with the timing requirements of R.C. 2152.82. Appellee, the state of Ohio (“state”),
did not file an opposition to the objections.
Following C.P.’s objections, the magistrate issued a corrected
judgment entry on December 13, 2021, that also classified C.P. as a Tier II sex
offender and a Public Qualified Juvenile Registrant. C.P. filed supplemental
objections to this entry, arguing that the magistrate did not have jurisdiction to
1 C.P. appealed the juvenile court’s decision to this court in In re C.P., 8th Dist.
Cuyahoga No. 109331. The appeal was voluntarily dismissed by C.P. in March 2020.
2 C.P. was previously adjudicated for a sexually oriented offense (GSI) in February
2017 in Cuyahoga J.C. No. DL16111298. C.P. was 13 years old during the time period alleged
in the complaint for that case, and was not classified as a juvenile sex offender registrant
because he was not age eligible.
classify C.P. as a Public Qualified Juvenile Registrant or Public Registry Qualified
Juvenile Offender (“PRQJOR”) because the PRQJOR classification was never raised
or discussed at the hearing and the PRQJOR statute, R.C. 2152.86, was found to be
unconstitutional in 2012. The state did not file a brief in opposition to the
supplemental objections. On March 9, 2021, the juvenile court overruled C.P.’s
objections and adopted the magistrate’s decision. The court classified C.P. as a Tier
II sex offender and a Public Qualified Juvenile Registrant.
It is from this order that C.P. appeals, raising the following
assignments of error for review:
Assignment of Error I: The Cuyahoga County Juvenile Court erred
when it classified C.P. as a juvenile registrant because it did not comply
with the timing requirements of R.C. 2152.82.
Assignment of Error II: The juvenile court erred when it classified
C.P. as a public registry qualified juvenile offender registrant
(PRQJOR), pursuant to R.C. 2152.86, in violation of In re C.P., 131 Ohio
St.3d 513, 2012-Ohio-1446, 967 N.E.2d 729, ¶ 86.
II. Law and Analysis
A. The Classification of a Child as a Juvenile Offender
Registrant when the Child Previously was Adjudicated a
Delinquent Child for Committing any Sexually Oriented
Offense
R.C. 2152.82 governs the classification of a child as a juvenile offender
registrant in cases where the child is a repeat offender and provides in pertinent
part:
(A) The court that adjudicates a child a delinquent child shall issue as
part of the dispositional order an order that classifies the child a
juvenile offender registrant and specifies that the child has a duty to
comply with sections 2950.04, 2950.041, 2950.05, and 2950.06 of the
Revised Code if all of the following apply:
(1) The act for which the child is adjudicated a delinquent child is a
sexually oriented offense or a child-victim oriented offense that the
child committed on or after January 1, 2002.
(2) The child was fourteen, fifteen, sixteen, or seventeen years of age at
the time of committing the offense.
(3) The court has determined that the child previously was adjudicated
a delinquent child for committing any sexually oriented offense or
child-victim oriented offense, regardless of when the prior offense was
committed and regardless of the child’s age at the time of committing
the offense.
(4) The court is not required to classify the child as both a juvenile
offender registrant and a public registry-qualified juvenile offender
registrant under section 2152.86 of the Revised Code.
(B) An order required under division (A) of this section shall be issued
at the time the judge makes the order of disposition for the delinquent
child.
(Emphasis added.) Id.
B. C.P.’s Tier II Sex Offender Classification
In the first assignment of error, C.P. argues that the juvenile court
erred when it classified him as a Tier II sex offender because it did not comply with
the timing requirements of R.C. 2152.82. The state contends that this court has not
yet determined whether R.C.2152.82 requires classification within the original
dispositional order. While this exact issue has not yet been addressed, this court has
stated that “R.C. 2152.82(A) requires the court that adjudicates a child a delinquent
child to issue as part of the dispositional order an order that classifies the child a
juvenile offender registrant when certain conditions are present.” (Emphasis
added.) In re J.W., 8th Dist. Cuyahoga No. 109031, 2020-Ohio-4065, ¶ 27.3
A plain reading of R.C. 2152.82(A) and (B) unambiguously conveys
the legislature’s intent that the classification must occur at the time of the
dispositional order when certain criteria are met, including a determination that
“the child previously was adjudicated a delinquent child for committing any sexually
oriented offense or child-victim oriented offense[.]” R.C. 2152.82(A)(3). The
statute’s clear requirement is that the court must issue the order classifying the
repeat-offending child as a juvenile offender registrant at the child’s disposition.
Furthermore, C.P. is not subject to classification under R.C. 2152.83 because R.C.
2152.83(A) and (B) only apply to those not previously adjudicated a delinquent child
for committing a sexually oriented or child-victim oriented offense. R.C.
2152.83(A)(1)(c) and 2152.83(B)(1)(c).
Here, a review of the record demonstrates that C.P. was previously
adjudicated delinquent for committing a sexually oriented offense in case number
DL16111298, the offenses he committed are sexually oriented offenses, and C.P. was
between the ages of 14 and 17 at the time of the offenses. Therefore, the juvenile
3 We note that in a case where this court addressed the timing requirements of R.C.
2152.83(B) (classification of a juvenile offender at the time of disposition or release from a
secure facility), we reversed the portion of the court’s judgment classifying the appellant as
a Tier I sex offender when the court imposed the sex-offender classification at the
dispositional hearing instead of holding a hearing upon the appellant’s release from ODYS
as required by R.C. 2152.83(B)(1), which provides that “[t]he court that adjudicates a child
a delinquent child, on the judge’s own motion, may conduct * * * at the time of the child’s
release from the secure facility a hearing for the purposes described in division (B)(2) of
this section.” In re D.B., 8th Dist. Cuyahoga No. 98698, 2013-Ohio-496, ¶ 6-8.
court was required to classify him under R.C. 2152.82 as juvenile offender registrant
at the time the court issued its dispositional order in November 2019. That did not
occur, however. Instead, the juvenile court did not classify C.P. until November
2021, which was one month prior to his release date from ODYS. Because C.P. was
not classified at his disposition in November 2019, the juvenile court erred by
classifying him as a Tier II sex offender at the November 2021 hearing.
Consequently, the Tier II classification must be vacated.
The first assignment of error is sustained.
C. C.P.’s Public Registry Qualified Juvenile Offender Registrant
Classification
In the second assignment of error, C.P. argues that the juvenile court
erred when it classified him as a PRQJOR pursuant to an unconstitutional statute.
The state concedes this error.4
In In re C.P., 131 Ohio St.3d 513, 2012-Ohio-1446, 967, N.E.2d 729,
the Ohio Supreme Court held that the PRQJOR classification under R.C. 2152.86 is
unconstitutional because it automatically imposes lifelong registration and
4 Although not argued in either party’s appellate brief, we note that in C.P.’s
supplemental objections to the magistrate’s decision, C.P. argued that the PRQJOR was
not ordered at the hearing, yet was ordered in the accompanying judgment entry. C.P.
noted that a court speaks through its journal and it is imperative that the court’s journal
reflect the truth. State ex rel. Worcester v. Donnellon, 49 Ohio St.3d 117, 118, 551 N.E.2d
183 (1990). In Donnellon, the Ohio Supreme Court held that “[a]ll courts have a clear
legal duty to have their journals reflect the truth” and “[a]ll litigants have a clear legal
right to have the proceedings they are involved in correctly journalized.” Id. at 119. Here,
the judgment entry does not reflect the truth of the hearing, which is that the court did
not classify C.P. as a PRQJOR.
notification requirements on a certain class of juvenile sex offenders called public-
registry-qualified juvenile-offender registrants. The court stated:
R.C. 2152.86 creates a classification of juvenile offenders called public
registry-qualified juvenile-offender registrants. R.C. 2152.86 imposes
upon that classification of juvenile offenders an automatic, lifetime
requirement of sex-offender registration and notification, including
placement on a public Internet registry. Such requirements are
imposed upon juveniles without the participation of a juvenile judge.
We conclude that R.C. 2152.86 is unconstitutional because the penalty
it imposes violates the prohibitions against cruel and unusual
punishment contained in the Eighth Amendment to the United States
Constitution and the Ohio Constitution, Article I, Section 9. Further,
we hold that R.C. 2152.86 is unconstitutional because the procedure
involved in imposing the punishments violates the Due Process Clause
of the Fourteenth Amendment to the United States Constitution and
the Ohio Constitution, Article I, Section 16.
Id. at ¶ 86.
In the instant case, the juvenile court classified C.P. as a PRQJOR in
its March 9, 2022 judgment entry. Because the In re C.P. Court found that R.C.
2152.86 is unconstitutional, the juvenile court could not classify C.P. under that
statute. C.P. at ¶ 86; see In re D.F., 2018-Ohio-1792, 111 N.E.3d 737, ¶ 27, 36 (5th
Dist.), discretionary appeal not allowed, 153 Ohio St. 3d 1463, 2018-Ohio-3258,
104 N.E.3d 792 (where the Fifth District Court of Appeals found the court’s PRQJOR
classification under R.C. 2152.86 was error and remanded the matter for a
reclassification hearing).
Accordingly, the juvenile court erred when it classified C.P. as a
PRQJOR and the PRQJOR classification must be vacated.
Therefore, the second assignment of error is sustained.
III. Conclusion
The March 9, 2022 judgment entry purporting to restate C.P.’s
adjudication and classifying C.P. as a Tier II sex offender and a PRQJOR is vacated
in its entirety. The juvenile court’s November 21, 2019 dispositional judgment entry
remains the final adjudication in this case. The matter is remanded to the juvenile
court.
It is ordered that appellee recover from appellant costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate issue out of this court directing the
common pleas court, juvenile division, to carry this judgment into execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27
of the Rules of Appellate Procedure.
MARY J. BOYLE, JUDGE
MARY EILEEN KILBANE, P.J., and
EILEEN T. GALLAGHER, J., CONCUR | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484655/ | [Cite as In re M.J., 2022-Ohio-4090.]
COURT OF APPEALS OF OHIO
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
IN RE M.J., ET AL. :
No. 111708
A Minor Child :
[Appeal by J.P., Mother] :
JOURNAL ENTRY AND OPINION
JUDGMENT: AFFIRMED
RELEASED AND JOURNALIZED: November 17, 2022
Civil Appeal from the Cuyahoga County Court of Common Pleas
Juvenile Division
Case Nos. AD20900639, 209000640, and 20900641
Appearances:
Michael E. Stinn, for appellant.
Michael C. O’Malley, Cuyahoga County Prosecuting
Attorney, and Joseph C. Young, Assistant Prosecuting
Attorney, for appellee.
CORNELIUS J. O’SULLIVAN, JR., J.:
{¶ 1} Appellant mother appeals from a judgment of the juvenile court
granting permanent custody of her children, M.J., M.L., and L.L. (“collectively
referred to as “the children”) to the Cuyahoga County Division of Children and
Family Services (hereafter “CCDCFS” or “agency”). Our review reflects the juvenile
court properly engaged in the statutory analysis set forth in R.C. 2151.414 and clear
and convincing evidence supports the findings made by the court in support of its
decision granting permanent custody. Accordingly, we affirm the juvenile court’s
decision.
Substantive History and Procedural Background
{¶ 2} The oldest of the three children at issue here, M.J., was born in October
2015. The middle child, M.L., was born in September 2016, and the youngest, L.L.,
was born in January 2018.
{¶ 3} Appellant’s history with the agency dates to 2015 when M.J. and two of
appellant’s other children were adjudicated dependent. The two other siblings were
removed from appellant’s care, placed in the legal custody of maternal grandmother,
and are not at issue in this case. In 2017, appellant was again involved with the
agency when M.J. and M.L. were adjudicated dependent.
{¶ 4} Then, on January 16, 2020, CCDCFS filed a complaint alleging M.J.,
M.L., and L.L. were neglected and dependent and requesting temporary custody. On
January 28, 2020, the children were removed from appellant’s care. The complaint
alleged appellant was homeless, had been asked to leave two homeless shelters, and
had untreated mental health issues. The complaint also had allegations as to each
child’s father or alleged father.1
1 M.J.’s father is deceased. M.L.’s father is unknown. L.L.’s father is incarcerated
and, according to appellant, wants no involvement with his child. He also did not file a
notice of appeal in this case. Therefore, discussion regarding the fathers will be minimal.
{¶ 5} At the emergency custody hearing, appellant appeared with counsel,
admitted to an amended complaint, and stipulated to the agency’s request for
emergency temporary custody. The trial court ordered the children into the pre-
dispositional temporary custody of the agency. The agency developed a case plan
with a goal for reunification. The objectives on the case plan were mental health,
housing, parenting, and anger management.
{¶ 6} The trial court ordered a first extension of temporary custody in March
2021, noting appellant stopped visiting with the children in January 2021. The court
further noted that “[a]ttempts to appoint a supportive visitation coach have been
made due to ongoing concerns with [appellant]’s parenting. During visits with
children, [appellant] does not maintain control of children * * * or appropriately
addresses [sic] behaviors.” In July 2021, the trial court ordered a second extension
of temporary custody, finding that appellant was on the waiting list for supportive
visitation, currently had weekly supervised visits with the children, and had not yet
found housing.
{¶ 7} On August 24, 2021, CCDCFS filed an emergency case plan amendment
to suspend appellant’s visitation with the children “due to appellant threatening the
children’s foster care provider and the CCDCFS caseworker during visits with the
children.” On September 28, 2021, appellant filed an objection to the case plan
amendment, but later withdrew her objection after the parties reached an
agreement that appellant would be able to see children weekly at family therapy
sessions and additional visitation would resume upon recommendation of the
family therapist.
{¶ 8} On December 13, 2021, CCDCFS moved to modify temporary custody
to permanent custody. The motion alleged, in part, that appellant had “failed to
benefit from services and remains unable to provide appropriate care for the
children.”
{¶ 9} The trial court held a full hearing. CCDCFS social worker Donnell
Bailey testified that she was the family’s ongoing caseworker. Bailey testified that
appellant completed anger management classes but was unable to show that she
benefitted from the classes because she continued to struggle to control her anger,
which led to the suspension of her visits with the children. The caseworker gave the
example of one visit where appellant verbally berated M.J. and foster mother to the
point where M.J. was traumatized and, for hours after the visit, yelled, screamed,
and kicked the walls.
{¶ 10} Bailey testified that appellant has made violent threats towards her and
the foster mother, telling them both that she was going to “F” them up. The most
recent threat was towards the foster mother and was in the presence of one of the
children.
{¶ 11} Mental health was also a component of appellant’s case plan. Bailey
testified that appellant had a history of untreated bipolar disorder. Appellant
received services through Signature Health and was engaged with the service
provider, but Bailey had not noticed a substantial change in appellant’s behavior
since appellant had engaged in services. Often Bailey found it difficult to engage in
conversations with appellant because “one minute she’s crying and the second
conversation she’s laughing * * * it was kinda like all over the place when I was
speaking with [her].”
{¶ 12} Bailey testified that appellant had been referred for parenting services
because she left the children alone, without supervision. Appellant completed
parenting classes and started supportive visits with parent coaches, but those visits
ended early due to appellant’s “explosive” behavior. The agency tried to work with
appellant to restore visitation, but appellant’s therapist refused to continue therapy
after appellant threatened the therapist. While visits were still active, the foster
parents reported that the children would return from visits sick from the junk food
appellant fed them.
{¶ 13} Bailey testified that M.J. is placed with maternal grandmother, who
also had legal custody of two of appellant’s other children. M.J. is doing well in his
current placement and is bonded with his caregiver and siblings. His basic needs
are being met, and he is receiving services including counseling and an
Individualized Education Plan (“IEP”). M.L. and L.L. are placed together in another
foster home where they are bonded with their caregiver and other family members
and their basic needs are met. M.L. and L.L. are also in counseling.
{¶ 14} Jamie Saunt testified that she is an Early Childhood Mental Health
Therapist for Ohio Guidestone. Saunt first met the children in February 2020. L.L.
was diagnosed with acute stress disorder; M.J. and M.L. were diagnosed with post-
traumatic stress. According to Saunt, all three children had made improvements,
but had various setbacks. Saunt testified that M.J. felt he had to take care of his
younger siblings when appellant left them unsupervised; M.J. told Saunt he had to
make sure his baby sister had a bottle. Saunt worked with M.L. on the domestic
violence the child had witnessed “around daddy hitting mommy and daddy going to
jail.” Saunt testified that the three children exhibited sexualized behavior, but it was
unclear if the behavior was a result of sexual abuse or if it was a result of the children
witnessing adults engaging in sexual activity.
{¶ 15} Saunt tried to involve appellant in the children’s therapy but ultimately
had to terminate her involvement because appellant refused coaching and her input
and yelled at the therapist in front of the children. After the last session, appellant
sent Saunt 35 text messages that were “random ranting.” It was at this time that
Saunt discontinued therapy sessions that included appellant.
{¶ 16} Nuta Ngangana, appellant’s Signature Health counselor, testified that
appellant had made improvements in her mental health. According to Ngangana,
she attempted to contact Saunt to discuss her concerns with how Saunt was
approaching family therapy, i.e., discussing the “alleged” trauma the kids endured
rather than focusing on “more positive things.” Ngangana also shared appellant’s
concern that M.J. was placed with maternal grandmother who, according to
appellant, had a history of abusing appellant. Ngangana testified that appellant has
bipolar effective disorder, post-traumatic stress, and is on the autism spectrum.
{¶ 17} Melanie Buck, appellant’s Signature Health case manager, testified
that she had been working with appellant to secure housing since September 2021.
Buck testified that she initially found it challenging to keep appellant on task and
appellant was frustrated, but now “she’s easily redirected.” Buck testified she has
noticed an improvement since appellant started working with Ngangana.
{¶ 18} Guardian ad litem (“GAL”) Wildon Ellison testified that appellant was
unable to show she had benefitted from parenting classes because, although she had
two parenting coaches, she could not successfully complete the parenting program
due to her behavior. Ellison testified that appellant had recently secured
appropriate housing but had previously been in two shelters and evicted from
housing several times. According to the GAL, appellant told him she was out of her
medication and, at his last home visit, he saw an empty bottle of vodka near the
sink.2 The GAL spoke with appellant’s brother, who had an altercation with
appellant during which the police were called. According to the brother, appellant
was not compliant with her medication. Finally, the GAL testified that the children
have mental health issues, but school is going well, and they are all doing well in
their placements.
{¶ 19} The GAL recommended that the children be placed into the
permanent custody of the agency. In a June 2, 2022 journal entry, the court granted
the agency’s motion for permanent custody. Appellant filed the instant appeal.
On cross-examination, the GAL conceded that appellant later texted the GAL a
2
picture of her medication refill and, as to the bottle of vodka, appellant denied it was
hers and treatment for substance abuse was not a part of her case plan.
{¶ 20} On appeal, appellant raises the following two assignments for our
review, they will be discussed together because they are interrelated:
I. The trial court abused its discretion in determining that
permanent custody was in the best interest of the children.
Therefore, the trial court’s order granting permanent custody to
CCDCFS should be reversed.
II. The trial court’s findings are against the manifest weight of the
evidence. Therefore, the trial court’s order granting permanent
custody to CCDCFS should be reversed.
Standard of Review and Permanent Custody Statute
{¶ 21} The juvenile court has exclusive jurisdiction to determine the custody
of any child not a ward of another court of this state. R.C. 2151.23(A)(2). “It is well
recognized that the right to raise a child is an ‘essential’ and ‘basic’ civil right.” In re
Hayes, 79 Ohio St.3d 46, 48, 679 N.E.2d 680 (1997), citing In re Murray, 52 Ohio
St.3d 155, 556 N.E.2d 1169 (1990). Thus, “the overriding principle in custody cases
between a parent and nonparent is that [biological] parents have a fundamental
liberty interest in the care, custody, and management of their children.” In re
Hockstok, 98 Ohio St.3d 238, 2002-Ohio-7208, 781 N.E.2d 971, ¶ 16, citing
Santosky v. Kramer, 455 U.S. 745, 753, 102 S.Ct. 1388, 71 L.Ed.2d 599 (1982). “This
interest is protected by the Due Process Clause of the Fourteenth Amendment to the
United States Constitution and by Section 16, Article I of the Ohio Constitution.” In
re Hockstok at id., citing Santosky at id., and In re Shaeffer Children, 85 Ohio
App.3d 683, 689-690, 621 N.E.2d 426 (3d Dist.1993). A parent’s interest, however,
is ‘“always subject to the ultimate welfare of the child.’” In re M.J.M., 8th Dist.
Cuyahoga No. 94130, 2010-Ohio-1674, ¶ 15, quoting In re B.L., 10th Dist. Franklin
No. 04AP-1108, 2005-Ohio-1151, ¶ 7.
{¶ 22} Under the second assignment of error, appellant claims the trial court’s
decision to grant permanent custody to CCDCFS is against the manifest weight of
the evidence. A trial court’s decision to grant permanent custody will not be reversed
as being against the manifest weight of the evidence if the record contains
competent, credible evidence by which the court could have found that the essential
statutory elements for an award of permanent custody have been established. In re
B.P., 8th Dist. Cuyahoga Nos. 107732 and 107735, 2019-Ohio-2019, ¶ 22.
{¶ 23} R.C. 2151.414 sets forth a two-prong analysis to be applied by a
juvenile court in adjudicating a motion for permanent custody. Under the statute,
the juvenile court is authorized to grant permanent custody of a child to the agency
if, after a hearing, the court determines, by clear and convincing evidence, that any
of the five factors under R.C. 2151.414(B)(1)(a)-(e) exists and that permanent
custody is in the best interest of the child under the factors enumerated in
R.C. 2151.414(D)(1).
{¶ 24} R.C. 2151.414(B)(1) governs the first step in an agency's motion for
permanent custody and contains five factors. In re R.H., 8th Dist. Cuyahoga
No. 111505, 2022-Ohio-3765, ¶ 21. Relative to this case, when a child is neither
abandoned nor orphaned, the court considers whether the child has been in an
agency’s temporary custody for 12 out of 22 consecutive months. Id.; see also
R.C. 2151.414(B)(1)(d).
R.C. 2151.414(B)(1)
{¶ 25} Under the first prong of the permanent custody analysis, the juvenile
court made a finding as to each child under R.C. 2151.414(B)(1)(d) that the child had
been in the temporary custody of the agency for 12 or more months of a consecutive
22-month period. Mother does not contest this finding.
{¶ 26} “For the purposes of division (B)(1) of this section, a child shall be
considered to have entered the temporary custody of an agency on the earlier of the
date the child is adjudicated pursuant to section 2151.28 of the Revised Code or the
date that is sixty days after the removal of the child from home.”
R.C. 2151.414(B)(1)(e). CCDCFS was granted emergency temporary custody of the
children on January 28, 2020. The children were adjudicated dependent on August
13, 2020, and placed into the temporary custody of the agency.
{¶ 27} CCDCFS filed its complaint for permanent custody on December 13,
2021. Although not more than 12 months had passed between the time the children
were placed in the temporary custody of the agency and the time the complaint for
permanent custody was filed, because more than 12 months had passed between 60
days after the children were removed from their home and the date the complaint
was filed, R.C. 2151.414(B)(1)(d) is satisfied.
{¶ 28} The court also made an additional finding as to each child that the child
“cannot be placed with one of the child’s parents within a reasonable period of time
or should not be placed with either parent” pursuant to R.C. 2151.414(B)(1)(a) and
made findings consistent with several R.C. 2151.414(E) subsections. However,
because the time requirements under R.C. 2151.414(B)(1)(d) were satisfied, it was
unnecessary for the court to determine whether any additional factor under R.C.
2151.414(B)(1) was applicable to the circumstances presented in this case. In re
An.M., 8th Dist. Cuyahoga No. 111368, 2022-Ohio-2873, ¶ 33.
Best Interest of the Children
{¶ 29} Appellant argues in her first assignment of error that permanent
custody was not in the best interest of the children. R.C. 2151.414(D)(1)(a) through
(e) set forth the relevant factors that a court should consider in determining the best
interest of a child. “The court must consider all the elements in R.C. 2151.414(D) as
well as other relevant factors. There is not one element that is given greater weight
than the others pursuant to the statute.” In re Schaefer, 111 Ohio St.3d 498, 505,
2016-Ohio-5513, 857 N.E.2d 532. This court reviews a trial court’s best-interest
determination under R.C. 2151.414(D) for an abuse of discretion. In re R.H., 8th
Dist. Cuyahoga No. 111505, 2022-Ohio-3765, at ¶ 27, citing In re J.F., 2018-Ohio-
96, 102 N.E.3d 1264, ¶ 55 (8th Dist.). “[T]he best interest determination focuses on
the child, not the parent.” In re R.H. at id., citing In re K.Z., 8th Dist. Cuyahoga No.
107269, 2019-Ohio-707, ¶ 85. While a trial court is required to consider each of the
R.C. 2151.414(D)(1) factors in making its permanent custody determination, “there
is not one element that is given more weight than the others pursuant to the statute.”
In re Schaefer at ¶ 56.
{¶ 30} In considering whether the grant of permanent custody was in each
child’s best interest, the court considered the following R.C. 2151.414(D)(1) factors:
“the interaction and interrelationship of the child with the child’s parents, siblings,
relatives, and foster parents” (R.C. 2151.414(D)(1)(a)); “the wishes of the child” (R.C.
2151.414(D)(1)(b)); “the custodial history of the child, including whether the child
has been in temporary custody of a public children services agency or private child
placing agency under one or more separate orders of disposition for twelve or more
months of a consecutive 22 month period” (R.C. 2151.414(D)(1)(c)); “the child’s need
for a legally secure permanent placement” and “whether that type of placement can
be achieved without a grant of permanent custody” (R.C. 2151.414(D)(1)(d)).
Additionally, the court considered the GAL report.
{¶ 31} The record showed, by clear and convincing evidence, that the
children could not be placed with appellant because she could not provide a safe and
secure home for them. The children also could not be placed with their fathers or
alleged fathers because they were either unknown, deceased, or incarcerated. The
agency found no connection between the children and their paternal relatives and
no other relatives who were willing or able to provide a permanent home for the
children. The caseworker’s testimony also revealed that the children’s foster
caregivers, which included maternal grandmother, were meeting their needs and the
children were doing well in their placements. The children’s custodial history
showed that they had been in the agency’s custody since January 2020.
{¶ 32} The court heard testimony from her agency caseworker, the children’s
therapist, and the GAL that, although appellant engaged in services, she did not
benefit from those services. Appellant engaged with therapists at Signature Health,
and both her therapists, and her case manager testified that appellant was
improving. However, appellant had not demonstrated that she consistently took her
prescriptions and was not able to engage in mental health services with the
children’s mental health provider due to her behavior.
{¶ 33} Appellant completed parenting and anger management classes, but
the agency terminated visitation with the children due to appellant’s threatening
behavior towards foster mother and the agency caseworker, which appellant
displayed in front of the children. Appellant had not resumed visits with the
children. Thus, appellant did not complete the parenting portion of her case plan.
{¶ 34} A review of the record therefore reveals clear and convincing evidence
supporting the juvenile court’s finding that permanent custody to the agency was in
the children’s best interest and the juvenile court did not abuse its discretion in
awarding permanent custody of the children to CCDCFS.
{¶ 35} Accordingly, appellant’s first and second assignments of error are
overruled.
{¶ 36} In reviewing permanent custody proceedings, we are mindful that the
power of the trial court to exercise discretion is particularly important. The
knowledge obtained through contact with and observation of the parties cannot
always be adequately conveyed to a reviewing court through a printed record.
See Trickey v. Trickey, 158 Ohio St. 9, 13, 106 N.E.2d 772 (1952). “The discretion
which the juvenile court enjoys in determining whether an order of permanent
custody is in the best interest of a child should be accorded the utmost respect, given
the nature of the proceeding and the impact the court’s determination will have on
the lives of the parties.” In re Awkal, 95 Ohio App.3d 309, 316, 642 N.E.2d 424 (8th
Dist.1994).
{¶ 37} We find the trial court acted in its discretion, consistent with clear and
convincing evidence in the record, in terminating appellant’s parental rights and
committing M.J., M.L., and L.L. to the permanent custody of CCDCFS. The trial
court’s decision was neither against the children’s best interests nor the manifest
weight of the evidence. The assignments of error are overruled.
{¶ 38} Judgment affirmed.
It is ordered that appellee recover from appellant costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate be sent to said court to carry this judgment
into execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule
27 of the Rules of Appellate Procedure.
CORNELIUS J. O’SULLIVAN, JR., JUDGE
KATHLEEN ANN KEOUGH, P.J., and
EMANUELLA D. GROVES, J., CONCUR | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484647/ | Ahmed v 2 W. 46th St. Mgt., LLC (2022 NY Slip Op 06417)
Ahmed v 2 W. 46th St. Mgt., LLC
2022 NY Slip Op 06417
Decided on November 15, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 15, 2022
Before: Gische, J.P., Kapnick, Kern, Gesmer, Higgitt, JJ.
Index No. 160099/19 Appeal No. 16647 Case No. 2021-04657
[*1]Mohiuddin Ahmed, Plaintiff-Appellant,
v2 West 46th Street Management, LLC, Defendant-Respondent.
Law Office of Noah A. Kinigstein, New York (Noah A. Kinigstein of counsel), for appellant.
Milman Labuda Law Group PLLC, Lake Success (Matthew A. Brown of counsel), for respondent.
Order, Supreme Court, New York County (Paul A. Goetz, J.), entered on or about December 8, 2021, which granted defendant's motion for summary judgment dismissing the complaint, unanimously affirmed, without costs.
Defendant established its entitlement to summary judgment dismissing the complaint, as it articulated a legitimate, nondiscriminatory reason for firing plaintiff from his employment as a cleaner — namely, plaintiff's unsatisfactory work performance and his failure to improve despite multiple warning letters (see Park v Kurtosys Sys., Inc., 206 AD3d 570, 571 [1st Dept 2022]; Koester v New York Blood Ctr., 55 AD3d 447, 448, 449 [1st Dept 2008]). Defendant's submission of tenant complaints regarding the uncleanliness of the bathrooms and the warning letters it issued to plaintiff about his poor performance supports its claim that he was terminated not because of his age, but because of his failure to adequately perform his duties over an extended time (see Park, 206 AD3d at 570). As further evidence that plaintiff was not fired because of his age, defendant showed that it did not fill plaintiff's position after he was terminated but instead outsourced his job duties to a third-party cleaning service (see Bailey v New York Westchester Sq. Med. Ctr., 38 AD3d 119, 124 [1st Dept 2007]).
In opposition, plaintiff failed to demonstrate that any of the reasons defendant proffered for terminating his employment were false, misleading, or incomplete (see Bennett v Health Mgmt. Sys., Inc., 92 AD3d 29, 43 [1st Dept 2011], lv denied, 18 NY3d [2012]). Plaintiff presented no evidence tending to show that the tenant complaints or the warning letters were inaccurate, much less designed to supply a pretext for age discrimination (see e.g. Stephens v Isabella Geriatric Ctr., Inc., 178 AD3d 478, 478-479 [1st Dept 2019], lv denied 35 NY2d 914 [2020]; Stewart v Schulte Roth & Zabel LLP, 44 AD3d 354, 355 [1st Dept 2007], lv denied 10 NY3d 707 [2008]). Nor does plaintiff show how defendant's failure to give him vacation wages before his vacation was to begin supports a finding of pretext under the circumstances (see Hamburg v New York Univ. Sch. of Medicine, 155 AD3d 66, 81 [1st Dept 2017]). In addition, plaintiff's assertion that defendant failed to sufficiently warn him about his unsatisfactory job performance is undermined by his own testimony that he saw the January 2018 letter that suspended him for three days based on tenant complaints regarding his job performance (see e.g. Stephens, 178 AD3d at 478).
The two isolated comments made by plaintiff's supervisor about his intent to retire were "stray remarks" that "do not, without more, constitute evidence of discrimination" (Melman v Montefiore Med. Ctr., 98 AD3d 107, 125 [1st Dept 2012]). At any rate, even if these remarks suggested bias, defendant established that the supervisor was not involved in the decision to terminate plaintiff's employment, and in fact, had no power to hire, fire, or discipline employees [*2](see Radler v Catholic Health Sys. of Long Is., Inc., 144 AD3d 781, 782 [2d Dept 2016]; Mete v New York State Off. of Mental Retardation and Dev. Disabilities, 21 AD3d 288, 294 [1st Dept 2005]).
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 15, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484656/ | [Cite as In re D.C., 2022-Ohio-4086.]
COURT OF APPEALS OF OHIO
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
IN RE D.C., JR. :
: No. 111418
A Minor Child :
JOURNAL ENTRY AND OPINION
JUDGMENT: REVERSED AND REMANDED
RELEASED AND JOURNALIZED: November 17, 2022
Civil Appeal from the Cuyahoga County Court of Common Pleas
Juvenile Division
Case No. DL-21-109034
Appearances:
Patrick S. Lavelle, for appellant.
Michael C. O’Malley, Cuyahoga County Prosecuting
Attorney, and Jordan Mason, Assistant Prosecuting
Attorney, for appellee.
LISA B. FORBES, P.J.:
Appellant D.C., Jr. (“D.C.”) appeals the juvenile court’s order
adjudicating him delinquent of felonious assault and placing him on six months of
community-control sanctions with probation supervision. After reviewing the facts
of the case and the pertinent law, we reverse and remand to the trial court for further
proceedings consistent with this opinion.
A. Procedural History
In a complaint filed on October 12, 2021, the state of Ohio alleged that
D.C. was a delinquent child because “on or about September 26, 2021 * * * [he] did
knowingly cause serious physical harm to [N.C.] * * *.”
The juvenile court held an adjudication hearing on February 24,
2022. Following the hearing, the juvenile court adjudicated D.C. delinquent of
felonious assault, a violation of R.C. 2903.11(A)(1), which is a felony of the second
degree if committed by an adult.
At the March 23, 2022 dispositional hearing, the juvenile court placed
D.C. “on community control with probation supervision for a period of six (6)
months.” It is from this order that D.C. appeals, raising one assignment of error.
B. Adjudication Hearing Testimony
At the adjudication hearing, the state presented testimony from T.G.,
the alleged victim’s mother, and N.C., the alleged child victim. D.C. testified on his
own behalf.
1. T.G.
On September 26, 2021, T.G.’s son, N.C., spent the night at his
father’s house with his cousins, D.C. and C.C. T.G. identified D.C. in court.
T.G. recalled that when she picked N.C. up the next morning, N.C.’s
“father had been in there trying to get him up for probably 10 minutes” before
eventually bringing him outside. When N.C.’s father brought N.C. outside, “[N.C.]
was very lethargic and disoriented” and “couldn’t really even walk down the stairs.”
T.G. claimed that this was unusual of N.C. when he woke up and that “[h]e just
wasn’t himself.”
When N.C. got into T.G.’s car, T.G. “noticed the side of his head was
swollen and he had throw up all over his clothes * * *.” T.G. inspected N.C.’s head
and noticed “a fist print” on one side of his head, and on “the other side of his face
* * * his eye was black ** *.” T.G. indicated that she did not notice any vomit smell
when she picked N.C. up because “when throw up drys [sic] up, it was rubbed into
your clothes and only a small amount has gotten into it, it’s hard to pick up the smell
* * *.”
T.G. took N.C. to the hospital because she knew from working as a
“State-Tested Nurse’s Assistant” (“STNA”) that a reaction “to a concussion was * * *
vomiting.” Further, because it was “obvious that [N.C.] was hit in his head” and “was
disoriented * * * [she] knew that it was a possibility that he could have a concussion
* * *.”
At the hospital, N.C. was diagnosed. T.G. responded, “Yes” when
asked, given T.G.’s “role and training as an STNA, was the diagnosis consistent with
what you believed it to be?” T.G. admitted that she is not licensed to make a medical
diagnosis.
Asked how N.C. acted in the days following the incident, T.G.
responded, “He was just very depressed.”
2. N.C.
N.C. testified that he was born January 17, 2014. At the time of the
February 24, 2022 adjudication hearing, N.C. was eight years old.
N.C. nodded his head yes when he was asked if something happened
to him the last time he was with his cousins. N.C. stated that he “got hurt.” N.C.
pointed to his arm and head when asked what part of his body got hurt. Asked who
hurt him, N.C. pointed to D.C., who he identified as his cousin.
N.C. recalled that on the night he was at his father’s house, his father
was at work, his uncles were not there, and his cousins were “playing a few games”
on the Xbox.
N.C. recalled that he was in the living room when he was hit. N.C.
stated that he was hit on the side of his head with a boxing glove but was also hit
elsewhere, with the court noting that N.C. pointed to his torso when asked where
else he was hit. N.C. said that he was also hit with a broomstick, but that it was “a
soft hit.”
N.C. testified that his cousin C.C. put boxing gloves on that day and
the two of them “were play-fighting with them or just really fighting.” According to
N.C., play-fighting is “like [they] fight, but [they] don’t really hit each other that
hard.” However, “[s]ometimes it can be hard.” N.C. was asked, “when [D.C.] hit you
in the head with the boxing gloves hard, was that play-fight?” The court stated for
the record that N.C. shook his head “no” in response.
At some point after being hit, N.C. went into the kitchen and “was
gonna take [a] knife” because he “was acting like [he] was very tortured.” N.C.
explained that tortured “means you’re getting hurt endlessly.” N.C. clarified that he
was going to grab “[a] butter knife because [he] know[s] that’s weak.” N.C. explained
why he was going to get the knife: “I was so frustrated I almost felt like putting it
right through his chest.” However, after pointing the knife at his cousins, N.C. “put
the knife back because [D.C.] grabbed a chair and [he] knew [D.C.] was going to
throw it at [him] and that’s how [he would] die.”
After being hit, N.C. went into to his father’s room, felt dizzy, and
threw up before he “decided to go to bed.”
N.C. recalled that when his mother picked him up the next day, he
“felt depressed” because of what had happened to him. He stated that his mother
took him to the hospital because he felt hurt. N.C. felt better after going to the
hospital.
On cross-examination N.C. was asked, “remember when you said that
you didn’t feel well that next day. Is that because you stayed up late or was that
because of some other reason?” N.C. answered it was for another reason and
responded “[y]es” when asked if the reason was “because [he] got hurt.” N.C. stated,
“now I have head problems.”
3. D.C.
D.C. testified that on September 26, 2021, he stayed the night at his
grandmother’s house with his brother C.C. and his cousin N.C. D.C. testified that he
weighs 130 pounds and N.C. weighs “like 115-120” pounds.
According to D.C., two of his uncles and his uncle’s girlfriend also live
at his grandmother’s house. That evening, the only adult home was his uncle’s
girlfriend; however, “[s]he was in the attic. She was pregnant so she would never
really come down.”
That evening, D.C. was in the living room “watching TV on the Xbox”
when he heard C.C. and N.C. talking. Subsequently, N.C. “smacked [D.C.] in [his]
neck. Then he sat back down. [D.C.] didn’t do anything.” D.C. recalled that he was
smacked four or five times. In response, D.C.
yelled at him and he got mad, so he got up and he like tried to hit me,
so I smacked him in his face I think — yeah, it was in his face or in his
arm, and then he end up like backing back. He didn’t do nothing. My
brother started grabbing him. And then my brother let him go. He
went into the kitchen and got a knife, came back with a knife pointing
up. My brother was going to hold him back, but he was scared because
he was holding a knife. And then my cousin, he got close to me so I
ended up smacking him and I caught his hand and I held him down on
the couch and my brother picked up the knife and put it back. Then I
let my cousin go and he went in my uncle’s room.
D.C. explained that when he smacked N.C., he slapped him with an
open hand and that caused N.C. to drop the knife. D.C. claimed that he smacked
N.C. from side-to-side and the hit landed on N.C.’s right arm. However, he “wasn’t
even trying to hit him in his arm. [He] was trying to hit him like in his stomach, but
he was like running so it just hit him wherever he ran into.” Additionally, D.C. hit
N.C. with an open hand on the chin. D.C. recalled hitting N.C. a total of three times,
twice on his arm and once on his chin. However, D.C. also testified that he hit N.C.
a total of five times, all with an open hand.
D.C. reiterated what happened that evening. According to D.C., the
events were as follows: N.C. slapped D.C. on the neck, D.C. yelled at N.C., N.C. got
up and tried to hit D.C., D.C. hit N.C. in the arm and chin, N.C. got a knife, N.C.
pointed the knife at D.C., N.C. came towards D.C. with the knife and D.C. smacked
the knife out of his hand, D.C. held N.C. down, and C.C. grabbed the knife before
putting it away. After the knife was put away, D.C. “let [N.C.] go.”
When N.C. left the room, D.C. “heard banging * * * like something
was hitting the wall” before N.C. came back out and eventually left again.
D.C. explained that N.C. had bothered him in the past, “but it didn't
get to like how it was that day.” N.C. “seemed hurt” after D.C. hit him, elaborating
that he thought N.C. was hurt because N.C. got the knife. “Like for him to go get a
knife on me because he doesn’t — well, he gets real mad and he does stuff like that,
but he never really did that to me because I don’t really hit him unless it gets to a
point like I was. I just usually talk to him and then he calms down.”
According to D.C., he never put on boxing gloves that day.
Additionally, the only time the boxing gloves were used was when N.C. and C.C. used
them. “[T]hey was hitting each other with the boxing gloves, but nobody was like
hurt.” D.C. described it was “just playing.”
C. Law and Analysis
D.C. raises the following single assignment of error: “the lower court
lacked sufficient evidence to convict defendant of felonious assault.” We note that
D.C. was not convicted of felonious assault but was adjudicated delinquent of
felonious assault. Further, he was not a defendant; D.C. was an alleged delinquent
child in juvenile court.
“When reviewing the sufficiency of the evidence in a juvenile context,
we apply the same standard of review applicable to criminal convictions.” In re
L.R.F., 2012-Ohio-4284, 977 N.E.2d 138, ¶ 12 (8th Dist.), citing In re Watson, 47
Ohio St.3d 86, 91, 548 N.E.2d 210 (1989).
An appellate court’s function when reviewing the sufficiency of the
evidence to support a criminal conviction is to examine the evidence
admitted at trial to determine whether such evidence, if believed, would
convince the average mind of defendant’s guilt beyond a reasonable
doubt. The relevant inquiry is whether, after viewing the evidence in a
light most favorable to the prosecution, any rational trier of fact could
have found the essential elements of the crime proven beyond a
reasonable doubt.
State v. Jenks, 61 Ohio St.3d 259, 574 N.E.2d 492 (1991), paragraph two of the
syllabus. “In essence, sufficiency is a test of adequacy. Whether the evidence is
legally sufficient to sustain a verdict is a question of law.” State v. Thompkins, 78
Ohio St.3d 380, 386, 678 N.E.2d 541 (1997). “In making its determination, an
appellate court must view the evidence in a light most favorable to the prosecution.”
State v. Davis, 8th Dist. Cuyahoga No. 81170, 2002-Ohio-7068, ¶ 11.
D.C. was adjudged delinquent of felonious assault pursuant to
R.C. 2903.11(A)(1), which provides, “No person shall knowingly * * * [c]ause serious
physical harm to another * * *.” Pertinent to this appeal, R.C. 2901.01(A)(5) defines
serious physical harm to persons as:
(c) Any physical harm that involves some permanent incapacity,
whether partial or total, or that involves some temporary, substantial
incapacity;
***
(e) Any physical harm that involves acute pain of such duration as to
result in substantial suffering or that involves any degree of prolonged
or intractable pain.
Because we find it dispositive of this appeal, we first consider whether
the state presented sufficient evidence of serious physical harm. Although the term
serious physical harm is defined in the statute, “[t]he degree of harm that rises to
the level of ‘serious’ physical harm is not an exact science, particularly when the
definition includes such terms as ‘substantial,’ ‘temporary,’ ‘acute,’ and ‘prolonged.’”
State v. Irwin, 7th Dist. Mahoning No. 06MA20, 2007-Ohio-4996, ¶ 37, quoting
R.C. 2901.01(A)(5).
To demonstrate serious physical harm, the state “must establish one
of the factors in R.C. 2901.01(A)(5)(a)-(e), such as permanent incapacity, temporary
substantial incapacity, acute pain of such duration as to result in substantial
suffering, or any harm that results in prolonged pain.” (Citation omitted.) State v.
Battles, 8th Dist. Cuyahoga No. 109265, 2021-Ohio-310, ¶ 16 (finding sufficient
evidence of serious physical harm when the victim suffered from a concussion, a loss
of consciousness, constant light headaches, inability to drive for nine months, issues
with balance and vision, and a mark under his eye).
Temporary, substantial incapacity and, therefore, serious physical
harm under R.C. 2901.01(A)(5)(c), may be shown by establishing a loss of
consciousness. See, e.g., State v. Chambers, 8th Dist. Cuyahoga No. 99864, 2014-
Ohio-390, ¶ 23. Other courts have found the following evidence sufficient to
constitute temporary, substantial incapacity: the inability to work; a police officer’s
diminished vision when assailant needed to be apprehended; the need for two knee
surgeries, a knee immobilizer, and physical therapy; and a five-day hospital stay.
See State v. Garner, 2d Dist. Darke No. 2019-CA-10, 2020-Ohio-4234, ¶ 19; State
v. Browning, 190 Ohio App. 3d 400, 2010-Ohio-5417, 942 N.E.2d 394, ¶ 38 (4th
Dist.); State v. Bigsby, 7th Dist. Mahoning No. 12 MA 74, 2013-Ohio-5641, ¶ 32;
State v. Winston, 71 Ohio App.3d 154, 160, 593 N.E.2d 308 (2d Dist.1991). See also
State v. Littlejohn, 8th Dist. Cuyahoga No. 95380, 2011-Ohio-2035, (finding serious
physical harm under R.C. 2901.01(A)(5)(c) and (e) when one victim suffered from
disorientation, blurred vision, bruises that persisted for weeks, persistent
headaches, and an inability to work for one month and the other suffered from
bruising, lacerations, an inability to work, and required x-rays, a tetanus shot, and
physical therapy).
In assessing whether the harm suffered by a victim involved the type
of pain contemplated by R.C. 2901.01(A)(5)(e), this court has looked to the
Committee Comment of the statute. “The Committee Comment, as it pertains to
this definition, describes the pain as ‘pain which is unbearable or nearly so, though
short-lived, and pain which is long-lasting or difficult to relieve, though not as
keen.’” State v. Sharp, 8th Dist. Cuyahoga No. 87709, 2006-Ohio-6413, ¶ 25,
(finding insufficient evidence of serious physical harm when “[t]here was no
testimony as to the severity of the pain suffered by [the victim] or as to the duration
that she suffered from actual pain.”), quoting R.C. 2901.01(A)(5)(e).
This court has recognized “that seeking medical treatment alone is
not dispositive of serious physical harm.” State v. Clopton, 8th Dist. Cuyahoga
No. 95297, 2011-Ohio-2392, ¶ 16. “This district has not affirmed a conviction based
on a fact pattern where the victim seeking medical treatment is the only evidence
establishing the serious physical harm.” Id. at ¶ 16.
This court has also considered whether the victim needed medical
treatment, rather than whether the victim sought medical treatment, in assessing
whether the victim suffered “serious physical harm.” In Davis, 8th Dist. Cuyahoga
No. 81170, 2002-Ohio-7068, at ¶ 20, this court noted that “[g]enerally, a trial court
does not err in finding serious physical harm where the evidence demonstrates the
victim sustained injuries necessitating medical treatment.” There, the victim’s
injuries — cuts, scrapes, and a concussion — met the requirements of
R.C. 2901.01(A)(5)(c), temporary substantial incapacity, and (e), any period of
prolonged pain. After the assault,1 the victim was transported to the hospital where
he remained for several hours before being released to his parents’ care, suffered fits
of vomiting throughout the evening, and experienced headaches for several days.
1The assault in Davis included the defendant kicking the victim in the head repeatedly
and the victim’s head striking a steel fence post.
See also State v. Rogers, 8th Dist. Cuyahoga No. 105897, 2018-Ohio-3495
(sufficient evidence of serious physical harm where the victim testified regarding the
pain he experienced and the medical treatment he received for, among other things,
PTSD, even though the state did not introduce medical records or testimony
confirming the victim’s diagnosis or treatment).
In analyzing the sufficiency of evidence of felonious assault, this court
has not found the fact the victim sustained a concussion alone dispositive, even
while recognizing that “[m]any appellate districts have found that a concussion
satisfies the serious physical harm threshold.” Rogers at ¶ 39. In Rogers, the state
presented sufficient evidence of serious physical harm when it established that the
victim suffered from a concussion, head trauma, “massive headaches” for days
following the attack, a mark on his head, pain for weeks from bullets grazing his
ankle, and PTSD. Id. at ¶ 42. See also State v. Noah, 8th Dist. Cuyahoga No. 110664,
2022-Ohio-1315 (finding sufficient evidence of serious physical harm when the
victim required physical therapy and suffered from a concussion, redness to face and
eye, abrasions on neck and face, a broken nose, vision and breathing difficulties, and
recurring headaches); State v. Simpson, 8th Dist. Cuyahoga No. 107407, 2019-
Ohio-2912 (finding sufficient evidence of serious physical harm when the victim
suffered from a concussion, minor neck sprain, back contusion pain for several days
following the incident, and continued periodic pain and stiffness); Chambers, 8th
Dist. Cuyahoga No. 99864, 2014-Ohio-390 (finding sufficient evidence of serious
physical harm when the victim suffered from a concussion, loss of consciousness,
broken ribs, broken zygomatic arch, hematomas in both eyes, blurred vision, was
hospitalized overnight, and was prescribed morphine and painkillers); State v.
Grider, 8th Dist. Cuyahoga No. 68594, 1995 Ohio App. LEXIS 5599 (Dec. 20, 1995)
(finding sufficient evidence of serious physical harm when the victim suffered from
a concussion, hemorrhaging in both eyes, lacerations that required stitches, black
eyes swollen shut, blurred vision, bruises, abrasions, and had continued dryness in
his eyes).
Under the unique facts of this case, we do not find sufficient evidence
in the record to establish that N.C. experienced serious physical harm as defined in
R.C. 2901.01(A)(5). We acknowledge there was some evidence of physical harm, as
distinct from the serious physical harm required for a felonious assault conviction.
T.G. testified that N.C.’s diagnosis was consistent with her belief that he had a
concussion and that he had a bruise, and N.C. testified that he was “hurt” and
“depressed” after the incident with D.C. However, there was no evidence that N.C.
suffered from serious physical harm. For example, there is no evidence that N.C.
was incapacitated in any way, that he suffered from “acute pain of such duration as
to result in substantial suffering,” that he experienced “any degree of prolonged or
intractable pain,” that N.C. required or received any medical treatment, or that he
experienced any loss of consciousness.
Consequently, the state did not present evidence sufficient to
establish that D.C. knowingly caused N.C. to suffer serious physical harm.
Accordingly, D.C.’s sole assignment of error is sustained.
Judgment reversed and remanded to the trial court for further
proceedings consistent with this opinion.
It is ordered that appellant recover from appellee costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate issue out of this court directing the
common pleas court, juvenile division, to carry this judgment into execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27
of the Rules of Appellate Procedure.
LISA B. FORBES, PRESIDING JUDGE
MARY J. BOYLE, J., CONCURS;
CORNELIUS J. O’SULLIVAN, JR., J., DISSENTS (WITH SEPARATE OPINION)
CORNELIUS J. O’SULLIVAN, J., DISSENTING:
Respectfully, I dissent and would affirm the adjudication.
As this court has recognized, the degree of harm that constitutes
“serious” physical harm is not an exact science. State v. Mason, 8th Dist. Cuyahoga
No. 109176, 2020-Ohio-4998, ¶ 11, citing State v. Montgomery, 8th Dist. Cuyahoga
No. 102043, 2015-Ohio-2158, ¶ 11. The testimony and evidence in each case must
be considered to determine whether sufficient evidence exists. In making that
determination, we are required to assess whether, after viewing the state’s evidence
in a light most favorable to the prosecution, any rational trier of fact could have
found the essential elements of the crime were proven beyond a reasonable doubt.
Jenks, 61 Ohio St.3d 259, 574 N.E.2d 492, at paragraph two of the syllabus. I
disagree with the majority opinion that the evidence was insufficient to support a
finding of serious physical harm necessary for a felonious assault adjudication.
This court has recognized that seeking medical treatment alone is not
dispositive of serious physical harm. Clopton, 8th Dist. Cuyahoga No. 95297, 2011-
Ohio-2392, at ¶ 16. Although “serious physical harm” may involve an injury or
condition of such gravity as would normally require hospitalization, the facts must
establish one of the factors in R.C. 2901.01(A)(5)(a)-(e), such as permanent
incapacity, temporary substantial incapacity, acute pain of such duration as to result
in substantial suffering, or any harm that results in prolonged pain. Id. at ¶ 12-14,
citing R.C. 2901.01(A)(5)(c) and (e).
Sufficient evidence of serious physical harm has been found under
circumstances where the victim was knocked temporarily unconscious, the victim’s
injuries were serious enough to cause the victim to seek medical treatment, and the
victim suffered from persistent pain for months. See State v. Redman, 3d Dist. Allen
No. 1-15-54, 2016-Ohio-860, ¶ 25-28.
In Davis, 8th Dist. Cuyahoga No. 81170, 2002-Ohio-7068, this court
found the state presented sufficient evidence of serious physical harm where the
victim suffered multiple punches and kicks to his head and face, his head hit a steel
post, he suffered a concussion as well as scrapes and cuts, he sought medical
treatment and remained at the hospital for several hours, and he had fits of vomiting
and experienced headaches for several days. Id. at ¶ 6-8 and ¶ 22-23; see also
Rogers, 8th Dist. Cuyahoga No. 105879, 2018-Ohio-3495, at ¶ 41-46 (finding
sufficient evidence of serious physical harm where the victim sustained a
concussion, headaches, and head trauma as a result of a blow to his head, and the
victim testified that he received medical treatment for his injuries); In re E.B., 3d
Dist. Auglaize No. 2-17-21, 2018-Ohio-1683, ¶ 22-23 (finding sufficient evidence of
serious physical harm where the victim suffered prolonged periorbital pain and
headaches, as well as a concussion); Littlejohn, 8th Dist. Cuyahoga No. 95380, 2011-
Ohio-2035, at ¶ 22-23 (finding sufficient evidence of serious physical harm where a
victim, who was punched and kicked by the defendant, became disoriented and
experienced blurred vision, sought medical treatment, and suffered prolonged
headaches).
At the time of the incident here, which occurred in September 2021,
the victim was seven years old and appellant was almost 14 years old. The victim
testified that appellant hit him multiple times on the side of head with a closed fist
while wearing boxing gloves. The victim retrieved a knife from the kitchen because
he was scared of appellant. However, the victim put the knife back because
appellant “grabbed a chair” and the victim feared appellant was going to throw it at
him and that would be “how [he’d] die.” (Tr. 60.). After the attack, the victim went
by himself into a bedroom and vomited. He testified that he felt dizzy and just went
to bed. The victim testified that now he has “head problems.” (Tr. 69.) The
adjudicatory hearing took place in February 2022, approximately four months after
the incident.
The victim’s mother testified that when she arrived at the
grandmother’s house the following morning to get the victim, it took the victim’s
father awhile to wake him up. The mother described that as unusual. When the
victim’s father eventually brought the victim to the mother, the father had to support
the victim by holding him up. The victim had trouble negotiating the steps on his
way out of the house. The mother testified that the victim was “not himself”; he
appeared to be “off,” and “disoriented.” (Tr. 17, 19.)
Upon closer examination of the victim, the mother saw that the victim
had swelling and a large mark on the right side of his head and bruising under his
eyes and right temple area. The mother realized that what she initially thought was
dirt on the victim’s clothing was dried up vomit. Having suffered a concussion
herself, and through her work in a nursing home with concussed patients, she was
concerned that the victim had a concussion and took him to the hospital. The
mother testified that her suspicion was confirmed. She also filed a police report.
Appellant denied wearing boxing gloves but nonetheless admitted
that he hit the victim several times. The appellant testified that he hit the victim
because the victim was “bugging” him. He acknowledged that the victim has bugged
him in the past, “but it didn’t get to like how it was that day.” (Tr. 91.) When
questioned as to whether he had ever hit the victim before, appellant responded,
“No, not really.” Id. The assistant prosecuting attorney pressed appellant on that
issue, asking him “This is the very first time you’ve ever hit him?” Appellant
responded, “Yeah, and hurt him.” Id.
I would find this evidence to support a finding of serious physical
harm required for a felonious assault and would affirm the adjudication. The
appellant admitted he hurt the victim. The victim’s mother, who has medical
training, thought the reports of being struck repeatedly about the head, swelling to
the side of the head, black eye, vomiting, and days of sadness and fatigue were signs
of a concussion. In actuality, they are signs of a possible traumatic brain injury
(“TBI”) and closed head injury. Symptoms of a TBI can be delayed and severe.
I believe we are ignoring not so recent advances in medical evaluation
of TBI when we limit evidence of “serious physical harm” to cases where more than
a concussion occurs. The potential severity of closed head injuries warrants a
reexamination of what it means under Ohio law to be “hurt” and the evidence
required to demonstrate “serious physical harm.” That is not necessary in this case
as it is clear the seven-year old victim sustained serious physical harm when
assaulted by his almost 14-year old cousin.
I therefore respectfully dissent. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484654/ | [Cite as In re N.S., 2022-Ohio-4088.]
COURT OF APPEALS OF OHIO
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
IN RE: N.S., JR., ET AL., :
No. 111486
Minor Children :
[Appeal by O.S., Mother] :
JOURNAL ENTRY AND OPINION
JUDGMENT: AFFIRMED
RELEASED AND JOURNALIZED: November 17, 2022
Civil Appeal from the Cuyahoga County Court of Common Pleas
Juvenile Division
Case Nos. AD20905427 and AD20905428
Appearances:
Matthew O. Williams, for appellant.
Michael C. O’Malley, Cuyahoga County Prosecuting
Attorney, and Joseph C. Young, Assistant Prosecuting
Attorney, for appellee.
MICHELLE J. SHEEHAN, J.:
Appellant O.S. (“mother”) appeals from a judgment of the juvenile court
granting permanent custody of her children N.S. and T.S. to the Cuyahoga County
Division of Children and Family Services (“CCDCFS” or “agency”). Our review
reflects that the juvenile court properly engaged in the two-prong analysis
prescribed by R.C. 2151.414 and that clear and convincing evidence supports the
court’s decision granting permanent custody of the children to the agency. We
therefore affirm.
Background
On January 19, 2020, mother and N.S. (“father”) engaged in a
physical altercation in the family home in the presence of their children. Father was
subsequently convicted of domestic violence and attempted felonious assault on
June 16, 2020, for the incident and received community control sanctions. The
court ordered father to have no contact with mother.
Despite the no-contact order, however, mother allowed father access
to the home. On June 19, 2020, CCDCFS filed a “Complaint for Abuse, Neglect and
Temporary Custody to CCDCFS” regarding mother and father’s four children: two
girls, born in 2010 and 2011, respectively, and two boys, N.S. and T.S., born in 2014
and 2016, respectively.1 The children were removed from the home that day,
pursuant to an ex parte telephone order.
The complaint, subsequently revised, alleged that “mother and father
have engaged in domestic violence when the children were in the home” and mother
allowed father access to the home and to the children as recently as June 16, 2020,
in violation of the no-contact order imposed as a result of father’s domestic-violence
conviction.
1The two girls were ultimately placed in the legal custody of their paternal grandmother
and, therefore, are not the subject of the agency’s subsequent motion for permanent
custody or this appeal.
In conjunction with the complaint, the agency also filed a motion on
June 19, 2020, for predispositional temporary custody. A magistrate held a hearing
that day and granted the agency’s motion.
On September 29, 2020, a magistrate held an adjudicatory hearing on
the agency’s complaint. Kawana Johnson, the social worker on the case, testified at
the hearing. Mother stipulated to the allegations of the complaint as amended, and
the court adjudicated N.S. and T.S. as abused and neglected.
After the adjudication, the parties agreed to proceed immediately to
disposition and the court granted the agency’s motion to incorporate the testimony
from the adjudicatory hearing into the dispositional hearing. The next day, the
magistrate issued a decision and findings of fact, granting temporary custody to
CCDCFS. Mother was found to be engaged in parenting education, substance abuse
treatment, and domestic-violence counseling; father, however, needed to complete
his domestic-violence counseling and anger-management program, and he was
inconsistent with his visits with the children. N.S. was being assessed for speech
delay, and T.S. for special needs. On October 19, 2020, the trial court issued a
judgment entry adopting the magistrate’s decision.
On June 3, 2021, the trial court granted the agency’s motion for an
extension of temporary custody, after finding a lack of significant progress made by
either parent on their case plan. On June 25. 2021, the agency moved to modify
temporary custody to permanent custody.
Testimony at Permanent-Custody Hearing
On March 16, 2022, the trial court held a hearing on the permanent-
custody matter. Testifying for CCDCFS were Vanessa Cunningham, a resource
specialist with the Friendly Inn Settlement, where mother’s and father’s visitations
with the children took place; Kaitlyn Shipe, who provided services for the children
regarding their foster care; and Shamara Leonard, the agency’s social worker on the
case.
The testimony reflects that the children were removed from the home
on June 19, 2020, due to severe domestic violence and the unsafe living condition
of the home. Following the children’s removal, a case plan was developed for mother
to address issues of parenting, substance abuse, mental health, domestic violence,
and housing.
Mother completed the substance-abuse program and consistently
submitted to urine screens, but she appeared to have relapsed on March 3, 2022.
On that day, she behaved erratically, calling Leonard ten times after work hours.
Mother was crying and screaming and falsely claimed that her children were “in
danger.” Leonard asked her to submit to alcohol testing, but mother failed to do so.
Regarding mother’s parenting, Cunningham, who knew the family
when they previously stayed at Zelma George Shelter, testified that mother would
get up early in the morning and prepare the bottles for the two boys before she
headed to work. The children were happy with mother. Cunningham considered
her a “good mother,” based on her observation at the family shelter. She was
“shocked” when she learned in October 2020 that the children had been removed.
Cunningham also testified that mother later attended visitations regularly, and she
described the visitations as “peaceful.”
Leonard testified that mother would bring snacks, food, and birthday
gifts to the visitations. She would play with N.S. and T.S. on the floor or color with
them. Leonard, however, testified that mother struggled with parenting N.S. and
T.S. When the visitations began, N.S., age five at the time, was still not potty-trained.
When mother asked him to use the bathroom, he would start running around and
throwing objects, but he would comply if asked by his eldest sister. The younger
boy, T.S., would throw objects, pull hair, and scratch when he was upset. On
multiple occasions, T.S. pulled mother’s hair and scratched her when she put him in
the van at the end of the visitations and persisted despite being asked to stop the
behavior. Mother failed to engage in the parenting service initially but eventually
completed it in September 2021, although she still had difficulties with N.S. during
the visits.
Regarding mental health, mother was initially referred to Recovery
Resources but never attended the program. She was later referred to the Jewish
Family Association and completed the program there in July 2021. She was then
referred to the juvenile-court clinic for a mental-health assessment and found to
have severe post-traumatic stress disorder (“PTSD”). The clinic indicated she could
benefit from a mental-health provider specializing in domestic violence. She failed
to engage in the recommended counseling.
Regarding domestic violence, Leonard testified that, despite mother’s
completion of the initial domestic-violence program, she failed to benefit from it.
Her behavior or mindset have not changed; she continued to blame herself for the
domestic violence and to minimize it. She had indicated that she would stay with
father “no matter what” despite Leonard’s discussion with her regarding the adverse
impact of domestic violence on her children.
Regarding father, he was observed by the staff at the family shelter to
be verbally abusive to mother. He would also “holler” at the boys after mother left
for work. Although the shelter’s staff did not observe bruises on mother, she had
admitted that father was physically abusive to her.
Father had visitations with the children initially at the Friendly Inn
Settlement, but he was banned from the facility just one month later after an
incident where he was verbally abusive toward a staff member and threatened to
physically assault her. The agency had to change the venue of the visitations to
Fatima Center. Cunningham testified that, during the visitations, N.S. and T.S.
would not want to stay in the same room with father. T.S. would urinate and act out.
While father interacted well with his daughters, N.S. and T.S. did not want to
interact with him at all.
Father was convicted of domestic violence and attempted felonious
assault for the domestic-violence incident in January 2020, which ultimately led to
the children’s removal from the home. The testimony at the hearing revealed that
this is not father’s only criminal conviction; he had been convicted in 1992 of
voluntary manslaughter with a firearm specification.
Both mother and father minimized domestic violence in the family. In
the January 2020 incident, the police arrived in the home to find mother
unconscious. When Leonard asked father about the incident, father claimed mother
was cooking in the kitchen and hit her head and fell, and mother agreed with father’s
version of the event.
Leonard testified that both of the couple’s daughters had been
diagnosed with PTSD. The younger girl’s doctor noted that she suffered severe
PTSD from “constantly witnessing domestic violence.” Mother, however, denied the
girls ever witnessed any domestic violence.
Despite the no-contact court order as part of father’s community
control sanctions, the social worker believed mother remained with father. On one
occasion when Leonard visited the home, the social worker saw father’s belongings
in a closet and mother stated that “when we get the kids back, we plan to move to
Florida.”
Regarding N.S. and T.S., Shipe testified that both were yet to be potty-
trained when the agency took custody of them. They were scared to go in the
bathroom and would be crying and screaming when asked to do so, but the foster
family was able to get them potty-trained. N.S. was diagnosed with autism and
received speech, physical, and occupational therapy. Shipe testified that N.S. has
developed a close relationship with his foster family and was often seen giving them
hugs. T.S. exhibited aggressive behaviors: he would hit, kick, bite, pull hair when
angry, and once scratched his teacher at school. The foster family was able to use
timeouts to address T.S.’s aggressive behaviors. Shipe also observed the brothers to
be very close to each other. While the legal custody of the couple’s daughters was
eventually placed with their paternal grandmother, the agency was unable to find a
relative placement for N.S. and T.S.
The social worker testified that the agency believes it is in the best
interest of the children for the agency to be granted permanent custody, because
mother continued to minimize domestic violence in the family while maintaining
constant contact with father.
After the testimony presented by the agency, the children’s guardian
ad litem (“GAL”) made a recommendation for permanent custody. He considered
father “dangerous” and noted that multiple family members suffered PTSD as a
result of father’s abuse of mother, yet mother remained in contact with father and
had asked the court to lift the no-contact order to enable her to tend to father’s health
issues. The GAL also noted that mother appeared to have relapsed, most likely due
to father’s abusive behaviors. The GAL opined that, despite mother’s positive
relationship with her children, she has no ability to protect them.
On appeal, mother raises the following two assignments of error for
our review:
I. The trial court abused its discretion committing reversible error
when it failed to dismiss the CCDCFS’s complaint having failed to hold
a dispositional hearing within the time allowed law.
II. The trial court’s termination of appellant’s parental rights is against
the manifest weight of the evidence.
Time Limitation for Permanent-Custody Hearing
Under the first assignment of error, mother argues that the hearing
on the agency’s motion for permanent custody, filed on June 25, 2021, must take
place by October 18, 2021, citing R.C. 2151.35 (B)(1).
R.C. 2151.35(B)(1) governs the procedure after a child is adjudicated
as abused, neglected, or dependent. It states that “[i]f the court at an adjudicatory
hearing determines that a child is an abused, neglected, or dependent child, the
court shall not issue a dispositional order until after the court holds a separate
dispositional hearing.” The statute further permits the court to hold the
dispositional hearing “immediately after the adjudicatory hearing if all parties were
served prior to the adjudicatory hearing with all documents required for the
dispositional hearing.” Finally, the statute provides that the dispositional hearing
must be held within 90 days after the complaint is filed, but the deadline may be
extended by the court on its own motion or on the motion of any party, for good
cause shown, for 45 days. If the dispositional hearing is not held within the time
limit, the statute provides that the court shall, on its own motion or the motion of
any party, dismiss the complaint without prejudice.
Here, by the parties’ agreement, a separate dispositional hearing was
held on September 29, 2020, immediately after the children were adjudicated as
abused and neglected. It was held beyond the 90-day time limit but within the 45-
day extension.
On appeal, mother does not claim that the September 29, 2020
dispositional hearing was not held timely pursuant to R.C. 2151.35(B)(1). Rather,
citing Juv.R. 34(G), she claims the hearing on the agency’s motion is a “dispositional
hearing” and, as such, must be held within 135 days of the motion for permanent
custody filed on June 21, 2021, and, therefore untimely pursuant to
R.C. 2151.35(B)(1). Mother’s claim in reliance of R.C. 2151.35(B)(1) and
Juv.R. 34(G) lacks merit.
Juv.R. 34 governs dispositional hearings in juvenile court.
Juv.R. 34(G) concerns modification of temporary order. It states:
The department of human services or any other public or private
agency or any party * * * may at any time file a motion requesting that
the court modify or terminate any order of disposition. The court shall
hold a hearing upon the motion as if the hearing were the original
dispositional hearing and shall give all parties and the guardian ad
litem notice of the hearing pursuant to these rules.
Citing R.C. 2151.35(B)(1) and the provision in Juv.R. 34(G) stating
“[t]he trial court shall hold a hearing upon the motion as if the hearing were the
original dispositional hearing,” mother argues that because the motion for
permanent custody is to be treated as the “original dispositional hearing,” the 135-
day time limit in R.C. 2151.25(B)(1), applicable for the post-adjudicatory disposition,
should be applied to the motion for permanent custody as well.
While mother asks us to apply the 135-day time limitation to a hearing
on a motion for permanent custody based on the cited language in Juv.R. 34(G), we
note that R.C. 2151.414 specifically governs the hearing on a motion for permanent
custody: R.C. 2151.414(A)(2) provides that the hearing shall be held no later than
120 days after the agency files the motion for permanent custody, but the court may
continue the hearing “for a reasonable period of time” beyond the 120-day deadline
“for good cause shown.”
Despite the time limitation, however, R.C. 2151.414(A)(2) expressly
states that the trial court’s failure to comply with the time period “does not affect the
authority of the court to issue any order under this chapter and does not provide any
basis for attacking the jurisdiction of the court or the validity of any order of the
court.” Because of this expressive language, this court has determined that the time
limitation language in R.C. 2151.414(A)(2) is “directory” rather than mandatory —
the language exists “for the assurance of the prompt resolution of child custody
matters,” rather than as a jurisdictional perquisite. In re M.W., 8th Dist. Cuyahoga
Nos. 98214 and 98215, 2012-Ohio-5075, ¶ 21. See also In re B.F., 3d Dist. Marion
Nos. 9-19-77 and 9-19-78, 2020-Ohio-3086, ¶ 6, citing In re M.C., 4th Dist. Scioto
No. 16CA3755, 2016-Ohio-8294, ¶ 14 (“Based on this express language, courts * * *
have held that these time periods are not jurisdictional and that noncompliance with
them do not warrant reversal or dismissal of a permanent custody award”); In re
M.W., 9th Dist. Wayne No. 08CA0020, 2008-Ohio-4499, ¶ 24; and In re B.L., 10th
Dist. Franklin No. 04AP-1108, 2005-Ohio-1151, ¶ 8.
This court in addition stated in M.W, 2012-Ohio-5071, that the
remedy for a party aggrieved by a trial judge’s delay is to petition an appellate court
for a writ of procedendo to compel the execution of the judge’s duty and,
furthermore, a failure to do so at the trial court constitutes a waiver for purposes of
appeal. Id. at ¶ 22. See also In re J.D., 8th Dist. Cuyahoga No. 111039,
2022-Ohio-2677, ¶ 12 (because the time provisions in R.C. 2151.414(A)(2) are
directory only, a litigant must seek a writ of procedendo against the juvenile court if
it fails to comply with the time limitation). A claim of delay predicated on the
directory time provision contained in R.C. 2151.414(A)(2) lacks merit where the
issue is not raised before the trial court and no demonstration is made on appeal
how the delay operated to prejudice a party’s rights. In re B.F. at ¶ 9, citing In re
J.A., 3d Dist. Defiance Nos. 4-16-18, 4-16-19, and 4-16-20, 2017-Ohio-997, ¶ 33; In
re M.G., 5th Dist. Perry No. 16CA18, 2016-Ohio-5256, ¶ 37; In re James, 10th Dist.
Franklin No. 03AP-373, 2003-Ohio-5208, ¶ 39; and In re Allbery, 4th Dist. Hocking
No. 05CA12, 2005-Ohio-6529, ¶ 29.
Here, the agency filed the motion for permanent custody on June 25,
2021. The trial court did not hold the hearing until March 16, 2022, past the 180-
day deadline. The delay, however, does not require a dismissal of the complaint of
this case as mother claims. The record does not indicate that mother ever raised the
issue before the trial court, and mother has not demonstrated how the delay
prejudiced her rights. Accordingly, we overrule the first assignment of error.
Permanent Custody
Under the second assignment of error, mother argues the trial court’s
decision awarding custody to CCDCFS is against the manifest weight of the evidence.
Specifically, she maintains that the testimony presented at the permanent-custody
hearing reflects that she is a good mother who cares for her children and the trial
court’s decision is only based on domestic violence committed by her husband.
We begin our analysis with the recognition that, while a parent’s right
to raise a child is an essential and basic civil right, In re Hayes, 79 Ohio St.3d 46, 48,
679 N.E.2d 680 (1997), children have the right to “parenting from either natural or
adoptive parents which provides support, care, discipline, protection and
motivation.” In re Hitchcock, 120 Ohio App.3d 88, 102, 696 N.E.2d 1090 (8th
Dist.1996).
Under Ohio’s permanent custody statute, R.C. 2151.414, the juvenile
court’s judgment granting permanent custody must be supported by clear and
convincing evidence. Clear and convincing evidence has been defined as “that
measure or degree of proof which is more than a mere ‘preponderance of the
evidence,’ but not to the extent of such certainty as is required beyond a reasonable
doubt’ in criminal cases, and which will produce in the mind of the trier of facts a
firm belief or conviction as to the facts sought to be established.” In re K.H., 119
Ohio St.3d 538, 2008-Ohio-4825, 895 N.E.2d 809, ¶ 42, quoting Cross v. Ledford,
161 Ohio St. 469, 120 N.E.2d 118 (1954), paragraph three of the syllabus. We will
not reverse a juvenile court’s termination of parental rights and award of permanent
custody to an agency unless the judgment is not supported by clear and convincing
evidence. See, e.g., In re N.B., 8th Dist. Cuyahoga No. 101390, 2015-Ohio-314, ¶ 48;
In re M.J., 8th Dist. Cuyahoga No. 100071, 2013-Ohio-5440, ¶ 24.
Two-Prong Analysis for Permanent Custody
R.C. 2151.414 sets forth a two-prong analysis to be applied by a
juvenile court in adjudicating a motion for permanent custody. Under the statute,
the juvenile court is authorized to grant permanent custody of a child to the agency
if, after a hearing, the court determines, by clear and convincing evidence, that any
of the five factors under R.C. 2151.414(B)(1)(a) to (e) exists and, furthermore,
permanent custody is in the best interest of the child under the factors enumerated
in R.C. 2151.414(D)(1).
Under the first prong of the permanent-custody analysis, the juvenile
court is to determine if any of the following factors exists: whether the child is
abandoned (R.C. 2151.414(B)(1)(b)); whether the child is orphaned and there are no
relatives of the child who are able to take permanent custody
(R.C. 2151.414(B)(1)(c)); whether the child has been in the temporary custody of
public children services agencies or private child placing agencies for 12 or more
months of a consecutive 22-month period (R.C. 2151.414(B)(1)(d)); whether another
child of the parent has been adjudicated as abused, neglected, or dependent on three
separate occasions (R.C. 2151.414(B)(1)(e)); or, when none of these factors apply,
whether “the child cannot be placed with either of the child’s parents within a
reasonable time or should not be placed with the child’s parents.”
(R.C. 2151.414(B)(1)(a)).
If any of these five factors under R.C. 2151.414(B)(1) exists, the trial
court proceeds to analyze the second prong — whether, by clear and convincing
evidence, it is in the best interest of the child to grant permanent custody to the
agency. R.C. 2151.414(D)(1).
Here, mother argues the trial court’s decision granting permanent
custody should be reversed because Cunningham’s testimony reflects that she is a
good mother and the presence of domestic violence by father does not support a
grant of permanent custody to the agency. It is unclear, however, whether she is
challenging the trial court’s findings under R.C. 2151.414(B)((1) or 2151.414(D). For
the sake of completeness, we will review the court’s findings under both prongs of
the permanent custody analysis.
a. R.C. 2151.414(B)(1)
Here, under the first prong of the permanent-custody analysis, the
trial court found the presence of the R.C. 2151.414(B)(1)(a) factor — that the children
cannot be placed with either mother or father within a reasonable time or should
not be placed with either parent. For this finding, R.C. 2151.414(E) enumerates 15
factors for the trial court to consider. In this case, the trial court found the presence
of (E)(1) and (E)(4) factors. R.C. 2151.414(E) states, in relevant part:
(E) In determining * * * whether a child cannot be placed with either
parent within a reasonable period of time or should not be placed with
the parents, the court shall consider all relevant evidence. If the court
determines, by clear and convincing evidence * * * that one or more of
the following exist as to each of the child’s parents, the court shall enter
a finding that the child cannot be placed with either parent within a
reasonable time or should not be placed with either parent:
(1) Following the placement of the child outside the child’s home
and notwithstanding reasonable case planning and diligent efforts
by the agency to assist the parents to remedy the problems that
initially caused the child to be placed outside the home, the parent
has failed continuously and repeatedly to substantially remedy the
conditions causing the child to be placed outside the child’s home.
In determining whether the parents have substantially remedied
those conditions, the court shall consider parental utilization of
medical, psychiatric, psychological, and other social and
rehabilitative services and material resources that were made
available to the parents for the purpose of changing parental
conduct to allow them to resume and maintain parental duties.
***
(4) The parent has demonstrated a lack of commitment toward the
child by failing to regularly support, visit, or communicate with the
child when able to do so, or by other actions showing an
unwillingness to provide an adequate permanent home for the
child[.]
Regarding (E)(1), while mother completed a parenting program and
some mental-health services, we note that “‘[t]he issue is not whether the parent has
substantially complied with the case plan, but whether the parent has substantially
remedied the conditions that caused the child’s removal.’” In re J.B., 8th Dist.
Cuyahoga Nos. 98566 and 98567, 2013-Ohio-1706, ¶ 139, quoting In re McKenzie,
9th Dist. Wayne No. 95CA0015, 1995 Ohio App. LEXIS 4618,11 (Oct. 18, 1995).
Our review of the testimony indicates mother failed to substantially
remedy the condition causing the children’s removal despite the agency’s assistance.
The children were removed due to domestic violence in the home in the presence of
the children. The agency referred mother to domestic-violence services. Mother
initially did not engage in the services, but later completed a program in July 2021.
However, she failed to engage in any further mental-health program regarding
domestic violence to address her diagnosis of severe PTSD, and she did not appear
to benefit from the domestic-violence program she completed. She continued to
blame herself for domestic violence and to minimize it, and also failed to appreciate
the adverse impact of domestic violence on her children. Despite the no-contact
order, the agency found that she remained with father, and she indicated she would
always choose to stay with father. The GAL testified at the hearing that, despite
mother’s desire to keep her children, she has no ability to protect the children.
Regarding (E)(4), while mother has taken some steps to address her
mental health and substance abuse, our review of the testimony indicates mother
has demonstrated a lack of commitment toward the children by her actions: she
failed to submit to alcohol testing since a relapse in March 2022; did not engage in
further counseling to address domestic violence in the home; continued to have
contact with father despite the no-contact order; and has indicated her desire to stay
with father.
Pursuant to R.C. 2151.414(E), if the court determines, by clear and
convincing evidence, that one or more of the (E)(1)-(15) factors exist, the court shall
enter a finding that the child cannot be placed with either parent within a reasonable
time or should not be placed with either parent. See e.g., In re I.R., 8th Dist.
Cuyahoga No. 110410, 2021-Ohio-3103, ¶ 69 (based on its findings under
R.C. 2151.414(E), the juvenile court was required to find that the child could not be
placed with either of his parents within a reasonable time or should not be placed
with either parent), citing In re C.H., 8th Dist. Cuyahoga Nos. 82258 and 82852,
2003-Ohio-6854, ¶ 58. Because our review reflects clear and convincing evidence
relating to the (E)(1) and (E)(4) factors, the trial court properly found that N.S. and
T.S. cannot be placed with either parent within a reasonable time or should not be
placed with either parent.
b. Best Interest of the Child
Once the juvenile court determines that one of the five factors listed
in R.C. 2151.414(B)(1) is present, the court proceeds to an analysis of the child’s best
interest. The juvenile court is to undertake this analysis with the recognition that,
although parents have a constitutionally protected interest in raising their children,
that interest is not absolute and is always subject to the ultimate welfare of the child.
In re B.L., 10th Dist. Franklin No. 04AP-1108, 2005-Ohio-1151, at ¶ 7; and In re
N.M., 8th Dist. Cuyahoga No. 106131, 2018-Ohio-1100.
In determining the best interest of the child, R.C. 2151.414(D)
mandates that the juvenile court consider all relevant factors, including, but not
limited to, the following:
(a) The interaction and interrelationship of the child with the child’s
parents, siblings, relatives, foster caregivers and out-of-home
providers, and any other person who may significantly affect the child;
(b) The wishes of the child, as expressed directly by the child or through
the child’s guardian ad litem, with due regard for the maturity of the
child;
(c) The custodial history of the child, including whether the child has
been in the temporary custody of one or more public children services
agencies or private child placing agencies for twelve or more months of
a consecutive twenty-two-month period * * *;
(d) The child’s need for a legally secure permanent placement and
whether that type of placement can be achieved without a grant of
permanent custody to the agency;
(e) Whether any of the factors in divisions (E)(7) to (11) of this section
apply in relation to the parents and child.
When analyzing the best interest of the child, “[t]here is not one
element that is given greater weight than the others pursuant to the statute.” In re
Schaefer, 111 Ohio St.3d 498, 2006-Ohio-5513, 857 N.E.2d 532, ¶ 56. Furthermore,
although family unity and blood relationship are vital factors to be carefully
considered, the paramount consideration is the best interest of the child. In re J.B.,
8th Dist. Cuyahoga Nos. 98566 and 98567, 2013-Ohio-1706, at ¶ 163.
Here, the trial found permanent custody to be in the children’s best
interest after its consideration of (a) the interaction and interrelationship with their
parents, siblings, relatives, and foster parents, (b) the wishes of the children; (c) the
children’s custodial history, (d) the children’s need for a legally secure permanent
placement, and the report of the GAL. Our review of the record supports the court’s
determination.
Regarding the (D)(1)(a) factor, although mother interacted positively
with the children, such as playing with them during visitations, she had difficulties
controlling their behaviors. As this court has recognized, the best interest of the
child requires permanency and a safe, secure environment, and the mere existence
of a good relationship is insufficient. In re K.M., 8th Dist. Cuyahoga No. 95374,
2011-Ohio-349, ¶ 23. Regarding the foster family, the children were observed to be
close to their foster family and close to each other. They have made significant
progress in their behaviors while under the foster family’s care.
Regarding the (D)(1)(b) factor, the children, seven and five at the time
of the permanent-custody hearing, were not sufficiently verbal to express their
wishes. Where the children are too young to express their wishes, it is proper for the
juvenile court to consider the GAL’s recommendation as part of the (D)(1)(b)
analysis. In re M.D., 8th Dist. Cuyahoga Nos. 110957, 110958, and 110959, 2022-
Ohio-2672, ¶ 35. Here, the GAL recommended permanent custody based on his
concerns about mother’s ability to provide a safe home for the children.
Regarding the (D)(1)(c) and (d) factors, the children were removed in
June 2020 and remained in the custody of CCDCFS since then. By the time of the
trial in March 2022, they have been in the agency’s custody for over 20 months. The
evidence also reflects the children’s need for a legally secure permanent placement:
mother is unable to provide a safe home for the children due to her desire to stay
with father despite domestic violence in the home, and no relative placement was
available.2
2 Mother argues that “domestic violence concerns alone, and in the face of otherwise
positive parenting assessments [and] case plan progress, cannot provide the sort of clearly
convincing evidence necessary to terminate a parent’s rights,” citing In re M.S., 2015-
Ohio-1847, 34 N.E.3d 420 (8th Dist.). Our review of M.S. indicates that the case, while
also involving domestic violence between the children’s parents, contains highly
Our review therefore reflects the evidence before the trial court clearly
and convincingly demonstrated that permanent custody to the agency is in the best
interest of N.S. and T.S. pursuant to the R.C. 2151.414(D)(1) factors. Accordingly,
the court’s judgment granting permanent custody to CCDCFS is affirmed.
Judgment affirmed.
It is ordered that appellee recover from appellant costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate issue out of this court directing the
common pleas court, juvenile division, to carry this judgment into execution.
distinguishable facts. There, father appealed from the trial court’s judgment granting
permanent custody. In analyzing the best interest of the children, this court found the
factors under R.C. 2151.414(D)(1)(a) and (b) clearly weighed in favor of preserving the
family relationship despite domestic-violence issues: the children had a strong, loving
relationship with appellant; he had constant visitations with the children; there were no
concerns regarding his interactions with them; and the children had expressed a desire to
be with him. Regarding the (D)(1)(d) factor, this court noted that father had taken
significant steps toward completing the case plan and remedying the conditions which
had caused the children’s removal and, at one point, appellant came very close to
reunification with his children. The evidence also showed father consistently followed up
with services, obtained schooling and daycare for the children, and took care of the
children and their needs. Consequently, this court found no clear and convincing
evidence existed to show that a legally secure permanent placement cannot be achieved
without a grant of permanent custody. While M.S. also involved domestic violence, this
court’s decision was predicated on the specific facts present in that case and it does not
support a reversal here.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27
of the Rules of Appellate Procedure.
________________________________
MICHELLE J. SHEEHAN, JUDGE
EILEEN A. GALLAGHER, J., CONCURS;
FRANK DANIEL CELEBREZZE, III, P.J., CONCURS (WITH SEPARATE
CONCURRING OPINION ATTACHED)
FRANK DANIEL CELEBREZZE, III, J., CONCURRING:
I concur with the majority’s opinion and resolution of this matter.
Custody decisions are undoubtedly the most challenging and most important
decisions we make as judges. I respectfully write separately to emphasize the gravity
of protecting the children, and my hope that Mother will extricate herself from the
violence and the abuse.
As an appellate jurist with more than 20 years of experience, a father,
and a grandfather, I am extremely concerned about the domestic violence inflicted
against Mother and the fact that such abuse was witnessed by the children in this
matter. During my time as a judge, my top priority has been protecting children,
women, and those who cannot protect themselves. This is our duty as jurists, and it
will continue to be my top priority as long as I am on the bench.
In the instant matter, Mother has been given ample time to make
progress on her case plan, alleviate the concerns that caused the removal of the
children from her custody, and demonstrate that she is willing and able to provide a
safe, stable, and permanent home for these children. Unfortunately, Mother has
failed to take advantage of these opportunities. The record reflects that Mother
minimized the domestic violence in the home and blamed herself for it. While this
is common behavior for victims of domestic violence, the children must still be
protected. As noted by the GAL, it is clear that Mother does not have the ability to
protect the children. Mother has stated to the agency that she has no intention to
leave Father and that she would pick him over the children.
In my view, Mother should reflect upon the totality of the horrific
circumstances in this case. It is critical that Mother understands and appreciates
that she is risking her own safety and well-being by continuing to associate with an
individual that has inflicted such abuse on her. When considering the history of this
case and the pattern of abuse, I am reminded of a song by The Red Jumpsuit
Apparatus — “Face Down.” My greatest hope for Mother is that, like the woman in
the song, she has finally reached the point where she has “had enough.” The vicious
cycle has gone on for too long, and it is imperative that Mother break the cycle to
save herself. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493782/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
JERRY A. FUNK, Bankruptcy Judge.
This adversary proceeding is before the Court upon the complaint filed by Brandon James Maxfield (“Plaintiff’), seeking a determination pursuant to 11 U.S.C. § 1141(d)(3) that Janice K. Jennings (“Defendant”) would be denied a discharge if this case were a Chapter 7 case. A trial of this adversary proceeding was held July 1, 2004. In lieu of oral argument, the Court directed the parties to submit memoranda in support of their respective positions. Upon the evidence presented and the arguments of the parties, the Court makes the following Findings of Fact and Conclusions of Law.
FINDINGS OF FACT
Defendant is the owner of Bryco Arms, a handgun manufacturer. Bryco Arms sells its handguns mainly to B.L. Jennings, a firearms distributor, owned by Bruce Lee Jennings (“Jennings”), Defendant’s ex-husband. On April 6,1994 Plaintiff was injured in an accidental shooting involving a handgun designed by Jennings, manufac*212tured by Bryco, and distributed by B.L. Jennings.
In 2001 Plaintiff initiated litigation against Bryco, B.L. Jennings and Jennings for the injuries he sustained (the “California litigation”). Defendant was also named as a defendant in the California litigation, with the claims against her based on alter ego and fraudulent transfer theories.
On May 13, 2003 the court in the California litigation entered a judgment against Bryco, B.L. Jennings and Jennings in the amount of $21,250,650.31. The trial of the claims against Defendant was set to commence the following day. On May 14, 2003 (the “Petition Date”), Defendant filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. The only reason Defendant filed for bankruptcy protection was because of the California litigation. (Tr. at 68.) Besides the potential debt to Plaintiff, Defendant’s only other unsecured debt was •& $1,000.00 disputed medical bill. (Tr. at 66-68.) Defendant filed her bankruptcy schedules and Statement of Financial Affairs (“SOFA”) on June 20, 2003. (Pl.’s Ex. 1.) On Item 12 of Schedule B which requires a debtor to list “[sjtock and interests in incorporated and unincorporated businesses”, Defendant listed her stock in Bryco. On Item 13 of Schedule B which requires a debtor to list “[ijnterests in partnerships or joint ventures”, Defendant indicated none. On Item 17 of Schedule B, entitled “[ojther liquidated debts owing debtor including tax refunds,” Defendant listed a 2002 federal income tax refund, but stated the value as “unknown.” On Item 19 of Schedule B, entitled “[cjontingent and non-contingent interests in estate of a deee-dent, death benefit plan, life insurance policy, or trust”, Defendant indicated none. On Item 19 of Schedule B, entitled “animals”, Defendant listed a horse valued at $1,000.00.
On Item 7 of her SOFA, which requires a debtor to list all gifts (other than ordinary and usual gifts to family members aggregating less than $200.00 per family member) made within a year prior to the filing of the petition, Defendant indicated none. On Item 10 of her SOFA, which requires a debtor to list, other than in the ordinary course of business, all other property transferred within a year prior to the filing of the petition, Defendant indicated none. On Item 11 of her SOFA, which requires a debtor to list all financial accounts which were closed within a year prior to the filing of the petition, Defendant indicated none.
Defendant amended her schedules and SOFA on July 14, 2003. (Pl.’s Ex. 2.) The amendments dealt with her claim of exemptions and the list of creditors receiving payments within the 90 days preceding the Petition Date.1 On September 19, 2003 Plaintiff served a subpoena on Defendant requiring her to produce certain documents at a Rule 2004 examination scheduled for October 2, 2004. (Pl.’s Ex. 28.) Among other things, the subpoena requested the following information:
1. Your federal and state income tax returns for 2000, 2001, and 2002.
10. The titles and registrations to the automobiles, motorcycles, watercraft and aircraft listed on Schedule B of your bankruptcy schedules.
12. All bills of sale, receipts or other documents relating to your disposition *213or sale of any automobiles, watercraft, aircraft or motorcycles since January 1, 2002.
25. All documents reflecting your ownership or disposition of your interests in the following items:
(i) Shining Star Investments, LLC; (vii) Eaton Vance accounts;
(ix) A beneficial interest in the Janice K. Jennings Phoenix Trust, which itself is a stockholder in Phoenix Arms, another gun manufacturer.
29. A copy of the Janice K. Jennings Phoenix Trust trust agreement and all documents reflecting your resignation as a trustee of that trust.
30. All documents reflecting the disposition of the assets of the Janice K. Jennings Phoenix Trust.
At Defendant’s Rule 2004 Examination, Plaintiffs attorney asked Defendant whether she was entitled to a tax refund for her 2002 federal income taxes. Defendant testified that she was entitled to a refund of approximately $42,000.00 but had not yet received it. (Pl.’s Ex. 4 at 102.) On that same day Defendant again amended her schedules and SOFA. (Pl.’s Ex. 3.) Defendant’s amended schedule B disclosed her interest in the following: 1) Item 12-Stock in Cadence Corp.; 2) Item 13-Shin-ing Star Investments, LLC; 3) Item 19-Janice K. Jennings Phoenix Trust; 4) Item-29 a horse and 3 calves, valued at $1,200.00.2 Defendant’s second amended SOFA reflects the following changes: 1) Item 7 indicates that Defendant gave her son a 1997 Chevrolet Pickup during 1999 but formally transferred title to the vehicle on May 1, 2003; 2) Item 7 also indicates that Defendant gave her daughter a 1992 Chevrolet Pickup during 1999 but formally transferred title to the vehicle on October 29, 2002; 3) Item 10 indicates that Defendant sold a vehicle to a friend during May 2003 for $2,500.00; and 4) Item 11 indicates that on May 9, 2003 Defendant closed an Eaton Vance account which contained $83,406.83. Defendant did not amend her schedules to list the amount of the 2002 federal tax refund.
Cadence Corporation
Cadence Corporation was an Oregon corporation which Defendant set up to purchase vehicles. Defendant testified that Cadence’s sole act was the purchase of one vehicle in 1995 and that Cadence never held anything else and never filed any tax return. (Pl.’s Ex. 4 at 81.) “It just, I thought, just sort of dissolved and went away.” (Tr. at 21.) Defendant testified that she had not heard of Cadence for years prior to the Petition Date and thought it no longer existed.3
Shining Star Investments, LLC
Shining Star Investments, LLC (“Shining Star”), is a Texas limited liability company which was formed on February 12, 1999. (Pl.’s Ex. 17.) On the Petition Date Defendant owned 100% of the membership interests therein. Prior to the Petition Date and the date the original schedules and SOFA were filed, Defendant had not used Shining Star for any purpose. Shining Star had never had a bank account, had never owned any assets, had never operated a business, and had never earned any income. Shining Star’s only expense was a $150.00 annual renewal fee. (Tr. at 89-91.)
Defendant testified that she did not list Shining Star on her original Schedule B *214because “[it] didn’t occur to me to list it. I’d never done anything with it other than pay that yearly fee. Again, it never had a checking account, bank account, savings, credit cards, any business activity whatsoever in it, and I just didn’t think of it.” (Tr. at 93-94.) During 2002, Defendant disclosed her ownership interest in Shining Star to Plaintiff in the California litigation. (Tr. at 91-92, 95-96; Pl.’s Ex. 17; Def.’s Ex. 39.)
Janice K, Jennings Phoenix Trust
On the Petition Date, Defendant was the beneficiary of the Janice K. Jennings Phoenix Trust (the “Phoenix Trust”). The Phoenix Trust owns 100 shares or approximately 11% of the outstanding stock of Phoenix Arms, a firearm manufacturing company located in Ontario, California (PL’s Ex. 12; Tr. at 26.) Defendant received a $7,363.00 distribution from the Phoenix Trust in 2001 at which time the trustee informed her she would probably not receive any more distributions because Phoenix Arms was not doing well and it would eventually probably close down. (Pl.’s Ex. 6; Tr. at 101-102.) In 2002 Phoenix Arms yielded a loss of which $3,187.00 was passed through to Defendant and reported on her individual tax return filed in August of 2003. (Plaintiffs Ex. 7.) Defendant testified that she believes the trustee is required to liquidate Phoenix Arms because the total net income for the 100 shares of Phoenix Arms common stock was less than $10,000.00 for two consecutive years. (Tr. 100-102; Def. Ex. 25, paragraph 11) Defendant does not expect to receive any money if Phoenix Arms is liquidated. (Tr. 103; 111) Defendant testified that she did not intentionally omit her interest in the Phoenix Trust on her original Schedule B but rather overlooked it. (Tr. at 103.) Defendant disclosed her ownership interest in the Phoenix Trust/Phoenix Arms in the California litigation. (Tr. at 103-106.)
Eaton Vance Account
Prior to the Petition Date, Defendant had an account at Eaton Vance (the “Eaton Vance Account”). As of May 9, 2003 the total balance in the Eaton Vance Account, which was comprised of three mutual funds, was $90,726.00. (Def.’s Ex. 7.) On May 9, 2003 Defendant sold all of her shares in the Eaton Vance Account. As a result of this transaction, the Eaton Vance Account had no value on the Petition Date.4
Prior to the Petition Date, Defendant had a checking and savings account at Bank One. On May 12, 2003, Defendant deposited the $90,726.00 in proceeds from the Eaton Vance Account into her Bank One checking account.5 (Tr. at 70-71; Def.’s Exs. 8, 9.) As with the business interests, Defendant testified that her failure to list the closing of the Eaton Vance account was an oversight, that she overlooked it because it didn’t have any value and the money had been transferred to the Bank One account. In response to discovery requests in the California litigation, *215Defendant produced Eaton Vance account statements to Plaintiffs attorney. (Tr. at 68-69.)
Vehicle Transfers
Defendant testified that she did not list the gifts of the vehicles to her son and daughter on her original schedules because she not think of the transfers of title as a “change of anything”. (Tr. at 48.) She believed the vehicles had belonged to her children for several years. (Id.) Defendant did not consider herself the owner of the vehicles because her children had possession of them and drove them. (Tr. at 113-114.) Defendant testified that the friend to whom she sold the 1987 Pontiac had been asking to buy the vehicle for some time. Defendant looked up the value of the Pontiac in the Kelly Blue Book, which indicated that the car was worth between $2,000.00 and $3,000.00 Defendant deposited the $2,500.00 sales proceeds into her Bank One checking account on May 12,2003. (Def.’s Ex. 8.)
Calves
Defendant testified that she didn’t know why the calves weren’t listed on her original schedules because she remembered telling the very first bankruptcy person she spoke to about them. She identified this person as the “accountant for the bankruptcy case.” (Tr. at 46.)
CONCLUSIONS OF LAW
The complaint is predicated on 11 U.S.C. § 1141(d)(3), which provides:
(3) The confirmation of a plan does not discharge a debtor if-
(A) the plan provides for the liquidation of all or subsequently all of the property of the estate;
(B) the debtor does not engage in business after consummation of the plan; and
(C)the debtor would be denied a discharge under section 727(a) of this title if the case were a case under chapter 7 of this title.
11 U.S.C. § 1143(d)(3).
Since a plan of reorganization has not yet been proposed, this adversary proceeding seeks solely a determination that Defendant would not be eligible for a discharge under § 727(a)(4)(A) of the Code if this were a Chapter 7 case based on her failure to disclose her business interests in Cadence Corporation, Shining Star and Phoenix Arms. However, Plaintiff also asserts that “[t]he question in this adversary proceeding is whether [Defendant’s failure to disclose her interests in Phoenix Arms, Cadence or Shining Star, coupled with her general disregard of her duties to disclose transfers to insiders, closed bank accounts and other assets, constitutes a knowing or fraudulent oath sufficient to deny her discharge under § 727(a) or § 1141(d)(3) of the Code.”
The Bankruptcy Code favors discharge of the honest debtor’s debts and provisions denying this discharge to a debtor are generally construed liberally in favor of the debtor and strictly against the creditor. See Cohen v. McElroy (In re McElroy), 229 B.R. 483, 487 (Bankr. M.D.Fla.1998). However, there are limitations on the right to a bankruptcy discharge. Federal Rule of Bankruptcy Procedure 4005 provides that the initial burden of proof on an objection to discharge lies with the plaintiff. Fed. R.Bankr.P. 4005. However, once a plaintiff meets the initial burden, the debtor has the ultimate burden of persuasion. See Chalik v. Moorefield (In re Chalik), 748 F.2d 616, 619 (11th Cir.1984). That is, the debtor must bring forth “enough credible evidence to dissuade the court from exercising its discretion to deny the debtor’s discharge based on the evidence *216presented by the objecting party.” Law Offices of Dominic J. Salfi, P.A. v. Prevatt (In re Prevatt), 261 B.R. 54, 58 (Bankr.M.D.Fla.2000).
Section 727(a)(4)(A) provides:
(a) The court shall grant the debtor a discharge, unless&emdash;
(4) the debtor knowingly and fraudulently, in or in connection with the case&emdash;
(A) made a false oath or account;
11 U.S.C. § 727(a)(4)(A).
Section 727(a)(4)(A) requires a court to find that the debtor knowingly made a false oath that was both fraudulent and material. Swicegood v. Ginn, 924 F.2d 230, 232 (11th Cir.1991). A creditor objecting to discharge pursuant to § 727(a)(4)(A) has the burden of producing sufficient evidence to “give rise to a reasonable inference that the debtor failed to disclose information with the intent to hinder the investigation of the trustee and creditors.” Prevatt, 261 B.R. at 59. The burden then shifts to the debtor to overcome the inference with credible evidence. Id. For a false oath to be considered material, it must be shown that it “bears a relationship to the bankrupt’s business transactions or estate, or concerns the discovery of assets, business dealings, or the existence and disposition of his property.” Chalik, 748 F.2d at 618 (citations omitted).
Although a single omission is generally insufficient to support an objection to discharge, a series of omissions may create a pattern which demonstrates the debtor’s reckless disregard for the truth. Jones v. Phillips (In re Phillips), 187 B.R. 363, 370 (Bankr.M.D.Fla.1995) citing In re Clawson, 119 B.R. 851 (Bankr.M.D.Fla. 1990). From this pattern of behavior, fraudulent intent may be presumed. See id. citing In re Sausser, 159 B.R. 352 (Bankr.M.D.Fla.1993).
The Court finds that Defendant’s: 1) failure to list her business interests in Cadence Corporation, Shining Star and Phoenix Arms; 2) her failure to disclose the closing of the Eaton Vance Account; 3) her failure to disclose the vehicle transfers; and 4) her failure to list the calves are material. However, to the extent that Plaintiff produced sufficient evidence to give rise to an inference that Defendant failed to disclose the information with the intent to hinder creditors, Defendant brought forth enough credible evidence to dissuade the Court from exercising its discretion to deny Defendant’s discharge. Additionally, although Defendant omitted a number of items from her schedules, the Court finds the omissions to be the result of inadvertence and oversight rather than reckless disregard for the truth.
Defendant testified that when she was completing her schedules and SOFA, she did not think to list the three business entities and the closing of the Eaton Vance account. The Court finds Defendant’s explanation to be satisfactory for the following reasons. Cadence Corporation’s sole act was the purchase of a vehicle. Defendant had not heard of Cadence for years leading up to the Petition Date and thought it no longer existed. Shining Star had never had a bank account, had never owned any assets, had never operated a business, and had never earned any income. Defendant had not received a distribution from the Phoenix Trust since 2001 and was told at that time that she probably would not receive any more distributions from the Phoenix Trust because Phoenix Arms was not performing well and would probably close down. Defendant did not think to list the Eaton Vance Account because it did not have any value and the proceeds from the sale of the funds had been transferred to the Bank One account. Moreover, the Court finds *217that given the particular circumstances of this decidedly two-party dispute, the second party being a particularly diligent creditor, Defendant’s pre-petition disclosure of her interest in Shining Star, the Phoenix Trust, and the Eaton Vance account militates against an inference that Defendant intentionally omitted such items from her bankruptcy schedules or SOFA.
The Court finds that Defendant did not fraudulently or intentionally fail to list the transfers of the three vehicles on her SOFA. The Court finds credible Defendant’s explanation that she didn’t think to list the transfers of the titles of the vehicles to her children as gifts during the year leading up to the Petition Date because she believed the vehicles had belonged to her children for several years. Additionally, Defendant’s sale of the 1987 Pontiac for what appears to be fair market value, coupled with the deposit of the proceeds thereof into Defendant’s Bank One checking account, leads the Court to conclude that the failure to list the sale was an oversight rather than an intentional omission. The Court finds the omission of the calves to be inadvertent. Finally, with respect to the 2002 federal income tax refund, the Court finds that Defendant fulfilled her obligation when she indicated on her original schedules that she was entitled to a refund. At that point Defendant’s creditors were on notice that Defendant was entitled to a refund and could inquire further if they so chose.6
CONCLUSION
The Court finds that Defendant’s bankruptcy schedules and SOFA omitted a number of material items. However, to the extent that Plaintiff produced sufficient evidence to give rise to an inference that Defendant failed to disclose the information with the intent to hinder creditors, Defendant brought forth enough credible evidence to dissuade the Court from exercising its discretion to deny her discharge. The Court finds the omissions to be the result of inadvertence and oversight rather than fraud or reckless disregard for the truth. Accordingly, the Court would not deny Defendant’s discharge pursuant to 11 U.S.C. § 727(a)(4)(A) if this were a Chapter 7 case. The Court will enter a separate judgment in accordance with these Findings of Fact and Conclusions of Law.
. The attachment to the amended SOFA indicates that Defendant issued a check to Bank One for $19,300.00 on May 12, 2003. The check was for the purchase of three cashier's checks, one of which was for $18,000.00 to pay Defendant’s May, 2003 Citibank Visa bill. (Def.’s Exs. 10, 34.)
. Because Defendant had already listed and valued the horse at $1,000.00 on her original schedule B, the Court finds that Defendant valued the calves at $200.00.
. The Court notes that it observed Defendant’s demeanor at trial and found her to be a credible witness.
. On her second amended SOFA, Defendant mistakenly listed the final balance in the account as $83,406.83. Defendant testified that the real balance was $90,726.00 but she mistakenly listed it as $83,406.83 because that was the balance shown on the quarterly statement ending March 31, 2003. The difference between the two amounts is the increase in value from March 31, 2003 until the time the shares were sold on May 9, 2003. (Tr. at 65-66.)
. Other than alleging that Defendant pre-paid a Citibank Visa bill with $18,000.00 of the funds deposited into the Bank One Checking account, Plaintiff does not allege that Defendant failed to account for the funds. Defendant introduced a copy of her May 29, 2003 Citibank Visa statement. (Def.'s Ex. 10.) The statement reflects that the charges which Defendant paid were pre-petition charges.
. Plaintiff so chose and discovered the amount of the refund at the October 2, 2003 Rule 2004 Examination. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493783/ | MEMORANDUM OPINION
GLORIA M. BURNS, Bankruptcy Judge.
Before the Court is Debtor, Nickels Midway Pier, LLC’s (“Nickels”), motion to reject executory contract, pursuant to 11 U.S.C. § 365. A hearing on this matter was held on August 9, 2005.
The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334(a) *266and 157(a), and the Standing Order of the United States District Court for the District of New Jersey dated July 23, 1984, referring all bankruptcy cases to the bankruptcy court. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A). Venue of this case is proper in the District of New Jersey pursuant to 28 U.S.C. §§ 1408 and 1409. The following shall constitute findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052.
I. FACTUAL BACKGROUND
Nickels Midway Pier, LLC is in the business of purchasing, leasing and managing real estate. Nickels owns two pieces of property in Wildwood, New Jersey. At issue in this case is a pier (the “Pier”) located at 3500 Boardwalk, Wildwood, New Jersey. Nickels purchased the Pier in November of 1976. In 1999, Nickels and Wild Waves, LLC (“Wild Waves”) entered into a written lease agreement, whereby Wild Waves would lease 70 percent of the Pier for the purpose of constructing and operating a water park. Wild Waves asserted that the written lease was part of an agreement to sell the pier. Wild Waves constructed new concrete foundations and made other improvements to the property for the purpose of constructing a water park. Wild Waves has been operating its water park on the Pier since 2000. On the remaining 30 percent of the Pier are located several buildings and kiosks leased to a variety of tenants on the boardwalk.
The parties disagreed on the issue of whether Nickels had agreed to sell the Pier to Wild Waves. Wild Waves asserted that Nickels agreed orally to sell it the Pier, while Nickels argued that it never entered into an agreement to sell the Pier and that Wild Waves merely held a leasehold interest in the portion of the Pier occupied by the water park. Neither party completed performance of the alleged sale contract; i.e., Wild Waves did not furnish a deposit or the purchase price, and Nickels did not deliver the deed.
In 2001, Nickels initiated a civil action in the New Jersey Superior Court, Chancery Division and Wild Waves filed counterclaims prior to the filing of the bankruptcy. Wild Waves’ counterclaim sought a determination that an oral contract for the sale of the Pier existed between the parties. A trial in that matter commenced on December 3, 2003.
On December 8, 2003, Nickels filed for chapter 11 bankruptcy and on December 16, 2003, Nickels filed a motion to reject its lease with Wild Waves, pursuant to 11 U.S.C. § 365. Subsequently, Wild Waves filed a motion for stay relief for the purpose of pursuing its counterclaim in the Chancery Division. On February 20, 2004, the Court granted Wild Waves’ motion for stay relief and reserved its decision on whether Nickels could reject Wild Waves’ lease until resolution of the state court litigation.
The parties tried their state court litigation before Judge Seltzer in the Chancery Division on December 3 and 4, 2004, February 7, 8, and 9, 2005, and on March 1, 2005. On April 25, 2005, Judge Seltzer entered an order declaring that
Nickels Midway Pier, LLC and Wild Waves, LLC entered into a binding Agreement respecting Nickels Midway Pier, pursuant to which Wild Waves was to lease a portion of the Pier pursuant to a Business Lease dated May 15, 1999 and then to purchase the entire Pier in accordance with the terms contained in a written (but unexecuted) Agreement of Sale accepted into evidence as D-21.
Judge Seltzer determined the purchase price of the Pier in 2003 to be $5,500,000.00. Currently, Nickels has received offers to purchase the Pier for *267$15,000,000.00 and $15,400,000.00, which included various conditions.
Upon resolution of the state court litigation, on July 25, 2005, the debtor sought to proceed with its motion to reject the exec-utory contract filed December 16, 2003. Wild Waves filed an objection to Nickels’ motion to reject and Nickels filed a response thereto on August 1, 2005. On July 28, 2005, the Court held a pre-trial conference with the parties, at which it determined that it would consider the following issues at the August 9, 2005 hearing: (1) whether the Agreement of Sale (the “Agreement”) was an executory contract; (2) if so, whether Nickels satisfied the business judgment test when it decided to reject the Agreement; and (3) if Nickels may reject the Agreement, whether Wild Waves is “in possession” of the Pier under § 365(i). A plenary hearing was held in this matter on August 9, 2005, at which time the Court directed the parties to submit post-trial briefs by August 11, 2005. The parties asserted the following arguments in support of their respective positions.
A. Nickels ’ Arguments
First, Nickels argues that Wild Waves is judicially estopped from asserting that the Agreement was terminated pre-petition, and therefore nonexecutory. Second, Nickels argues that the Agreement is ex-ecutory, because substantial performance remains due by both parties. Specifically, Nickels argues any performance rendered by Wild Waves was performed in accordance with its obligations under the lease. Third, Nickels argues that rejection is required in order for Nickels to exercise its best business judgment, because it may obtain a significantly higher sale price from a third party, and because Wild Waves’ damage calculations are inaccurate. Finally, Nickels argues that Wild Waves is not a purchaser “in possession” under § 365(i), and thus, is not entitled to the protections set forth in that section. Specifically, Nickels argues that Wild Waves occupies only 70 percent of the Pier, and that it has no connection with the remaining, more valuable 30 percent of the Pier. Nickels also argues that the fact that the water park may be dismantled and moved speaks against permanence and possession.
B. Wild Waves ’ Arguments
First, Wild Waves argues that the Agreement is not executory, because (a) the Agreement was terminated pre-petition as a result of Nickels’ anticipatory repudiation thereof, and (b) Wild Waves’ substantial performance of the Agreement renders it nonexecutory.
Second, Wild Waves argues that Nickels’ decision to reject the Agreement was not made in sound business judgment, because (a) Wild Waves’ damages are likely to absorb any profit Nickels may realize from a sale to another party; (b) the other offers to purchase the Pier are not a “sure thing,” and are subject to several contingencies that potentially may not occur, whereas Wild Waves is prepared to close in the near future; and (c) a sale to Wild Waves would result in a 39.14 percent distribution to creditors, while a sale to a third party would only result in a 37.66 percent distribution to creditors.
Third, Wild Waves argues that Nickels is not entitled to reject the Agreement, because Wild Waves is entitled to specific performance of the Agreement. As such, Wild Waves holds an equitable remedy that does not give rise to a payment, and as such, is not a claim as defined by § 101(5).
Finally, Wild Waves argues that if the Court determines that Nickels is entitled to reject the Agreement under § 365(a), *268Wild Waves is entitled to the benefits set forth in § 365(i), because it is a purchaser “in possession.”
II. DISCUSSION
A. The Agreement is Executory
The term “executory contract” is not defined in the Code. In re R.M. Cordova Int’l, Inc., 77 B.R. 441, 445 (Bankr. D.N.J.1987). The Third Circuit has adopted the following definition expounded by Vern Countryman:
[An executory contract] is a contract under which the obligation of both the bankrupt and the other party to the contract are so far unperformed that the failure of either to complete performance would constitute a material breach excusing the performance of the other.
Sharon Steel Corp. v. Nat’l Fuel Gas Distrib. Corp., 872 F.2d 36, 39 (3d Cir.1989) (quoting Countryman, Executory Contracts in Bankruptcy, Part I, 57 Minn. L.Rev. 439, 460 (1973)). The appropriate time for determining whether a contract is executory is the date of filing. In re HQ Global Holdings, Inc., 290 B.R. 507, 510 (Bankr.D.Del.2003). In the context of land sale contracts, a contract is executory where the buyer has not furnished the purchase price and where seller has not transferred title to the buyer. McCannon v. Marston, 679 F.2d 13, 18 (3d Cir.1982).
In the case sub judice, Nickels argues that (a) Wild Waves is barred by the doctrine of judicial estoppel from asserting that the Agreement is terminated, and (b) the Agreement is executory, because substantial performance is required by both parties. Conversely, Wild Waves argues that the Agreement is not executory, because (a) it was terminated pre-petition as a result of Nickels’ anticipatory repudiation thereof, and (b) Wild Waves’ substantial performance of the Agreement renders it nonexecutory. The Court will address each argument in turn.
1. The Agreement was not Terminated Pre-petition
It is well established that an execu-tory contract or lease that has been validly terminated pre-petition is “not resurrected by the filing of the petition in bankruptcy, and cannot therefore be included among the debtor’s assets.” In re Triangle Laboratories, Inc., 663 F.2d 463, 467-68 (3d Cir.1981). Thus, Wild Waves argues that Nickels’ anticipatory breach of the Agreement prepetition rendered it nonexecutory. For the reasons set forth below, the Court finds that (a) Wild Waves is barred by the doctrine of judicial estoppel from asserting that the Agreement was terminated pre-petition, and (b) regardless, the Agreement was not terminated pre-petition.
a. Judicial Estoppel
The doctrine of judicial estoppel precludes a party “from assuming a position in a legal proceeding inconsistent with one previously asserted.” Oneida Motor Freight, Inc. v. United Jersey Bank, 848 F.2d 414, 419 (3d Cir.1988). A court should impose judicial estoppel only if
(1) the party to be estopped is asserting a position that is irreconcilably inconsistent with one he or she asserted in a prior proceeding; (2) the party changed his or her position in bad faith, i.e., in a culpable manner threatening to the court’s authority or integrity; and (3) the use of judicial estoppel is tailored to address the affront to the court’s authority or integrity.
Montrose Med. Group Participating Sav. Plan v. Bulger, 243 F.3d 773, 777-78 (3d Cir.2001). “Absent success in a prior proceeding, a party’s later inconsistent position introduces no risk of inconsistent court determinations, and thus poses little threat to judicial integrity.” New Hamp*269shire v. Maine, 532 U.S. 742, 750-51, 121 S.Ct. 1808, 149 L.Ed.2d 968 (2001); accord Montrose Med. Group, 243 F.3d at 778 (holding that “a party has not displayed bad faith for judicial estoppel purposes if the initial claim was never accepted or adopted by a court or agency”).
In this case, Wild Waves successfully argued before the Chancery Division that a valid, binding agreement of sale was entered into by the parties. Wild Waves also argues before this Court that it is entitled to specific performance of the Agreement. At the same time, however, Wild Waves argues that the Agreement is nonexecutory because it was terminated pre-petition. The positions Wild Waves has asserted before the Chancery Division and before this Court are inconsistent, circuitous, and seemingly designed to achieve an unfair advantage in this litigation.1 The Court finds Wild Waves’ switch in positions from those asserted in state court to violate the doctrine of judicial estoppel. Furthermore, if Wild Waves were not barred by judicial estoppel, for the reasons set forth below, the Court finds that the Agreement otherwise was not terminated prior to Nickels’ filing.
b. Anticipatory Breach/Repudiation
To demonstrate a cause of action for anticipatory breach under New Jersey law,2 the moving party must provide evidence of “a definite and unconditional declaration by a party to an executo-ry contract — through word or conduct— that he will not or cannot render the agreed upon performance.” Ross Systems v. Linden Dari-Delite, Inc., 35 N.J. 329, 340-41, 173 A.2d 258, 264 (N.J.1961); see also Universal Computers (Systems), Ltd. v. Universal Computers (Holdings), Ltd., 653 F.Supp. 518, 525 (D.N.J.1987) (citing Restatement (Seoond) of Contracts § 250 (1981)). An anticipatory breach allows a non-breaching movant to treat a contract as terminated and to refuse to render continued performance thereunder. Ross Systems, 35 N.J. at 341, 173 A.2d at 265.
In this case, Nickels has held fast to its position that it never entered into a binding contract of sale with Wild Waves, relying in part on the fact that it never signed a contract of sale. Wild Waves argues that Nickels’ statements and actions prior to that determination constituted an anticipatory repudiation, thereby terminating the Agreement. Wild Waves ignores the fact that a cause of action for the breach of a contract necessarily requires the existence and acknowledgment of a binding contract. On April 25, 2005, the Chancery Division entered an order finding that the parties entered into a binding oral agreement of sale. Any statements or actions undertaken by Nickels up until the Chancery Division rendered its decision cannot be construed as an anticipatory repudiation or breach, because it *270was Nickels’ position that no such contract existed. In other words, Nickels could not anticipatorily breach a contract before there was a determination as to its existence. Essentially, Wild Waves is requesting that the Court retroactively apply the principles of anticipatory breach, when the very nature of a cause of action for anticipatory repudiation requires intent to commit a breach in the future. No such intent is present in this case. Therefore, based on the foregoing, the Court finds that Nickels did not anticipatorily breach the Agreement. Accordingly, the Agreement was not terminated prepetition.3
2. The Agreement is Executory Because Substantial Performance Remains Outstanding on Both Sides
Having found that the Agreement was not terminated pre-petition, the Court now turns to the issue of whether the Agreement is executory. As noted above, a contract for the sale of land is executory if the buyer has not furnished the purchase price and the seller has not transferred the title. McCannon v. Marston, 679 F.2d at 18. In this case, Wild Waves has not delivered the required deposit, nor furnished the purchase price, and Nickels has not delivered the deed. As such, substantial performance remains outstanding on both sides of the contract. Accordingly, the Court finds that the Agreement is executory for the purposes of § 365. Courts have found land sale contracts ex-ecutory in cases where significantly more performance was rendered by one of the parties. See, e.g., In re Dunes Casino Hotel, 63 B.R. 939, 943, 949 (D.N.J.1986) (affirming bankruptcy court finding that the contract was executory where seller delivered deeds and requested balance of purchase price and buyer refused to remit purchase price). Finally, the Court finds Wild Waves’ argument that it substantially performed under the Agreement by constructing the water park to be unpersuasive because (1) the construction of the water park was not a condition of that contract; and (2) the purchase price has not been furnished and the deed has not been delivered. Therefore, the contract of sale remains executory.
B. Business Judgment Rule
Pursuant to § 365 of the Code, subject to the bankruptcy court’s approval, a trustee may “assume or reject any exec-utory contract or unexpired lease of the debtor.” 11 U.S.C. § 365(a) (2004). Section 365(a) does not supply a standard for determining when an executory contract has been properly rejected. In the Matter of Federated Dep’t Stores, Inc., 131 B.R. 808, 811 (S.D.Ohio 1991). Courts generally apply a business judgment standard when determining whether to authorize the rejection of an executory contract. *271Id.4 Paramount to this determination is whether the rejection is in the best interests of a debtor’s estate. See In re Food Barn Stores, Inc., 107 F.3d 558, 567, n. 16 (8th Cir.1997). This is not a “strict standard,” but “merely requires a showing that ‘rejection would benefit the estate.’ ” In re Patterson, 119 B.R. 59, 60 (E.D.Pa.1990) (quoting In re Bildisco, 682 F.2d 72, 79 (3d Cir.1982)); see also Sharon Steel Corp. v. Nat’l Fuel Gas Distribution Corp., 872 F.2d 36, 40 (3d Cir.1989) (noting that where the rejection of an executory contract would benefit the estate, rejection is appropriate). In determining whether rejection is in the best interests of the estate, “[t]he burden or hardship which rejection would impose on other parties to such a contract is not a factor to be weighed by the bankruptcy court in ruling upon the debtor’s application.” Federated Dep’t Stores, Inc., 131 B.R. at 811. A bankruptcy court
should defer to a debtor’s decision that rejection of a contract would be advantageous unless the decision is so unreasonable that it could not be based on sound business judgment, but only on bad faith or whim.
In re Balco Equities Ltd., Inc., 323 B.R. 85, 98 (Bankr.S.D.N.Y.2005) (quotations omitted).
In the case at bar, Steven Nickels testified that he has received two offers to purchase the Pier for $15,000,000.00 and $15,400,000.00, respectively. The Agreement carries a purchase price of $5,500,000.00. Nickels’ decision to reject the Agreement is based in part on these significantly higher offers. Wild Waves argues that Nickels’ decision to reject was not made in sound business judgment, because (a) Wild Waves’ damages are likely to absorb any profit Nickels may realize from a sale to another party; (b) the other offers to purchase the Pier are not a “sure thing,” and are subject to several contingencies that potentially may not occur, whereas Wild Waves is prepared to close in the near future; and (c) a sale to Wild Waves would result in a 39.14 percent distribution to creditors, while a sale to a third party would only result in a 37.66 percent distribution to creditors.
While Wild Waves’ concerns may be valid, they are speculative. No determination has been made on what damages Wild Waves may be entitled to if the Court allows Nickels to reject the Agreement. Wild Waves’ calculation of a distribution figure without determination of claims is speculation. The fact that an accountant has estimated distribution figures in this case is unpersuasive because the tax implications have not yet been determined. The status of the insurance recoveries is in dispute and the amount of Wild Waves’ rejection claim has not been quantified by resolution or judicial determination. Wild Waves’ speculative distribution calculations are not sufficient to support a finding that the debtor’s decision is so unreasonable that it could not be based on sound business judgment.
The Court is disinclined to find that Nickels’ decision to reject the Agreement was made in bad faith or upon a whim based on speculations and contingencies. It is not necessary that the debtor’s proposal is 100 percent guaranteed, but that it is reasonable. See In re Balco Equities, Ltd., 323 B.R. 85, 99 (Bankr. S.D.N.Y.2005) (holding trustee’s rejection of contract and proposed sale to third party was reasonable because third party of*272fer was substantially higher and would benefit the estate); In re Prime Motor Inns, 124 B.R. 378, 379 (Bankr.D.Fla.1991) (evidence that a new contract may not generate more profits and might actually cause a decline in value was not enough to counteract the broad application of business judgment standard); Cf. In re Huff, 81 B.R. 531, 538 (Bankr.D.Minn.1988) (holding debtors failed business judgment test because debtors could not demonstrate any other more profitable offer and the prospect of an alternate lease was speculative). The fact that the debtor has multiple offers to buy the property coupled with the increase in Wildwood real estate values is sufficient to find that Nickels exercised reasonable business judgment in rejecting the Agreement. Therefore, Nickels’ decision to reject the Agreement satisfies the modest requirements of the business judgment standard.
C. Rejection Pursuant to § 365(a)
Pursuant to § 365(a), subject to the bankruptcy court’s approval, a trustee or debtor-in-possession “may assume or reject an executory contract or unexpired lease....” 11 U.S.C. § 365(a) (2005). Wild Waves argues that Nickels cannot reject the Agreement because it is entitled to specific performance under state law. In support of this contention, Wild Waves argues that its specific performance claim, as an equitable remedy, is not a claim under § 101(5) of the Code. Alternatively, Wild Waves argues that it is entitled to the protections provided in § 365(i) because it is a purchaser “in possession.” In response, Nickels argues that federal bankruptcy law should preempt Wild Waves’ state law remedies, and that Wild Waves is not “in possession,” because it occupies only 70 percent of the Pier.
1. Specific Performance and Federal Preemption
a. Speciñc Performance
Under New Jersey law, specific performance is an equitable remedy that is appropriate when legal damages are insufficient, or when a court cannot reasonably ascertain the amount of damages. In re Envtl. Ins. Declaratory Judgment Actions, 149 N.J. 278, 295-96, 693 A.2d 844, 851-52 (N.J.1997). “There is a virtual presumption, because of the uniqueness of land and the consequent inadequacy of monetary damages, that specific performance is the buyer’s appropriate remedy for the vendor’s breach of the contract to convey.” Friendship Manor, Inc. v. Greiman, 244 N.J.Super. 104, 113, 581 A.2d 893, 897 (N.J.Super.App.Div.1990). “Nevertheless, it is also clear that specific performance is a discretionary remedy resting on equitable principles and requiring the court to appraise the respective conduct and situation of the parties.” Id. at 244 N.J.Super. at 113, 581 A.2d at 898.
Wild Waves asserts that it is entitled to specific performance of the Agreement and a remedy for Nickels’ alleged and as of yet undetermined breach of the Agreement. Wild Waves argues that “if a court determines that Wild Waves is entitled to specific performance, there will have necessarily been a determination that there is no adequate monetary remedy.” Wild Waves’ Brief at 9.5 For the reasons set forth below, the Court finds that the *273Bankruptcy Code preempts Wild Waves’ claim for specific performance.
b. Federal Preemption
Under the doctrine of preemption, “state laws that interfere with or are contrary to federal law are preempted and without effect pursuant to the Supremacy Clause of the United States Constitution.” In re Loranger Mfg. Corp., 324 B.R. 575, 582 (Bankr.W.D.Pa.2005). Although preemption is governed by the Supremacy Clause, “it is fundamentally a question of Congressional intent in which the presumption is that Congress did not intend to displace state law.” In re Miles, 294 B.R. 756, 759 (9th Cir. BAP 2003). “[Establishing that federal law overlaps state law is, by itself, insufficient to establish that federal law preempts state law.” Green v. Fund Asset Management, L.P., 245 F.3d 214, 228 (3d Cir.2001).
Federal law preempts state law in three situations: “(1) express preemption, (2) field preemption (which is also sometimes referred to as implied preemption), or (3) conflict preemption.” Id. at 222. Express preemption is appropriate “when there is an explicit statutory command that state law be displaced.” Id. Field preemption is appropriate when federal law “so thoroughly occupies a legislative field as to make reasonable the inference that Congress [left] no room for the States to supplement it.” In re Forman Enters., Inc., 281 B.R. 600, 607 (Bankr.W.D.Pa.2002). Congressional intent
may be inferred from a scheme of federal regulation that is so comprehensive, or where the federal interest so dominates, that the federal system may be assumed to preclude enforcement of state laws on the same subject. When a federal scheme is sufficiently comprehensive to warrant an inference that Congress ‘left no room’ for state regulation, the ‘field’ has been preempted.
Miles, 294 B.R. at 759. Finally, conflict preemption is appropriate if a state law conflicts with a federal law such that “(1) it is impossible to comply with both state law and federal law; or (2) the state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.” Forman Enters., 281 B.R. at 607 (quoting Orson, Inc. v. Miramax Film Corp., 189 F.3d 377, 382 (3d Cir.1999)).
Section § 365(d)(2) provides that a trustee or debtor-in-possession
may assume or reject an executory contract or unexpired lease of residential real property or of personal property of the debtor at any time before the confirmation of a plan but the court, on the request of any party to such contract or lease, may order the trustee to determine within a specified period of time whether to assume or reject such contract or lease.
11 U.S.C. § 365(d)(2) (2005). If a trustee or debtor-in-possession rejects an executo-ry contract for the sale of real property “under which the purchaser is in possession, such purchaser may treat such contract as terminated, or, in the alternative, may remain in possession of such real property or timeshare interest.” 11 U.S.C. § 365(i)(1) (2005). A purchaser must be in possession of the property on the date of bankruptcy. In re Young, 214 B.R. 905, 911 (Bankr.D.Idaho 1997). If the purchaser remains in possession, it must
continue to make all payments due under such contract, but may, offset against such payments any damages occurring after the date of the rejection of such contract caused by the nonperformance of any obligation of the debtor after such date, but such purchaser does not *274have any rights against the estate on account of any damages arising after such date from such rejection, other than such offset.
Id. at § 365(i)(2)(A). When the purchaser completes the contract payments, the trustee or debtor-in-possession must “deliver title to the purchaser in accordance with the provisions of such contract, but is relieved of all other obligations to perform under such contract.” Id. at § 365(i)(2)(B); In re Pogue, 130 B.R. 297 (Bankr.E.D.Mo.1990).
Neither the Code, nor the legislative history attendant to § 365(a) explicitly command that the Code section preempts a party’s state law remedies. Thus, express preemption is inappropriate in this case. However, a question remains as to whether implied or conflict preemption are appropriate. For the reasons set forth below, the Court finds that § 365(i) preempts Wild Waves’ claim for specific performance.
First, preemption can be reasonably inferred by the comprehensive nature of the Code. More specifically, as the Ninth Circuit Court of Appeals noted in MSR Exploration, Ltd. v. Meridian Oil, Inc., 74 F.3d 910 (9th Cir.1996), the
complex, detailed, and comprehensive provisions of the lengthy Bankruptcy Code ... demonstrates Congress’s intent to create a whole system under federal control which is designed to bring together and adjust all of the rights and duties of creditors and embarrassed debtors alike.
MSR Exploration, Ltd. v. Meridian Oil, Inc., 74 F.3d 910, 914 (9th Cir.1996). The court further noted that
[w]hile it is true that bankruptcy law makes reference to state law at many points, the adjustment of rights and duties within the bankruptcy process itself is uniquely and exclusively federal. It is very unlikely that Congress intended to permit the superimposition of state remedies on the many activities that might be undertaken in the management of the bankruptcy process.
Id.
Second, the purpose of § 365(i)(2)(B) is to “preserve a purchaser’s right to specific performance on an executory contract for sale of real estate.” In re Delaney, 2003 WL 23096937, *4, 2003 Bankr.LEXIS 1765, *16 (Bankr.D.Mass.2003). In other words, the protections set forth in § 365(i)(2)(B) are in place to compensate a purchaser for its lost right to specific performance by way of § 365(a). It is reasonable to infer that Congress did not intend to allow debtors to reject real estate sale contracts under § 365(a) only to have the purchasers turn around and enforce the Agreement it just rejected. Further, the comprehensive framework Congress set forth in § 365(i) to address rejected real estate sale contracts speaks to preemption. See In re Hechinger Investment Co. of Del., 274 B.R. 71, 97 (Bankr.D.Del.2002) (finding that § 546(e) preempted state remedies because “the Code comprehensively addresses such claims”).
Third, disallowing Nickels’ opportunity to reject the Agreement because Wild Waves has a claim for specific performance would be tantamount to allowing Wild Waves to circumvent Nickels’ right to reject under § 365(a), and would obviate the need for and frustrate the purpose of § 365(i). As noted by the Fourth Circuit Court of Appeals in Lubrizol Enters., Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043, 1048 (4th Cir.1985), “allowing specific performance would obviously undercut the core purpose of rejection under § 365(a), and that consequence cannot therefore be read into congressional intent.” Lubrizol Enters., Inc. v. Richmond *275Metal Finishers, Inc., 756 F.2d 1043, 1048 (4th Cir.1985).6
Finally, other courts have held that specific Code provisions preempted a party’s state law claims or remedies. See, e.g., In re Loranger Mfg. Corp., 324 B.R. 575, 583 (Bankr.W.D.Pa.2005) (finding that plaintiffs claim for unjust enrichment was preempted by § 546(e)); In re Abramson, 313 B.R. 195, 197 (Bankr.W.D.Pa.2004) (finding that the Code preempts state law claims that are based upon allegations that a Code provision has been violated); Pacific Gas and Electric Co. v. People of the State of Cal., 350 F.3d 932, 937 (9th Cir. 2003) (finding that a chapter 11 plan of reorganization “expressly preempts otherwise applicable nonbankruptcy laws”); Miles, 294 B.R. at 761 (finding that complaints arising out of actions undertaken in connection with preparing a petition are preempted by the Code); Hechinger Investment, 274 B.R. at 96-97 (finding that § 546(e) preempts unjust enrichment claim); Eastern Equipment and Services Corp. v. Factory Point Nat’l Bank, 236 F.3d 117, 121 (2d Cir.2001) (finding that the Code preempted state law tort claims arising from § 362 stay violations); In re Reyes, 238 B.R. 507, 522 (Bankr.D.R.I. 1999) (finding that § 524 preempts state law remedies); Summit Investment and Development Corp. v. Leroux, 69 F.3d 608, 609 (1st Cir.1995) (affirming bankruptcy court decision that § 365(e) preempted certain provisions of the parties’ partnership agreement).
Therefore, based on the foregoing, the Court finds that § 365(i) preempts Wild Waves’ state law remedy of specific performance.
c. Wild Waves’ Claim Argument
Wild Waves also argues its cause of action for specific performance is not a “claim” within the meaning of § 101(5), and thus, cannot be discharged by Nickels. Conversely, Nickels argues that (1) specific performance is not the exclusive remedy for the breach of a real estate sale contract and (2) regardless, a claim for specific performance is a claim within the meaning of § 101(5).
In relevant part, § 101(5) defines a “claim” as a
right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured.
11 U.S.C. § 101(5)(B) (2005).
An equitable remedy can be a claim in bankruptcy under § 101(5) provided that it can be reduced to monetary damages. Claims are to be interpreted broadly in order to allow debtors to meet legal obligations and also to allow claim holders to participate in the bankruptcy proceeding. Air Line Pilots Ass’n. v. Continental Airlines, 125 F.3d 120, 132 (3d Cir.1997). An equitable right that “gives rise to a right of payment can be a claim.” Id. An equitable right that can be reduced to monetary damages is a claim. In re Kilpatrick, 160 B.R. 560, 564 (Bankr. D.Mich.1993). See Ohio v. Kovacs, 469 U.S. 274, 283, 105 S.Ct. 705, 83 L.Ed.2d 649 (1985) (injunction transformed into an obligation to pay money was a “claim”).
The language of § 101(5)(B) states that a remedy for breach of performance can be a claim if that breach gives rise to a *276right of payment. Wild Waves can have a claim under the plain meaning of § 101(5)(B). In general, there are alternate remedies for breach of contract. The traditional remedy at law for breach of contract, expectation damages, is always available. In the alternative, in some cases, the non-breaching party may be entitled to equitable relief such as specific performance. Specific performance is available in instances where the remedy at law fails to do justice to the parties. Fleischer v. James Drug Stores, Inc., 1 N.J. 138, 146, 62 A.2d 383, 387 (N.J.1948)(citing Pomeroy’s Equity Jurisprudence (5th ed.1941) § 1401). As set forth above, §§ 365(i) and (j) protect Wild Waves’ right to specific performance of a contract and preempts state law to that extent.
Therefore, the Court rejects Wild Waves’ argument that its right for breach of contract is not a “claim” within the meaning of § 101(5)(B) and cannot be discharged in a bankruptcy proceeding.
D. Purchaser “In Possession”
Having determined that the Agreement is executory and may be rejected by Nickels pursuant to § 365(a), the Court must determine whether Wild Waves is entitled to the protections set forth in § 365(i). To make such a determination, the Court must first examine whether Wild Waves is “in possession” of the Pier pursuant to § 365(i). The Chan-eery Division determined that Wild Waves held a lease for 70 percent of the Pier, but that it was contracted to purchase the entire Pier under an oral agreement of sale. It cannot be disputed that Wild Waves is “in possession” of 70 percent of the Pier, but an issue has arisen as to whether Wild Waves is considered “in possession” under § 365(i) when the debtor still maintains some control over 30 percent of the pier.7
The term “possession” is not defined in the Code. There is a paucity of cases on the issue of what constitutes “possession” within the context of § 365(i), and there are no cases where a purchaser was in partial possession of the property to be purchased. Nickels relies exclusively on In re Summit Land Co. in support of its contention that Wild Waves would not be entitled to relief in § 365(i) because it is not in possession of the entire Pier. 13 B.R. 310 (Bankr.D.Utah 1981). Wild Waves cites no applicable case law, but argues that Summit Land is factually distinguishable to the case at bar. The Court heard extensive testimony on the issue of possession. For the reasons set forth below, the Court finds that Wild Waves is in possession of the Pier within the meaning of § 365(i), and thus, may elect to remain in possession of the Pier.
In Summit Land, the property at issue was “a recreational park with use confined to activities such as hunting, fishing, hik*277ing, and camping.” Summit Land, 13 B.R. at 311. The agreement at issue provided that “[n]o structure other than a tent for camping may be erected by members,” and that “[o]utings to the property are thus intermittent, on vacations and weekends.” Id. at 311-12. The Summit Land court found that the buyer was not in possession the property, because (1) its use was intermittent, as the property was used for vacations; (2) it could not make permanent improvements on the property; (3) its use of the property was shared; (4) it held a non-exclusive easement in gross; (5) the property was designed against partitioning; (6) its use of the property was delega-ble, in that it could designate others to be members; and (7) its interests were susceptible to speculation, because they were divisible and transferable without restriction. Id. In so holding, the court reasoned that the term “possession” in § 365(i) “suggests a concern for buyers whose connection with the land is more permanent than ephemeral, more continuous than intermittent, more exclusive than shared, and more personal than delegable.” Id. at 318.
For the following reasons, the facts of Summit Land are distinguishable from the case at bar. First, although the water park is seasonal in nature, Wild Waves remained in possession of the property all year. Second, Wild Waves was entitled to encumber the Pier with a mortgage, which it did. Third, Wild Waves was permitted to build a water park on the Pier. Fourth, although some of the components of the water park are removable, Wild Waves invested substantial sums building a new concrete foundation and otherwise preparing the Pier to hold the water park with these structural components which remain immovable. Fifth, Wild Waves has been operating the water park on the Pier since 2000. Sixth, Wild Waves had access to the remaining 30 percent of the Pier. Specifically, Wild Waves held an office above and utilized storage space below the arcade building. Finally, there is nothing in the Code, caselaw, or legislative history that suggests that exclusive possession is required under § 365(i).
The Court finds that for the purposes of § 365(i), Wild Waves was “in possession” at the time Nickels filed its bankruptcy petition. Therefore, Wild Waves is entitled to the protections outlined in § 365(i).
III. CONCLUSION
Based on the foregoing, the Court finds that the Agreement is executory, and that Nickels may reject the Agreement pursuant to § 365(a), but that Wild Waves is entitled to the protections set forth in § 365(i).
. Although the court in In re Urban, 202 B.R. 565, 571 (Bankr.S.D.N.Y.1994) makes no reference to the doctrine of judicial estoppel, its findings are consistent with the doctrine. In Urban, the court noted that "a debtor is precluded from recognizing the validity of a contract for the purpose of rejecting it and then raising defenses to a claim for damages that are wholly inconsistent with the required finding that a contract existed.” In re Urban, 202 B.R. 565, 571 (Bankr.S.D.N.Y.1994). Logically, it follows that a creditor would be precluded from recognizing the existence of a valid binding agreement for the purpose of requesting equitable relief and later asserting that the contract was terminated to avoid the debtor rejecting it as executory because the latter is inconsistent with the required finding that the contract existed in order to obtain equitable relief.
. Causes of action for breach of contract arise under state law. See Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 220, 122 S.Ct. 708, 151 L.Ed.2d 635 (2002).
. Furthermore, even if Nickels had breached the Agreement pre-petition through anticipatory repudiation, it would not render the Agreement nonexecutory.
Wild Waves relies heavily on In re Murtishi, 55 B.R. 564 (Bankr.N.D.Ill.1985), in support of its contention that a pre-petition breach by Nickels renders the Agreement nonexecutory. Alternatively, Nickels relies heavily on In re W. & L. Associates, Inc., 71 B.R. 962 (Bankr. E.D.Pa.1987) in support of its contention that a pre-petition breach would not render the Agreement nonexecutory. This Court finds the reasoning set forth by the W. & L. court to be more persuasive. Specifically, the Court concurs that
We certainly cannot agree with the fact that a debtor has breached a contract pre-petition renders it non-executoiy. Most debtors have breached at least some executory contract pre-petition, and 11 U.S.C. § 365(b) expressly provides them with an opportunity to cure or provide adequate protection to the obligee and retain their contractual rights.
W. & L., 71 B.R. at 966.
. The Third Circuit has adopted the business judgment standard. See In re Fleming Cos. Inc., 308 B.R. 689, 691 (Bankr.D.Del.2004) (citing In re Taylor, 913 F.2d 102 (3d Cir. 1990)).
. Wild Waves relies heavily on Judge Scholl’s decision in In re Walnut Associates, 145 B.R. 489, 494 (Bankr.E.D.Pa. 1992). In Walnut Associates, Judge Scholl postulated that "if state law does authorize specific performance under the rejected executory contract, it means that the non-debtor should be able to enforce the contract against the Debtor, irrespective of his rejection of it.” Judge Scholl cites no authority for this assertion and does not discuss the remedies set forth in § 365(i)(l).
. See In re Ducane Gas Grills, Inc., 320 B.R. 341, 350, n. 12 (Bankr.D.S.C.2004) (noting that even though Congress overruled the Lu-brizol court's holding with regard to § 365(n), otherwise its analysis of § 365 is sound).
. If Wild Waves were not in possession of the property, § 365® would apply. Section 365© provides that
[a] purchaser that treats an executory contract as terminated under subsection (I) of this section, or a party whose executory contract to purchase real property from the debtor is rejected and under which such party is not in possession, has a lien on the interest of the debtor in such property for the recovery of any portion of the purchase price that such purchaser or party has paid.
11 U.S.C. § 365(j) (2005). Thus, if Wild Waves were not in possession, it would only be entitled to a lien in the amount of any amount it had paid toward the purchase price. In re Young, 214 B.R. 905, 911 (Bankr.D.Idaho 1997) (holding that purchasers not in possession "are limited to a lien on the property for that part of the purchase price paid, and a claim in the bankruptcy case for any rejection damages”). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493786/ | MEMORANDUM OPINION
ARTHUR B. FEDERMAN, Bankruptcy Judge.
The Chapter 7 trustee objected to debtors claims of exemption. This is a core proceeding under 28 U.S.C. § 157(b)(2)(B) over which the Court has jurisdiction pursuant to 28 U.S.C. § 1334(b), 157(a), and 157(b)(1). The following constitutes my Findings of Fact and Conclusions of Law in accordance with Rule 52 of the Federal Rules of Civil Procedure as made applicable to this proceeding by Rule 7052 of the Federal Rules of Bankruptcy Procedure. For the reasons set forth below, I will overrule the trustee’s objection.
FACTUAL BACKGROUND
On January 21, 2005 debtors Stacey and Tyler James filed a Chapter 7 bankruptcy petition. On their amended Schedule B debtors listed the sum of $2,705.62 as “[pjrepetition earnings paid postpetition.” On their amended Schedule C debtors claimed the sum of $270.56 as exempt pursuant to section 513.440 of Missouri’s Revised Statutes and claimed the sum of $2,435.06 as exempt pursuant to section 525.030.2 of Missouri’s Revised Statutes. The trustee objected to both of these claims. On September 28, 2005, this Court held a hearing. At the hearing debtors’ counsel asked for time to submit Mr. James’ employment contract, and the parties consented to a ruling on the pleadings. The employment contract has now been submitted.
DISCUSSION
Mr. James has been an agent for Northwestern Mutual since March 6, 2003. The employment agreement Mr. James entered into conditions the vesting of any renewals upon two continuous years of employment. At the time of the bankruptcy filing, Mr. James had no rights in the renewals. Section 541 of the Bankruptcy Code states that the bankruptcy estate is comprised of property in which debtor has a legal or equitable interest as of the commencement of the case. On January 21, 2005, the petition date, Mr. James had not yet reached his two-year anniversary with Northwestern Mutual, therefore, he has no legal or equitable interest in any renewals that accrue postpetition. Nonetheless, any nonexempt commissions or renewals to which Mr. James was entitled on the petition date are property of the estate. According to the commission statement, Mr. James received the sum of $2,705.62, representing commissions that had accrued prepetition, but were disbursed to him postpetition. That is the sum at issue here. Using two separate exemption provisions, Mr. James amended his schedules and claimed the entire sum as exempt. I will deal first with the “head of household” provisions. Mr. James claims that $270.56 is exempt pursuant to section 513.440 of Missouri’s Revised Statutes. That section provides that
*399[e]ach head of a family may select and hold, exempt from execution, any other property real, personal or mixed, or debts and wages, not exceeding in value the amount of one thousand two hundred fifty dollars plus three hundred fifty dollars for each of such person’s unmarried dependent children under the age of eighteen years....1
The debtors’ have a two-year-old son, thus, they are entitled to claim the sum of $1600 under this statute. Prior to the amendment, debtors claimed the sum of $997.56, pursuant to the “head of household” allowance. And debtors have the right to amend their schedules at any time before the case is closed.2 They are, therefore, entitled to amend their schedules and claim an additional $270.56 as exempt under this provision.
The trustee also objects to the claim of exemption pursuant to section 525.030.2 of Missouri’s Revised Statutes, which provides as follows:
2. The maximum part of the aggregate earnings of any individual for any workweek, after the deductions from those earnings of any amounts required by law to be withheld, which is subjected to garnishment may not exceed... (c) if the employee is the head of a family and a resident of this state, ten percentum.... The term “earnings” as used herein means compensation paid or payable for personal services, whether denominated as wages, salary, commission, bonus, or otherwise, and includes periodic payments pursuant to a pension or retirement program.3
Mr. James claims that the prepetition renewals, in the amount of $2,705.62, are his earnings, as that term is defined by statute, therefore, he is entitled to claim 90% of the renewals as exempt under this provision. The employment agreement provides that Mr. James is an independent contractor, and not an employee of Northwestern Mutual.4 The contract also sets forth Mr. James’ general duties and responsibilities:
8. General Duties — Agent shall solicit Applications within the territory, and shall procure the issuance of insurance policies and annuity contracts in an aggregate amount and on a number of lives satisfactory to First Party and at least equal to the minimum requirements established by the Company for licensure. He shall collect the initial premiums on such policies and contracts. He shall not engage in any business other than that covered by this agreement except with the consent of First Party.
9. Responsibility — Agent shall be responsible to First Party and the Company for all business done by or entrusted to his agents or persons employed by him. He shall indemnify and save First Party, District Agent, General Agent and the Company harmless from any and all expenses, costs, causes of action and damages resulting from or growing out of acts or transactions by himself or his employees or agents.5
Debtors argue that these two paragraphs demonstrate that Mr. James’ earnings derive from his personal services. *400In In re Duncan,6 the court, interpreting a statute similar to section 525.030.2 of Missouri’s Revised Statutes, held that the wage exemption is available to independent contractors to the extent that the compensation was for personal services.7 In In re Marshburn,8 the court held that renewal payments due a debtor post termination were earnings for services, which are exempt under Colorado law.9 Again the Colorado wage exemption statute is similar to Missouri’s. In both of these cases the debtors were insurance agents, and their renewals represented their net earnings for the personal services they provided. In In re Parsons,10 however, the debtor tried to exempt the commissions due her real estate agency for sales contracts that had been signed prepetition, even though the sales did not close until postpetition. Debtor had several employees, and she testified that her employees performed some of the services required to both acquire the sales contract and close the sale. The Court, therefore, found that the debtor was not entitled to claim all of the commissions as exempt; she was instead entitled to claim as exempt a portion of the amount she scheduled as her wages.11
In this case, Mr. James testified at a previous hearing that he is a solo agent. He has no employees. His expenses are deducted from his renewals, thus, the amount paid to him by Northwestern, and claimed as exempt, represents his net earnings. I find that those earnings derived from Mr. James’ personal services, and are, therefore, exempt to the extent allowed by section 525.030.2 of Missouri’s Revised statutes. Therefore, the trustee’s objection must be overruled.
An Order in accordance with this Memorandum Opinion will be entered this date.
. Mo. Stat. Ann. § 513.440 (Supp.2005).
. "A voluntary petition, list, schedule, or statement may be amended by the debtor as a matter of course at any time before the case is closed...” Fed. R. Bankr.P. 1009(a); In re Ladd, 319 B.R. 599, 603, (8th Cir. BAP 2005).
. Mo. Stat. Ann. § 525.030.2 (2002).
. Debtor's Ex. # 4, ¶ 4.
. Id. at ¶¶ 8 and 9.
. 140 B.R. 210 (Bankr.E.D.Tenn.1992).
. Id. at 213.
. 5 B.R. 711 (Bankr.D.Colo.1980).
. Id. at 715.
. 262 B.R. 475 (8th Cir. BAP 2001) affirmed 280 F.3d 1185 (8th Cir.2002)
. Id. at 481. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493787/ | OPINION DENYING MOTION TO DISMISS
BRUCE A. MARKELL, Bankruptcy Judge.
Time Warner, Inc. (“TW”) has moved to dismiss the second amended complaint of Todd Lehtonen, as Trustee of the Pur-chasePro.com Liquidating Trust (“PPLT”). TW contends that none of PPLT’s four claims for relief state a valid claim against it. After an overview of some complicated facts, the court disagrees and denies the motion.
I. Background
PPLT is what is left of the high-flying Internet “dot com” company, Purchase-Pro.com, Inc. (“PP”). PP crashed and burned in early 2002, and is now in the mop-up phase of its business life. In October 2004, it confirmed a liquidating plan of reorganization under which all of its pending avoiding powers actions, including the *420present action, were transferred to PPLT.1
The prepetition relationship between PP and America Online, Inc. (“AOL”)2 is at the heart of this action. At one time, the parties viewed their relationship as a key-strategic partnership, with PP supplying an efficient business-to-business marketplace portal, to which AOL would direct customers. But the bubble burst, and PP’s business prospects and share price plummeted — and fast.
In addition, it has since come to light that AOL committed fraud during the relationship. This fraud was sufficiently broad and wide-reaching to cause the Department of Justice to investigate. The result of that investigation was an agreement under which AOL paid $60 million as a criminal penalty, $300 million as a civil penalty under the Sarbanes-Oxley Act, and $150 million into a fund for defrauded stockholders (of which some $30 million is earmarked to pay damages caused by the dealings with PP).
PPLT’s complaint concerns some of the transactions that are at the heart of the troubling relationship between AOL and PP. In particular, three of PPLT’s claims for relief seek recovery based upon Nevada’s version of the Uniform Fraudulent Transfer Act (“UFTA”) based upon the circumstances surrounding the cancellation of a warrant dated March 15, 2000 (the “Original Warrant”), and the immediate reissuance of a new amended and restated warrant dated “as of’ November 18, 2000 (the “Amended Warrant”). In addition, the second amended complaint adds a fourth claim for relief which alleges that AOL is liable under Nevada corporate law for a failure to provide the full amount of the agreed-upon consideration required when AOL exercised its rights under the Amended Warrant.
Against this background, TW has moved to dismiss.3
II. Legal Analysis
A. Standard Applicable to Motion to Dismiss
TW has moved to dismiss this adversary proceeding under Bankr.R. 7012, which incorporates Fed. R. Civ. Pro. 12(b)(6). The standard under Rule 12(b)(6) is high: the court must take every well pleaded fact in the complaint as true, and it may then grant the motion only if it appears beyond a doubt that PPLT can prove no set of facts that would entitle it to relief. Zimmer v. PSB Lending Corp. (In re Zimmer), 313 F.3d 1220, 1222 (9th Cir.2002), citing Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). In this context, a court must evaluate the legal feasibility of the complaint, not the evidence that may be offered to support it. Cooper v. Parsky, 140 F.3d 433, 440 (2d Cir.1998).
B. TW’s Basic Position
TW acknowledges the high standard, but contends it has met it. It asserts that the facts as pleaded are indistinguishable from binding Ninth Circuit and Bankruptcy Appellate Panel authority. Specifically, TW cites Decker v. Advantage Fund Ltd., 362 F.3d 593 (9th Cir.2004) and Hansen v. Finn (In re Curry & Sorensen, Inc.), 57 B.R. 824 (9th Cir. BAP 1986).
*421In Decker, the trustee in bankruptcy launched a fraudulent transfer attack on a sweetheart stock -deal. The defendant, Advantage Fund Ltd., had purchased two series of convertible preferred stock from the debtor, then an American Stock Exchange-traded company. The conversion price of the preferred stock was essentially set as a “floating 15% discount off the average daily low trading price” of the debtor’s common stock during the five days preceding the conversion. Id. at 595. Advantage Fund used this discounted conversion price formula to obtain $47 million worth of the debtor’s common stock for an exercise price of only $40 million. The trustee sued under Section 544(b), incorporating the California version of the UFTA for the $7 million discount. The trustee alleged that the debtor had been insolvent at the time of the purchase, and that the debtor had not received reasonably equivalent value for the conversion.
The defendants claimed the preferred stock they received was not received by way of a transfer of “an interest of the debtor in property” as required by Section 544(b). The Ninth Circuit agreed, finding that “unissued stock has no value to the corporation, as opposed to its shareholders, because stock only represents portions of equity in the corporation itself.” Id. at 596 (italics in original).
The court relied upon Curry & Sorensen as its primary authority for the proposition that:
A share of capital stock represents a unit of ownership interest and has no extrinsic value to the corporation itself. ... Since an action directed at recovery of corporate stock could only affect equitable ownership of the corporation and would not restore property to the estate or avoid an estate obligation, then it is not a transfer subject to question under Section 548.
Decker, 362 F.3d at 596, quoting In re Curry & Sorensen, 57 B.R. at 829.
In Curry & Sorensen, creditors sued on behalf of the bankruptcy estate under Section 548 of the Bankruptcy Code. They sought to set aside the prepetition issuance of 75,000 shares of capital stock of the debtor to its president. Using the logic in the quotation above, the court found that capital stock cannot be property under Section 548 of the Bankruptcy Code,4 since avoidance of the transfer would affect only the debtor’s ownership, and would not increase assets for creditors, or reduce claims against the estate.
Here, TW asserts that exercising its rights under either the Original Warrant or the Amended Warrant would have resulted only in a transfer of the common stock of PP. As a consequence, it contends that the inexorable logic of Decker and Curry & Sorensen dictate dismissal.
C. PPLT’s Position
PPLT takes several positions in response. One odd position deserves quick mention before it is dismissed: PPLT requests that this court ignore, or invent a pretext to distinguish, Decker and Curry & Sorensen. This court does not have the power or authority to ignore binding Ninth Circuit precedent. The rule of law and the doctrine of' stare decisis et non quieta movere — meaning “to stand by and adhere to decisions and not disturb what is settled” — will not permit it. Hart v. Massanari, 266 F.3d 1155, 1170 (9th Cir.2001) (“A district judge may not respectfully (or disrespectfully) disagree with his learned *422colleagues on his own court of appeals who have ruled on a controlling legal issue, or with Supreme Court Justices writing for a majority of the Court.... Binding authority must be followed unless and until overruled by a body competent to do so.”); see also IRS v. Osborne (In re Osborne), 76 F.3d 306, 309 (9th Cir.1996).
But stare decisis extends only to opinions containing facts that are not rightly distinguishable from the facts at hand. As stated by Judge Kozinski stated in Hart: “In determining whether it is bound by an earlier decision, a court considers not merely the ‘reason and spirit of cases’ but also ‘the letter of particular precedents.’ ... This includes not only the rule announced, but also the facts giving rise to the dispute, other rules considered and rejected and the views expressed in response to any dissent or concurrence.” Hart, 266 F.3d 1155, at 1170.
As PPLT sees it, both Decker and Curry & Sorensen are distinguishable under this standard because they involve different types of transactions. Decker and Curry & Sorensen involved fraudulent transfer attacks on the direct issuance by a corporation of its common stock to third parties. Here, by contrast, the attack is on the cancellation or modification of existing intangible contract rights.
If sustainable, this is a distinction with a legitimate difference. In both Decker and Curry & Sorensen, a key reason for not finding “any transfer of an interest of the debtor in property” was that avoidance of the transaction would not add assets to the debtor’s estate or reduce claims against it. Rather, avoidance of a stock issuance would simply rearrange the equity ownership of a failed business, much like rearranging deck chairs on the Titanic.
PPLT’s complaint alleges that PP and AOL conspired to cancel and transfer the Original Warrant and issue a new one— the Amended Warrant — on terms that did not provide PP with reasonably equivalent value in the exchange.5
The terms of the Amended Warrant, it is alleged, were far more beneficial to AOL than to PP. In particular, PPLT states that under the revised terms, AOL no longer had to pay cash to obtain PP stock. Rather, they merely had to certify that they had provided, directed or referred certain amounts of revenue to PP. In short, rather than paying money for PP stock, AOL simply had to certify that it had caused others to use and pay for a certain minimum level of PP’s products and services.
To implement this change, the parties eliminated the cash strike price found in the Original Warrant, and a replaced it with a complicated revenue formula. From filings with the Securities and Exchange Commission, made part of the complaint, it appears that representatives of both PP and AOL concocted this exchange transaction to cover up financial results *423that neither wanted known, and to fraudulently boost AOL’s revenues.6
Regardless of its origins, when coupled with AOL’s later exercises, the issuance of the Amended Warrant appears to have satisfied the immediate goals of the AOL/PP conspiracy. The complaint states that in January 2001, as a result of the exchange of warrants and the new vesting, AOL exercised its rights under the Amended Warrant and obtained 1,875,436 shares of PP common stock for no cash. At the time, PP common stock was selling at $25.50 per share. A second exercise in March 2001 resulted in AOL acquiring another 1,122,278 shares of PP stock at a time when the market price of PP common was $7.25. As PPLT calculates it, since none of the certifications lacked the taint of fraud, the net effect of the two transactions was that AOL was unfairly enriched by approximately $57.7 million.
D. Analysis of the Competing Positions
1. What Law Applies ?
The parties initially disagree on what law applies. PPLT grounds its complaint entirely on Nevada law, and thus contends that Nevada law, and only Nevada law, applies to its allegations. TW counters that Nevada law is applicable only after it passes a federal standard. With respect to PPLT’s claims under Nevada’s version of the UFTA, TW correctly points out that Section 544(b) enables estate representa-fives such as PPLT7 to avoid only transfers of “an interest of the debtor in property,” as that term is understood under federal law. With respect to PPLT’s claims under the fourth claim for relief relating to a failure to honor a stock subscription agreement, TW claims that before PPLT may bring such claims, the rights sought to be vindicated must be “property” under Section 541(a) of the federal Bankruptcy Code, and TW disputes that point. As a consequence, TW argues, regardless of what a state defines as property or what state law considers a “transfer,” the ultimate tests of what is a “transfer” and what constitutes an “interest of the debtor in property” for purposes of standing under Section 544(b) are federal issues.
TW is correct. As Decker makes clear, the language in Section 544(b) — the reference to an “interest of the debtor in property” — is language in a federal statute, and thus should receive a uniform federal interpretation. Decker, 362 F.3d at 596. But this victory is hollow. Courts have uniformly held that the phrase “property of the debtor” in the avoidance powers is coextensive with “property of the estate” as set forth in Section 541(a). Begier v. IRS, 496 U.S. 53, 58-59, 110 S.Ct. 2258, 110 L.Ed.2d 46 (1990); Warsco v. Preferred Technical Group, 258 F.3d 557, 564-65 (7th Cir.2001). As the Supreme Court has noted, “[i]n the absence of any controlling federal law, ‘property’ and ‘interests in property’ are creatures of state *424law.” See Barnhill v. Johnson, 503 U.S. 393, 398, 112 S.Ct. 1386, 118 L.Ed.2d 39 (1992). See also Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979) (“Property interests are created and defined by state law. Unless some federal interest requires a different result, there is no reason why such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding.”).
Given that the aim of avoiding powers such as those found in Section 544(b) is to give the estate representative standing to bring creditor claims, the Ninth Circuit has stated that the term “interest of the debtor in property” should be broadly construed. Danning v. Bozek (In re Bullion Reserve of North America), 836 F.2d 1214, 1217 (9th Cir.), cert. denied, 486 U.S. 1056, 108 S.Ct. 2824, 100 L.Ed.2d 925 (1988). See also United States v. Battley (In re Kimura), 969 F.2d 806, 810 (9th Cir.1992) (in context of federal tax lien statute, defining property as “generally characterized as an aggregate of rights; ‘the right to dispose of a thing in every legal way, to possess it, to use it, and to exclude everyone else from interfering with it.’ ”) (quoting Black's Law DICTIONARY 1095 (5th ed.1979)). It would thus be odd for the language referring to property in Section 544(b) to be construed more narrowly than the same term is construed under Section 541; otherwise, a debtor could limit the rights of its creditors merely by filing bankruptcy, a consequence Congress certainly didn’t contemplate when drafting Section 544(b).8 As stated by the Supreme Court in a different context, “Uniform treatment of property interests by both state and federal courts within a State serves to reduce uncertainty, to discourage forum shopping, and to prevent a party from receiving ‘a windfall merely by reason of the happenstance of bankruptcy.’ ” Butner, 440 U.S. at 55, 99 S.Ct. 914, quoting Lewis v. Manufacturers National Bank, 364 U.S. 603, 609, 81 S.Ct. 347, 5 L.Ed.2d 323 (1961).
This analysis, however, begs the question of whether the transactions at issue here would be avoidable by creditors under Nevada law. Decker is authority for the proposition that an initial issuance of stock is not a transfer under the UFTA, or at least California’s version of the UFTA. As argued by PPLT, however, its amended complaint attacks different types of transactions. In particular, PPLT places in issue the transactions in which the Original Warrant was canceled and the Amended Warrant issued in its place. As both parties concede, there is no Nevada law directly on point with respect to whether an issuer’s interest in a stock warrant is property that can be transferred within the meaning of Section 544(b).
That is not to say that there is no Nevada law. Nevada’s UFTA adopts the uni-, form structure of allowing creditors (and derivatively, any estate representative in bankruptcy) to avoid certain “transfers” of “assets.” A “transfer” under Nevada’s UFTA is defined as:
[E]very mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset, and includes payment of money, release, lease, and creation of a lien or other encumbrance.
*425NRS § 112.180.12.9 Transfers, in turn, relate to “assets,” which are defined as “property of the debtor.” Id. § 112.150.2. “[P]roperty” means “anything that may be the subject of ownership.” Id. § 112.150.10. Since “[t]he shares of stock in every corporation shall be personal property ... ”, NRS § 78.240, it would seem that Nevada law might very well be different from the California law construed in Decker; and that transfers of shares from a corporation might properly be the subject of an action under Nevada’s UFTA.
TW argues, however, that the while shares or warrants may very well be property in the hands of the shareholder, they are not property for the issuer. In this regard, they properly raise the policy concerns outlined in Decker and in Curry & Sorensen to the effect that avoidance of a stock issuance can have no real effect on creditors.
2. What is a Warrant?
But are the same concerns about stock issuance present when the transaction is the exchange of one warrant for another? The issue resolves itself to whether the debtor’s prepetition exchange of the Amended Warrant for the Original Warrant was a transfer “of an interest of the debtor in property.” This requires the court to analyze both the Original Warrant and the Amended Warrant.10 To start the analysis, Black’s Law Dictionary defines a stock warrant as follows:
“4. Securities. An instrument granting the holder a long-term (usu. a five- to ten-year) option to buy shares at a fixed price. • It is commonly attached to preferred stocks or bonds. — Also termed stock warrant; subscription ivarrant.”
Black’s Law DictionaRY 1617 (Bryan A. Garner, ed., 8th ed.2004). Recent case law is in accord. “ ‘In corporate jargon, a warrant is an option to purchase stock at a given price.’ ” Carrieri v. Jobs.com, Inc., 301 B.R. 187, 193 (N.D.Tex.2003), quoting Bradford v. Crown-Bremson Indus., Inc., 255 F.Supp. 1009, 1012 (M.D.Tenn.1964). See also Breeden v. L.I. Bridge Fund, LLC (In re The Bennett Funding Group, Inc.), 232 B.R. 565, 568 n. 3 (Bankr. N.D.N.Y.1999); 11 U.S.C. § 101(16)(C) (defining equity security to include warrant).
The upshot of these definitions is that a warrant is just a fancy name for a particular type of contract. More specifically, it is an option contract giving its holder the right to purchase shares of stock for a fixed price. In this relationship, it is fairly clear that the holder of a warrant has a property right it can enforce through specific performance of the share issuance. See, e.g., Chadwell v. English 652 P.2d 310 (Okl.App.1982).
3. Does an Issuer of a Warrant Have a Property Interest in That Warrant?
While it is not contested that AOL has property rights in the warrants, it is contested that PP had anything similar. TW *426asserts that PP had no property rights under either the Original Warrant or the Amended Warrant; it contends that a warrant is a unilateral contract under which the issuer has only nondelegable duties with no benefits.
But this is not quite accurate. A warrant intertwines the right to buy shares at a particular price with an obligation to pay that price upon exercise. In short, a warrant assures the issuer that it will receive whatever consideration the terms of the warrant provide. Such an assurance can be valuable — otherwise, why bargain for it?
Various strands of related law provide hints that this interest in a stock warrant can be property. Article 9 of the Uniform Commercial Code recognizes that the holder of an issued stock warrant holds property that can be encumbered by a consensual security interest, Mizuho Corporate Bank, Ltd. v. Enron Corp. (In re Enron Corp.), 302 B.R. 463, 467-68 (Bankr.S.D.N.Y. 2003). It also recognizes that the person granting an option can grant a security interest in its right to receive payment upon any exercise of that option; that is, an issuer could raise needed capital by giving a secured party a security interest in its rights under any outstanding warrants. See Uniform Commercial Code § 9—102(a)(61) (definition of payment intangible).11 Case law also recognizes that a holder may fraudulently transfer a stock warrant before, FmHA v. Indi-Bel, Inc. (In re Williams), 167 B.R. 77 (Bankr. N.D.Miss.1994), or after, issuance. Breeden v. L.I. Bridge Fund, LLC (In re The Bennett Funding Group, Inc.), 232 B.R. 565 (Bankr.N.D.N.Y.1999). Finally, an uncompensated release of a person’s matured obligations under a stock subscription agreement may be a transfer of a property interest under Section 544(b), Shear v. Seminara (In re PSI Indust., Inc.), 306 B.R. 377, 388-89 (Bankr.S.D.Fla.2003) (under Florida’s version of the UFTA).
From these propositions, it is a short trip to the conclusion that an issuer’s rights under a stock warrant are an “interest of the debtor in property” that may be the subject of a transfer. Reciprocity alone would lead one to view it as odd if the owner of a warrant held property rights in the expectations embodied therein, but the same classification was not true with respect to the rights of the other party to the same contract — the issuer. This notion of preserving reciprocal relations is reflected in the policies behind the breadth of property interests under Section 541(a) discussed above, and the polices behind the breadth of the concept of a “transfer.”
4. Scope of the Term “Transfer”
The policy analysis regarding the scope of fraudulent transfer law starts with the fact that the Bankruptcy Code defines “transfer” expansively. Section 101(54) states:
“Transfer” means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest in property, including retention of title as a security interest and foreclo*427sure of the debtor’s equity of redemption.12
This definition is broad and covers not only the everyday buying and selling of goods, but also the transfer of a partial interest or a transfer that is not accompanied by a change of possession. Congress intended this breadth, in order to provide the maximum protection of creditors. See H.R. Rep. No. 595, 95th Cong., 1st Sess. 314 (1977), U.S.Code Cong. & Admin.News 1978, pp. 5963, 6271.
Similarly, the type of property interest that can be transferred is also expansive. A creditor’s prepetition termination of an executory agreement, for example, may constitute a transfer of a property interest. In re Robotic Vision Systems, Inc., 322 B.R. 502, 508 (Bankr.D.N.H.2005) (termination of technology license a transfer); Wallach v. Nowak (In re Sherlock Homes of W.N.Y., Inc.), 246 B.R. 19, 24-25 (Bankr.W.D.N.Y.2000) (renegotiation of contract altering debtor’s rights and liabilities is a transfer); Lloyd McKee Motors, Inc. v. Chrysler Corp., 166 B.R. 725, 728 (Bankr.D.N.M.1993) (termination of a franchise for a car dealership is a transfer); Metro Water & Coffee Servs. v. Rochester Community Baseball (In re Metro Water & Coffee Servs.), 157 B.R. 742, 745-46 (Bankr.W.D.N.Y. 1993) (termination of a concession agreement).
Transfers have also been found when a transaction only modifies the form or the value of property transferred. See Ingalls v. Erlewine (In re Erlewine), 349 F.3d 205, 211 & n. 7 (5th Cir.2003) (divorce decree dividing marital property a transfer); In re Oliver, 44 B.R. 989, 991 (D.Mass.1984) (a transfer occurred when the debtor and his wife changed their old common law tenancy by the entirety into one governed by a new statute under which the debtor gave up considerable interest in property in favor of his wife); Flatau v. Wachovia Sec. (In re Pulliam), 279 B.R. 916, 920-21 (Bankr.M.D.Ga.2002) (rollover of funds from one individual retirement account to another was a transfer); Hall-Mark Elec. Corp. v. Sims (In re Ota), 179 B.R. 149 (9th Cir. BAP 1995) (delivery of cashier’s check to payee was a transfer of the remitter’s interest in the check); Kendall v. Sorani (In re Richmond Produce Co.), 151 Bankr.1012, 1016-17 (Bankr.N.D.Cal.1993), aff’d, 195 B.R. 455 (N.D.Cal.1996) (same). Even termination of esoteric rights such as a debtor’s subchapter S tax status has been found to be a transfer. Parker v. Saunders (In re Bakersfield Westar, Inc.), 226 B.R. 227, 235 (9th Cir. BAP 1998); Guinn v. Lines (In re Trans-Lines West, *428Inc.), 203 B.R. 653, 662-63 (Bankr. E.D.Tenn.1996).
Although broad, the term “transfer” does have limits. In addition to Decker and Curry & Sorensen holdings on stock issuance, courts have also struggled with the issue of whether lease terminations are transfers of an interest of a debtor in property. Some heavily criticized decisions have held that such a noncollusive termination is indeed a transfer, and thus the termination can be subject to avoidance as a constructively fraudulent transfer or as a preference. Darby v. Atkinson (In re Ferris), 415 F.Supp. 33 (W.D.Okla. 1976); Fitzgerald v. Cheverie (In re Edward Harvey Co.), 68 B.R. 851 (Bankr.D.Mass.1987); Eder v. Queen City Grain, Inc. (In re Queen City Grain, Inc.), 51 B.R. 722, 726 (Bankr.S.D.Ohio 1985). Other courts have held that a noncollusive termination of a lease is not a transfer at all. In re Egyptian Bros. Donut, Inc., 190 B.R. 26, 30-31 (Bankr.D.N.J.1995); Haines v. Regina C. Dixon Trust (In re Haines), 178 B.R. 471, 476 (Bankr. W.D.Mo.1995).13
As noted by David B. Young, a perspicacious observer of these types of transactions:
The most perceptive analyses of this question have concluded that lawful lease terminations are not subject to avoidance as preferences or fraudulent transfers, even though these transactions may be transfers in a strict sense. Undoubtedly the loss of a leasehold estate means parting with an interest in property held by the prepetition debtor. Such property, however, would not be available to creditors of the estate. Under 11 U.S.C. § 365(c)(3), the bankruptcy estate may not assume any executory contract or nonresidential lease that has been legitimately terminated prepetition. The estate would never have had any interest in the lease. If an “interest of the debtor in property”, is synonymous with “property of the estate,” then the correct approach is that noncollusive prepetition lease terminations cannot be preferential or fraudulent, not because they are not transfers, but rather because they do not involve a property interest of the debtor that would be available to the bankruptcy estate.
David B. Young, Preferences and Fraudulent Transfers, 876 PLI/Comm 667, 710 (2005).
As in the lease avoidance decisions, the focus here should be whether there was some interest of the debtor in property that was transferred, not whether the action will ultimately succeed. Here, the focus is on a warrant — a contract that undeniably creates property rights. The transfer of PP’s interests in the warrant resulted in economic harm to PP — its ability to continue to use warrants as cash substitutes was affected. It also resulted in the cancellation of a right to receive the strike price as a condition for issuing any shares.
Avoidance of the warrant exchange could lead to creditor recoveries. Upon avoidance, AOL and PP would be returned to the status quo before the cancellation. Since AOL acquired its stock (which it later sold for a profit) under the terms of the Amended Warrant, an avoidance of that obligation would presumably allow PPLT to then seek, in restitution or otherwise, compensation for the value trans*429ferred.14 This theory of recovery provides additional grounds to distinguish Decker and Curry & Sorensen. In those cases, avoidance would not have resulted in recovery to creditors; it would simply rearrange ownership interests.
New would argue that an insolvent debt- or’s amendment of a contract to reduce the price of goods backed by adequate legal consideration, but for less than reasonably equivalent value, could be the subject of a fraudulent transfer attack.15 See, e.g., Wallach v. Nowak (In re Sherlock Homes of W.N.Y., Inc.), 246 B.R. 19, 24-25 (Bankr.W.D.N.Y.2000) (renegotiation of contract altering debtor’s rights and liabilities is a transfer); Metro Water & Coffee Servs. v. Rochester Community Baseball (In re Metro Water & Coffee Servs.), 157 B.R. 742, 745-46 (Bankr.W.D.N.Y.1993) (termination of a concession agreement). That analysis does not change when the subject of the contract switches from tangible goods to intangible assets. See United States v. Sims (In re Feiler), 218 F.3d 948 (9th Cir.2000) (right to claim tax refund can be property subject to a transfer under Section 548).
Anticipating this point, TW asserts that the Original Warrant was “out of the money;” that is, its stated exercise or strike price was well above market, making the warrant economically worthless, and thus not property. The issue thus framed is whether a right to receive a payment is still property when “worthless;” that is, when the conditions under which payment is to be made are, at best, remote.
Both TW and PPLT assert that there is no Nevada precedent on point, but the court believes that Union Bank v. F.D.I.C., 111 Nev. 951, 899 P.2d 564 (Nev. 1995) is of assistance. There, a judgment creditor sought to garnish stock that was subject to a voluntary pledge under Article 9 of the Uniform Commercial Code. The pledgeholder objected, stating that after satisfaction of all senior liens, there would be no value for the garnishing creditor, and hence no property right to which the garnishment could attach. The Nevada Supreme Court rejected this claim, finding that there was some property interest to which the garnishment could attach, notwithstanding the lack of any economic interest.16 See also Segal v. Rochelle, 382 U.S. 375, 379, 86 S.Ct. 511, 15 L.Ed.2d 428 (1966) (declining to exclude the right to “net operating loss carry forwards” under tax law from definition of property merely because right was intangible and not yet reduced to a tax refund; the Court stated that “The main thrust of [§ 541’s predecessor under the Act] is to secure for creditors everything of value the [debtor] may possess .... To this end the term *430property has been construed most generously and an interest is not outside its reach because is it novel or contingent or because its enjoyment must be postponed.”)-
Ninth Circuit precedent holding that elections with respect to net operating losses (NOLs) are interests in property that may be transferred is also instructive. As analyzed by the Ninth Circuit:
The first question as to the applicability of B.C. § 548 in this case is whether the election to forgo a tax refund and waive the carryback on the NOLs involved an “interest in property.” Because the right to receive a tax refund constitutes an interest in property, we believe that the election to waive the carryback and relinquish the right to a refund necessarily implicates a property interest. Property is broadly defined by the Bankruptcy Code to include “all legal or equitable interests of the debtor.” B.C. § 541. Furthermore, the Supreme Court has explained that “the term ‘property’ has been construed most generously and an interest is not outside its reach because it is novel or contingent or because enjoyment must be postponed.” Segal v. Rochelle, 382 U.S. 375, 379, 86 S.Ct. 511, 15 L.Ed.2d 428 (1966).
United States v. Sims (In re Feiler), 218 F.3d 948, 955 (9th Cir.2000).
Here, the right to receive funds upon exercise of the Original Warrant was PP’s property interest under the Original Warrant. Under Feiler, the extinguishment of that right through cancellation of the Original Warrant and the issuance of the Amended Warrant was thus a transfer of an interest of the debtor in property. The Ninth Circuit’s logic in Feiler with respect to NOLs is equally applicable here:
Whether the NOLs themselves are considered property is something of a red herring. Under B.C. § 548, the question is whether the Feilers gave up property of the estate. In this case, the property they gave up was the tax refund — the NOLs are simply an accounting method for figuring their entitlement to the refund under the present tax code. Pre-election, the right to carry back the NOLs represented simply the right to a tax refund; as in Segal, the refund itself was the property interest. After the election, whether the Feilers retained a property interest in the NOLs that were carried forward is irrelevant, because the trustee need not have a property interest in what the debtor receives in return for a fraudulent transfer in order to avoid the transfer. B.C. § 548 avoidance powers apply to the interest in the property that the debtor gave up in the transfer — in this case, the tax refund associated with the right under the tax code to have the NOLs carried back.
Id. at 956. Here, the right to receive any funds upon exercise is akin to the right to receive a tax refund, and the taking of an action to relinquish the rights thus identified — the election in Feiler and the warrant exchange here — is a transfer.
Finally, when construing “property” for purposes of the absolute priority rule, the Supreme Court has held that so-called “valueless” rights are still property, regardless of whether it is likely that they will be used. See Bank of Am. Nat’l Trust & Sav. Ass’n v. 203 N. LaSalle St. P’ship, 526 U.S. 434, 119 S.Ct. 1411, 143 L.Ed.2d 607 (1999) (referring to debtor’s exclusive right to propose chapter 11 plan); Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 108 S.Ct. 963, 99 L.Ed.2d 169 (1988) (farmer’s retention of farm that had no economic value was property for purposes of absolute priority rule).
As a result, PP’s exchange of warrant was a transfer of an interest of the debtor *431in property as required by Section 544(b) — PP’s contract rights to receive payment, however contingent — were transferred away by virtue of the warrant exchange. PPLT now has the daunting task of proving its fraudulent transfer scheme, which will be no mean feat, but any decision at present on that point would be premature.
E. PPLT Stock Subscription Argument — The Fourth Claim for Relief
PPLT’s second amended complaint adds a new fourth claim for relief under Nevada law for failure to perform as promised under a stock subscription agreement. See NRS §§ 78.220, 78.225. In essence, PPLT maintains that the exercise of the warrant obligated AOL (and now TW) to provide the promised consideration required to exercise the option. Because of the fraud, PPLT maintains that AOL did not furnish the full amount of the promised consideration.
This would appear to be no more or no less than a simple claim that one side has not performed as promised. And such an allegation is sufficient under the statutes relied upon by PPLT. See NRS § 78.220.2 (“If default is made in the payment of any installment or call, the corporation may proceed to collect the amount due in the same manner as any debt due the corporation.”); id. § 78.225 (“A purchaser of shares of stock from the corporation is not liable to the corporation or its creditors with respect to the shares, except to pay the consideration for which the shares were authorized to be issued .... ”).
It is appropriate to view PPLT’s claim of non-performance under contract law. It has long been held that upon proper and timely acceptance or exercise an option as such ceases to exist, and it becomes a simple contract. Smith v. Post, 167 Cal. 69, 74-75, 138 P. 705, 707 (1914). When AOL tendered its notice of exercise in the form of its “Net Issue Election,” the transaction became a bilateral executory contract of purchase and sale under which the optionee — AOL—acquired an equitable interest in the shares simultaneously with an obligation to pay for them as specified. See In re Merten, 164 B.R. 641, 643 (Bankr.S.D.Cal.1994); Ludy v. Zumwalt, 85 Cal.App. 119, 130-31, 259 P. 52, 56-57 (1927).
The complaint states that by virtue of the “acceptance of the Warrant Shares from Debtor... AOL agreed to pay for the Warrant Shares pursuant to the Amended Warrant.” It then alleges that notwithstanding the presentation of the Net Issue Election, “AOL failed to-provide Debtor the agreed upon consideration ...” This would appear to state a rudimentary claim for breach of contract, which would be sufficient to state a claim under Nevada’s statutes requiring those who promise to buy stock to pay what they promise. See NRS §§ 78.220, 78.225.
TW argues that the claim of breach is not well-pleaded since it is contradicted by the terms of the Amended Warrant. Unfortunately for TW’s position, the Amended Warrant is not attached to the complaint, and thus the allegations in the complaint which make out PPLT’s claim stand on their own. Even if they did not, the court’s independent review of the Amended Warrant (provided by PPLT in response to the motion, and not objected to by TW, see note 10 supra) does not disclose anything that as a legal matter forbids characterizing the exercise as unperformed or imperfectly performed, which is the heart of the fourth claim for relief. Put another way, there is no showing that PPLT would not be able to show, by appropriate parol or other evidence, that AOL’s submission of a “Net Exercise Notice” carried with it some sort of warranty *432or representation that AOL was entitled to exercise the Amended Warrant because it had directed the requisite amounts of revenue to PP. Although this may be devilishly difficult to prove, it does make out a possible claim for relief. Accordingly, under In re Zimmer, 313 F.3d at 1222, the motion to dismiss is denied with respect to the fourth claim for relief of action as well.
III. Conclusion
PPLT has alleged that at least one property right it held — its rights under the Original Warrant — was transferred in an exchange for the Amended Warrant. The entire gravamen of TW’s motion to dismiss is that there was no transfer of an interest of the debtor in property. As this premise is not true, the conclusion of TW’s motion — the court must dismiss the case — is false.
That, together with the other allegations in the complaint, settles the matter with respect to the first three claims for relief. As to the fourth claim for relief, as set forth above PPLT’s claims are sound, at least in form.
The motion to dismiss is thus denied. The court will enter a separate order denying the motion.
ORDER DENYING MOTION TO DISMISS ADVERSARY PROCEEDING
For the reasons separately stated in an opinion of even date, which is hereby incorporated under Rule 7052 of the Federal Rules of BANKRUPTCY Procedure, the Motion to Dismiss Adversary Proceeding filed by Time Warner, Inc. (Docket # 37) is hereby denied.
. Before TW filed its motion to dismiss, PPLT had obtained an order under Rule 7025 substituting it for PP.
. The defendant, TW, is a successor to AOL.
.TW moved to dismiss the original complaint for many of the same reasons set forth in its present motion. The court granted that motion, but gave PPLT the ability to amend to see if it could meet TW’s objections. The result was the second amended complaint at issue here.
. Section 548 also requires that there be a “transfer of an interest of the debtor in property” before there can be avoidance. Decker extended Curry & Sorensen’s reading of that phrase in Section 548 to identical language found in Section 544(b).
. PPLT's first and second claims for relief in its complaint adequately, although sloppily, state the necessary companion allegations under Nevada law. In particular, PPLT alleges that PP was "about to engage in business or a transaction, for which any property remaining with the Debtor was unreasonably small capital.” See NRS § 112.180.1(b)(1) (which actually requires that the "remaining assets of the debtor [be] unreasonably small in relation to the business or transaction"; PPLT's formulation mistakenly adopts a similar element set forth in 11 U.S.C. § 548(a)(l)(B)(ii)(II)). PPLT also alleges that PP "intended to incur, or believed or reasonably should have believed that it would incur, debts beyond its ability to pay as they became due or was otherwise insolvent or rendered insolvent.” See NRS §§ 112.180.1(b)(2); 112.190.1. TW has not challenged the sufficiency of these allegations.
. PP’s stock price at the time of the cancellation and exchange was $16.88 per share.
. Although Section 544(b) grants standing only to a "trustee,” a debtor in possession or other estate representative may also have standing under that section, as well as under other avoiding powers provisions. See 11 U.S.C. § 1107(a) (debtor in possession has powers of trustee); Avalanche Maritime, Ltd. v. Parekh (In re Parmetex, Inc.), 199 F.3d 1029, 1031 (9th Cir.1999); Hansen v. Finn (In re Curry & Sorensen, Inc.), 57 B.R. 824, 827-28 (9th Cir. BAP 1986). PPLT has standing under another provision of the Code, however; they are the estate's representative under a provision of PP's confirmed plan of reorganization, and Section 1123(b)(3)(B) of the Bankruptcy Code expressly authorizes such provisions.
. Indeed, the rights an estate representative may assert under Section 544(b) are generally viewed as derivative of state law claims, and to the extent creditors are under some disability or subject to some state law defense, the estate representative is similarly bound. Heffron v. Huggins, 115 F.2d 519 (9th Cir. 1940).
. The definition of "transfer” in the UFTA was derived from the language used in the 1978 revision of the Bankruptcy Code. See Comment (12) to Section 1 of UFTA.
. Neither the Original Warrant nor the Amended Warrant is part of the amended complaint, but PPLT produced a copy of each with its opposition, and TW did not object to the provision of these documents at the hearing on the motion to dismiss. While under the last sentence of Fed. R. Civ. Pro. 12(b) this addition technically converted the motion to dismiss into a summary judgment motion, no party objected, and the court has reviewed the allegations of the complaint as if the additional documents were not part of it.
. The court acknowledges that for something to be a payment intangible under Section 9-102(a)(61) it must first be a general intangible, § 9-102(a)(42), which requires the "something” to be "personal property.” But it is without doubt that the Original Warrant and the Amended Warrant both had provisions for exercise by present payment, and although those alternatives were not chosen by AOL, their presence would indicate that at least some rights under the warrants were property rights encompassed by the term "personal property.”
. The current definition is substantially similar to the original form of the definition Congress adopted in 1978. The only change made since 1978 to the definition was made six years later as part of the Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.L. No. 98-353, 98 Stat. 333 (1984). At that time, the definition of "transfer” was broadened to include the "foreclosure of the debtor’s equity of redemption.” Id. § 421 (i).
Effective October 17, 2005, Congress changed the definition of transfer in ways that would seem to expand its scope even further. The new Section 101(54) will read:
(54) The term 'transfer' means—
(A)the creation of a lien;
(B) the retention of title as a security interest;
(C) the foreclosure of a debtor's equity of redemption; or
(D) each mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with—
(i) property; or
(ii) an interest in property.
Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, § 1201(6), 119 Stat. 23, 119 (2005).
As noted above in note 9, Nevada’s version of the UFTA incorporates a broad definition of "transfer” based upon the original definition in the Bankruptcy Code.
. Section 8(e)(1) of the UFTA addresses this issue directly by explicitly providing that the lawful termination of a lease because of the debtor’s default is not avoidable. See NRS § 112.220.5(a).
. This is not unlike the fate of interest paid on an obligation later avoided as a fraudulent transfer; since the avoidance would eliminate the debt, no principal would remain upon which interest could accrue. Accordingly, the estate could also recover the aggregate amount of interest payments, presumably under its inherited restitution powers under Section 541(a)(1) or, if the debtor was insolvent or nearly so, as independent fraudulent transfers.
. It is often said that a peppercorn will support the transfer of personal property by way of contract, see 2 William Blackstone, Commentaries on the Laws of England 440 (1766). While that may be true as between those in privity of contract, fraudulent transfer law deals with the rights of the creditors of those parties, and tests the adequacy of consideration against a much different scale.
.The court found an interest in the debtor’s right to have an accounting of any disposition and to receive any surplus, rights that, given the over-encumbered nature of the stock, were as ephemeral and of as little value as the out-of-the-money status of the Original Warrant here. See Union Bank, 111 Nev. at 956-57, 899 P.2d at 567. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493788/ | SCHERMER, Bankruptcy Judge.
Plaintiff Virginia P. Dale (“Plaintiff’) appeals the bankruptcy court’s1 entry of *575judgment pursuant to Federal Rule of Civil Procedure 52(c) in favor of Defendants HomEq Servicing Corporation, Betty Veasey, Ken Thompson, Judy Brookman, Sandra Rodriguez-Villalovoz, Jill Olsen, Michael P. Gaughan, Jan Hendryck, Koz-eny & McCubbin, L.C., and Amy Hope Davis (“Defendants”) on all fifteen counts in her amended complaint. We have jurisdiction over this appeal from the final order of the bankruptcy court. See 28 U.S.C. § 158(b). For the reasons set forth below, we affirm.
ISSUE
The Plaintiff lists six issues on appeal in her brief.2 We consolidate the issues into two: whether the bankruptcy court erred in its finding of facts and whether it properly applied the law to the facts. We conclude that the bankruptcy court did not err in its findings of fact. We also conclude that the bankruptcy court properly applied the law to the facts in this case.
BACKGROUND
On November 24, 1998, the Plaintiff obtained a loan from The Money Store in the principal amount of $34,083 bearing interest at the rate of 9.750%. The loan was secured by a mortgage on the Plaintiffs residence.
On December 14, 1999, the Plaintiff filed a petition for relief under Chapter 7 of the Bankruptcy Code. The Plaintiff obtained a discharge of her personal liability on the mortgage debt in the Chapter 7 proeeed-ing; however the mortgage survived the bankruptcy and remained an indebtedness secured by the Plaintiffs residence.
On July 18, 2000, the Plaintiff filed a petition for relief under Chapter 13 of the Bankruptcy Code. The case was dismissed because of the Plaintiffs failure to make plan payments. One June 11, 2001, the Plaintiff filed a second Chapter 13 petition. The second Chapter 13 case was also eventually dismissed because of the Plaintiffs failure to make plan payments. Prior to the dismissal of the second case, the Plaintiff entered into a stipulation with The Money Store acknowledging that the principal amount of the debt secured by her residence was $33,865.82 and additional ar-rearages of $7,565.66 were owed for a total indebtedness of $41,431.48.
On November 7, 2000, The Money Store notified the Plaintiff that Fairbanks Capital Corp. was the new servicer of her loan. Fairbanks Capital Corp. sent the Plaintiff a similar notice on December 5, 2000. Fairbanks Capital Corp. and HomEq Servicing Corporation (“HomEq”) are the same entity.
On December 9, 2002, HomEq sent the Plaintiff a letter notifying her that her account was under review for foreclosure. That letter provided an itemized accounting of the total amount necessary to cure the default, $19,429.23. The Plaintiff was unable to pay that amount so she contacted the Kansas City Housing Information Center (“HIC”) for assistance. P.J. Phelps, a case manager with the HIC as*576sisted the Plaintiff. On December 19, 2002, Phelps sent a letter to Ken Thompson, the President and CEO of Wachovia Corporation, the corporate parent of Ho-mEq, requesting an accommodation on behalf of the Plaintiff. Thompson directed HomEq to take care of the problem. Ho-mEq sent the Plaintiff a loan modification offer on January 22, 2003, proposing a modified loan amount of $42,194.85 with 8% interest payable in monthly payments of $321.78. As conditions to modification, the Plaintiff was required to pay a $578 loan modification fee and to return a signed copy of the modification agreement to HomEq.
The Plaintiff was unable to pay the loan modification fee so she sought further assistance from Phelps. Phelps was able to provide the Plaintiff with funds to cover the loan modification fee as well' as the first month’s payment under the modified loan by pooling resources with another organization, the United Services Community Action Agency. The Plaintiff marked up the proposed loan modification agreement before signing it and returning it to HomEq.
When the Plaintiff sent her payment and a voided check to initiate direct withdrawal of future payments on the modified loan, HomEq returned the checks and notified the Plaintiff that it could not accept the payments because she was in bankruptcy and that the checks were insufficient to reinstate the mortgage. The Plaintiff was not in bankruptcy at the time, so she again sought assistance from Phelps. In response to Phelps’ July 3, 2002, inquiry, HomEq sent the Plaintiff a letter on July 25, 2003, apologizing for its error and explaining that the checks were returned because the file had not been updated to reflect the modified loan terms because the Plaintiff had not returned an unaltered modification agreement to HomEq. The letter advised the Plaintiff that another loan modification agreement was being sent to her via certified mail for her proper execution. The Plaintiff never returned a properly executed loan modification agreement to HomEq.
The Plaintiff did not make any additional payments under the loan, either in its original form or pursuant to the proposed modifications. In August, 2003, HomEq notified the Plaintiff that her loan was in foreclosure status. The Plaintiff filed her third Chapter 13 bankruptcy petition on January 9, 2004.
On February 23, 2004, the Plaintiff filed a complaint against HomEq and Wachovia Corporation. On October 14, 2004, the Plaintiff filed her Second Verified Amended Complaint against the Defendants seeking relief under fifteen counts: civil conspiracy; two counts of violations of RICO; violations of the Fair Debt Collection Practices Act; negligence; reckless or negligent misrepresentation of material facts; breach of contract; violation of Real Estate Protection Act; fraud; intentional infliction of emotional distress; unjust enrichment; violation of the Fair Credit Reporting Act; torturious [sic] interference with contractual relations; violation of Truth in Lending Act; and violation of Trade Commission Act.
At HomEq’s suggestion, the parties agreed to a bifurcated proceeding as follows: (1) the Defendants would initially forego discovery efforts yet would respond to the Plaintiffs discovery requests which were pending on December 10, 2004; (2) upon conclusion of the Plaintiffs discovery, the court would hear the Plaintiffs evidence and argument; (3) at the close of the Plaintiffs case-in-chief, the Defendants would move for judgment on partial findings pursuant to Federal Rule of Civil Procedure 52, applicable in bankruptcy cases pursuant to Federal Rule of Bank*577ruptcy Procedure 7052; (4) if any of the Plaintiffs claims survived the Rule 52 motions, the Defendants would take discovery from the Plaintiff and her proposed experts and witnesses on the remaining claims; and (5) upon completion of the Defendants’ discovery, the parties would reconvene for trial on the Plaintiffs remaining claims, if any.
In accordance with the trial procedures agreed upon among the parties, the Plaintiff presented her case-in-chief on January 7, 2005. The Plaintiff called two witnesses and provided her own narrative testimony. At the close of the Plaintiffs presentation and argument, the Defendants moved for judgment as a matter of law. The Defendants filed written Rule 52 motions after the hearing. The Plaintiff filed her response to the motions. After considering the evidence presented and the arguments of the parties at trial and in the motions and the Plaintiffs response to the motions, the bankruptcy court entered its opinion and judgment in favor of the Defendants on all counts. The Plaintiff appeals the entry of judgment for the Defendants on all counts of her complaint.
STANDARD OF REVIEW
We review the bankruptcy court’s findings of fact for clear error and we review its entry of judgment pursuant to Rule 52(c) de novo. Minn. Laborers Health & Welfare Fund v. Scanlan, 360 F.3d 925, 927 (8th Cir.2004); Clark v. Runyon, 218 F.3d 915, 918 (8th Cir.2000).
DISCUSSION
Pursuant to Civil Procedure Rule 52, applicable herein pursuant to Federal Rule of Bankruptcy Procedure 7052, if during a trial without a jury a party has been fully heard on an issue and the court finds against the party on that issue, the court may enter judgment as a matter of law against that party with respect to a claim that cannot be maintained under controlling law without a favorable finding on the issue. Fed.R.Civ.P. 52(c). Such a judgment shall be supported by findings of fact and conclusions of law as required by Fed.R.Civ.P. 52(a), In the instant case, the matter was tried without a jury and the Plaintiff was given ample opportunity to present her case. At the end of the Plaintiffs presentation of her evidence, the Defendants moved for judgment pursuant to Rule 52(c) and presented written Rule 52 motions to the court. The Defendants electronically filed written Rule 52(c) motions after the hearing. The Plaintiff was given seventeen days to file a written response to the Rule 52 motions. After the Plaintiff filed her written response to the motions, the court carefully considered the evidence and issued its findings of fact, conclusions of law, and order. The findings of fact are supported by the record on appeal. The bankruptcy court committed no error in its findings of fact.
The bankruptcy court addressed each of the fifteen counts in the Plaintiffs Amended Complaint. The court identified the elements required for recovery by the Plaintiff under each count and analyzed the facts presented by the Plaintiff to determine whether she had established a pri-ma facie case. The court applied the law to the relevant facts and properly determined that the Plaintiff had not established a prima facie case under any count. The court properly entered judgment in favor of the Defendants and against the Plaintiff on each count. We find no error in the bankruptcy court’s thorough and well reasoned opinion and accordingly affirm its opinion and judgment.
CONCLUSION
The bankruptcy court committed no error in its entry of judgment pursuant to *578Fed.R.Civ.P. 52(c) in favor of the Defendants at the close of the Plaintiffs evidence. Accordingly, we AFFIRM the bankruptcy court’s entry of judgment in favor of the Defendants and against the Plaintiff.
. The Honorable Jerry W. Venters, United States Bankruptcy Judge for the Western District of Missouri.
. The issues identified by the Plaintiff are:
1. Did the mortgage and their Servicing Agent engage in manipulating tactics to create the default alleged in the complaint. 2. How did the Servicing agent create and use delay tactics to ensure a defaulted loan. 3. ' Did HomEq Servicing commit fraud ignoring the appellants "Qualified Written Requests” 4. Has HomEq Servicing committed fraud upon the court by stating that they are the holder and owner of the note-when in fact-they do not even own the note. 5. Create additional false deficiencies through a variety of questionable practices. 6. Arrogantly violating numerous laws and regulations.
(citations omitted). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493790/ | ORDER ON APPLICATION OF HK ACQUISITIONS, INC. FOR ALLOWANCE OF BREAK-UP FEES AND EXPENSES AND AS AN ADMINISTRATIVE COST
(Doc. No. 382)
ALEXANDER L. PASKAY, Bankruptcy Judge.
THE MATTER under consideration in this Chapter 7 Case, converted from a Chapter 11 case, of Dorado Marine, Inc (the Debtor) is an Application of H.K. Acquisitions, Inc. for Allowance of Break-up Fees and Expenses and as an Administrative Cost (Doc. No. 382), filed by HK Acquisitions, Inc. (HKAI), seeking $50,000 for either an allowance of break-up fees and expenses or, in the alternative, an award of an administrative expense.
The underlying facts relevant to the issue under consideration as appears from the record are without dispute and are as follows.
On August 24, 2004, the Debtor filed its Petition for Relief under Chapter 11. At the time of the commencement of this Case the Debtor was engaged in the business of manufacturing and building custom vessels ranging from fiat boats to forty foot sport fishing yachts. The Debtor having failed to obtain confirmation of its Plan of reorganization on May 2, 2005, this Court converted the case to a Chapter 7 case and in due course the office of the U.S. Trustee appointed Shari Jansen as the Trustee for the Estate of the Debtor.
Following the entry of the Order of Conversion, the Debtor in due course ceased all of its manufacturing operations, vacated the premises and left boats that were without hull numbers and in various stages of construction, several vessels. The Trustee did not seek leave to continue to operate the business, pursuant to Section 721 of the Code. The Trustee did not have any funds to continue to maintain and secure the Debtor’s facility and protect the assets for an extended period of time.
After the Case was converted to Chapter 7, HKAI, a corporation formed by Dennis Kellough and Brittania Yachts for the purpose of acquiring the assets of the Debtor, commenced negotiations with the Trustee concerning a possible sale of the Debtor’s assets. Although there was no contract signed at that time it appears that HKAI commenced its due diligence; specifically, HKAI investigated the public records for judgments, conducted a U.C.C. search, and reviewed court records concerning the Debtor and Debtor-related en*639tities. The due diligence was not limited to the search of the public records but also involved sending inquires to numerous individuals and obtaining documents from third parties in an attempt to discover any claimed interest in and the status of the contracts concerning the uncompleted boats and to determine what liens, if any, encumbered the assets which it sought to purchase. The negotiations culminated with the execution of a contract by the Trustee and HKAI pursuant to which HKAI agreed to purchase substantially all of the assets of the Debtor’s Estate.
On June 10, 2005, the Trustee filed an Emergency Motion of Chapter 7 Trustee for Entry of an Order (A) Authorizing the Sale of Real and Personal Property Free and Clear of Liens, Claims, and Encumbrances to HK Acquisitions, Inc. Subject to Higher or Better Offers; (B) Establishing and Approving Bidding Procedures; (C) Approving Notice of Sale; (D) Approving the Assumption of an Assignment of Certain Executory Contracts; (E) Scheduling Hearing to Approve the Bid Procedures; and (F) Scheduling Hearing to Approve Sale (Doc. No. 347). The proposed sale was to HKAI of substantially all of the assets of the estate, free and clear of all liens, claims and interest, with the exception of the lien of Peoples Bank securing the indebtedness of $460,000. The total purchase price fixed by the contract was $500,000.
It was understood the assets would be sold at auction and HKAI would be the stalking horse with its initial bid of $500,000, subject to higher and better offers. HKAI agreed to participate in the auction and make the initial bid provided that it had certain bidder protections, including overbid protection, minimum bid increments, and a breakup fee of $50,000 in the event it was not the successful bidder.
By an Order entered June 24, 2005 (Doc. No. 367) (the June 24 Order), this Court approved the Sale Motion with several modifications, including reducing the overbid from $575,000 to $510,000, with minimal bid increments of $10,000. This Court specifically deferred consideration of the breakup fees sought by HKAI.
The proposed sale went through several modifications, due in part to a number of objections to the sale and claims to ownership of several of the Debtor’s assets. The final steps of the sale proceedings occurred on June 10, 2005, when this Court entered a Final Order Approving Sale of Real and Personal Property of the Estate, to a second bidder, Dorado Holdings, LLC, for the purchase price of $210,000 (Doc No. 387).
As HKAI was not the successful bidder, it filed the instant Motion seeking payment of $50,000, as either the breakup fee outlined in the Sale Motion, or alternatively as payment of an administrative expense.
A breakup fee is a “fee paid by a seller to a prospective purchaser in the event that a contemplated transaction is not consummated.” Calpine Corp. v. O’Brien Envtl. Energy, Inc. (In re O’Brien Envtl. Energy, Inc.), 181 F.3d 527, 528 (3d Cir.1999). The fee is intended to compensate the bidder for the time, effort, and risk of being the stalking horse, and to encourage the bidder to do the necessary due diligence with the assurance that its efforts will be compensated if it is unsuccessful. Id. at 535. In a normal case, a debtor and a prospective bidder agree on certain bid procedures, including a breakup fee if the parties feel it is necessary, and present the court with a motion requesting approval of those procedures. If the court approves the fee, then if the conditions precedent are met and the bidder is unsuccessful, the fee is paid.
*640The deviation in this case is that this Court never entered an order approving the breakup fee. The June 24 Order specifically states that this Court deferred consideration on the breakup fee issue. It is undisputed that HKAI was not the successful bidder; if this Court had approved the breakup fee, HKAI would be entitled to the $50,000 fee. As the fee was not previously approved, this Court is not bound by the provisions of the original sale motion as it relates to the breakup fee.
HKAI requests relief in the alternative, seeking an award of breakup fees or an administrative expense. This Court first notes that HKAI is not entitled to an administrative expense under 11 U.S.C. § 503(b)(3)(D). The Code provides for payment as an administrative expense for the (1) actual and necessary expenses, (2) incurred by a creditor, (3) in making a substantial contribution, (4) in a case under chapter 11. 11 U.S.C. § 503(b)(3)(D).
Even assuming that $50,000 of the expenses incurred by HKAI were a substantial contribution, an award under this subsection is improper. First, there is no evidence in the record that HKAI is a creditor in this case. While the principles of HKAI, Dennis Kellough and Brittania Yachts, are creditors, the entity they formed to acquire the assets of the Debtor, that entered into the initial agreement with the Trustee, and that seeks payment of an administration expense, is not a creditor.
Second, the expenses at issue were incurred after the case was converted to chapter 7. The plain language of the statute provides for payment of expenses incurred in contributing to a case “under chapter 9 or 11 of this title.” § 503(b)(3)(D). “Section 503(b)(3)(D) does not authorize fee awards for expenses after a case is converted from Chapter 11 to Chapter 7.” In re Alumni Hotel Corp., 203 B.R. 624, 631 (Bankr.E.D.Mich.1996). HKAI admits in its Application that the sale discussions in this case occurred post-conversion, between the Trustee and HKAI, not between a debtor-in-possession. Application for Break-up Fees, Doc. No. 382, p. 2 (“Following the conversion, HKAI commenced negotiations with the Trustee concerning a possible sale of the assets of the Debtor.”) (emphasis added). Based on the foregoing, HKAI is not entitled to an award and payment of an administrative expense.
In past cases, this Court has denied lump sum break-up fee requests, but allowed reimbursement to the extent the expenses are actual and necessary, and provide a benefit to the estate. See, NAMPA. The same treatment is appropriate in this case. The $50,000 break-up fee requested in the initial Sale Motion is denied, but HKAI may be reimbursed for costs that: (1) are actual and necessary costs incurred for the preservation of the Debtor’s estate within the meaning of 11 U.S.C. § 503(b); (2) provide a substantial benefit to the Debtor’s estate; and (3) are reasonable and appropriate in light of the size and nature of the proposed sale and the efforts expended by HKAI.
While HKAI states that its actual costs totaled $57,11.00 in attorneys’ fees and $2,126.80 in costs, it is seeking only $50,000. HKAI submitted detailed documentation for the fees it incurred, attaching time records broken down into categories to its Application.
Based on the record, this Court is satisfied that HKAI provided a substantial benefit to the Estate. HKAI was the stalking horse. At the time when the Case was converted to Chapter 7 and HKAI and the Trustee began negotiations, the documents and records of the Debtor were in disarray, and the assets and claims encumber*641ing those assets were uncertain. This was not a case in which a debtor or a trustee gathered the information necessary to perform the due diligence in anticipation of the sale, see O’Brien, 181 F.3d at 537; rather, the efforts of HKAI placed the assets of the Debtor in a posture such that other bids were attracted. See In re Diamonds Plus, Inc., 233 B.R. 829 (Bankr. E.D.Ark.1999) (concluding that unsuccessful bidder provided benefit to the estate by helping to coordinate sale.)
Additionally, HKAI served as a catalyst for higher bids. The eventual highest and best bid exceeded HKAI’s bid by the minimum amount required by the sale procedures, and was made contingent upon HKAI remaining in the bidding, and so clearly relied upon HKAI’s valuation and efforts. The expenses incurred by HKAI provided a substantial benefit to the Estate by insuring an adequate bid.
The expenses incurred by HKAI that are allowable are those relating to the due diligence that a bidder had to conduct, as well as those required to prepare the assets for sale. These expenses guaranteed that the assets would be sold for a fair price, and provided a substantial benefit to the Estate. Based on the foregoing, this Court is satisfied that HKAI incurred actual and necessary costs incurred for the preservation of the Debtor’s estate, which provided a substantial benefit to the Debt- or’s estate.
However, only some of the expenses incurred by HKAI provided benefits to the Estate. Significant portions of the expenses generated were types of services that are within the purview of the legal services performed by counsel for the Trustee, not a bidder, services that should have been performed by the Trustee and as such provided no benefit to the estate. Particularly, HKAI seeks reimbursement for $5,825.00 for fees generated in attending hearings and meetings of creditors, and $13,350.00 in drafting the contract, bidding procedures and the motion to approve the contract. These actions, when performed by the bidder, produced no benefit to the estate. The amount of expenses for these services, $19,175.00, will be subtracted from the amount requested, leaving an allowed administrative claim of $30,825.00
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Application of H.K. Acquisitions, Inc. for Allowance of Break-up Fees and Expenses and as an Administrative Cost be, and the same is hereby, approved in part. It is further
ORDERED, ADJUDGED AND DECREED that H.K. Acquisitions, Inc. be, and is hereby, allowed an administrative expense in the amount of $30,825.00. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493792/ | FINAL ORDER ON CENTURY MARTIAL ART SUPPLY, INC.’S EMERGENCY MOTION TO COMPEL DISCOVERY, TO APPOINT A SPECIAL MASTER AND FOR SANCTIONS (Doc. No. 305)
ALEXANDER L. PASKAY, Bankruptcy Judge.
THE MATTER under consideration in the jointly administered Chapter 11 cases of National Association of Professional Martial Artists, Inc., (NAPMA) and International Ikon, Inc. (Ikon) is Century Martial Art Supply, Inc.’s Emergency Motion to Compel Discovery, to Appoint a Special *834Master and for Sanctions (Doc. No. 305), filed February 11, 2005.
The principal event at issue in this matter is the conduct of Robert Alan Wall, corporate representative of World Black Belt, Inc. (WBB), at his deposition, taken January 11, 2005. During the course of the deposition, Wall made comments that were inappropriate and beyond the course of acceptable behavior, including calling Dean Kent, the attorney conducting the deposition, a liar, Wall Depo. Tr., p. 69-71; asking if Kent had been charged with any sexual crimes, Wall Depo. Tr., p. 74; making reference to gay sex affairs, Wall Depo. Tr., p. 76; giving generally non-responsive answers, Wall Depo. Tr., p. 35-41, 42-43, 64-66; and terminating the deposition, Wall Depo. Tr., p. 132.
Century filed the Motion seeking an order compelling WBB to produce telephone records, to appoint a special master to be present during the continued deposition, requiring Wall to respond to questions to which he refused to respond during his deposition, imposing sanctions against Wall personally, and awarding fees and costs to Century. On February 28th, 2005, this Court entered an Order on Century Martial Art Supply, Inc.’s Emergency Motion to Compel Discovery, to Appoint a Special Master and for Sanctions (Doc. No. 312), ordering WBB to answer specific questions and produce the requested phone records, denying the request to appoint a special master, and continuing the request for sanctions. The request for sanctions was ultimately scheduled for a Final Evidentiary Hearing (Doc. No. 317).
At the Final Evidentiary Hearing held May 26, 2005, counsel for Wall, who was not Wall’s counsel at the time of the deposition, stated that there was a personality conflict between the deposing attorney and Wall. Clearly this was the case. Counsel for Wall also indicated that Wall behaved appropriately at a subsequent deposition. However, neither a personality conflict nor any subsequent behavior excuses Wall’s conduct at the January 11, 2005 deposition.
This Court may award appropriate sanctions where a party frustrates the conduct of a deposition, Fed.R.Civ.P. 30, made applicable by Fed. R. Bankr.P. 7030, or where a party successfully moves for a motion to compel discovery. Fed.R.Civ.P. 37, made applicable by Fed. R. Bankr.P. 7037. Wall’s nonresponsive and outrageous comments frustrated the deposition, and required a motion to compel, which this Court granted. At the Final Evidentiary Hearing, counsel for Century requested $5,000. This Court determines that $3,000 is a reasonable award to cover the sanctions, attorneys’ fees and costs in taking the depositions and pursuing the Motions. Based on the foregoing, this Court is satisfied that Wall should be sanctioned for his behavior at the January 11, 2005 deposition, and shall pay $3,000 to Century within thirty days after the date of entry of this Order.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that Century Martial Art Supply, Ine.’s Emergency Motion to Compel Discovery, to Appoint a Special Master and for Sanctions (Doc. No. 305), in so far as it request sanctions and costs and attorneys’ fees be, and the same is hereby, granted. It is further
ORDERED, ADJUDGED AND DECREED that Robert Alan Wall shall pay the amount of $3,000 to Century within thirty days after the date of entry of this Order. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493793/ | MEMORANDUM OPINION
ROBERT F. HERSHNER, JR., Chief Judge.
Alan R. Oglesbee, Robert E. Johnson, and Gregory W. Phillips, Defendants, filed on July 5, 2005, a motion for partial summary judgment. Westek Georgia, LLC, Plaintiff, filed on July 6, 2005, a motion for partial summary judgment.1 The Court, having considered the record and the arguments of counsel, now publishes this memorandum opinion on the cross-motions for partial summary judgement.
“[The] filing of cross-motions [for summary judgment] does not establish that there is no material fact in issue and that a trial is therefore unnecessary. The Court must still make an independent evaluation as to the merits of each party’s motion.” Donovan v. District Lodge No. 100, International Assoc. of Machinists and Aerospace Workers, AFL-CIO, 666 F.2d 883, 886 (5th Cir. Unit B, 1982).
“The court must rule on each party’s motion on an individual and separate basis, determining, for each side, whether a judgment may be entered in accordance with the Rule 56 standard. Both motions must be denied if the court finds that there is a genuine issue of material fact.” 10A C. Wright, A. Miller, & M. Kane, Federal Civil Practice and Procedure 3d § 2720, p. 335-36 (1998).
The following facts are not in dispute.2 Westek, Inc. was a tire cordage company owned by a West German bank. The bank decided to liquidate Westek. Defendants were employees of Westek. Defendants formed a Georgia corporation known as Martha Mills, Inc. to acquire Westek. In August 2001, Martha Mills purchased all of the stock in Westek from the bank for $1,500,000. Westek’s obligations totaled some $9,000,000 at the time of the purchase. Defendants financed the purchase with a $1,500,000 short-term loan from Flag Bank. Defendants immediately satisfied the loan by selling Westek’s water facility to the City of Thomaston for $1,500,000.
Martha Mills was the parent company and Westek was the subsidiary. Defendants were officers, directors, and shareholders of Martha Mills. Defendants were officers, directors, and employees of Wes-tek.
Westek had severe financial problems. Despite the problems, Defendants did not invest any funds in Martha Mills or Wes-tek. Defendants did not reduce their annual salaries of $90,000.
In October 2002, Plaintiff agreed to purchase substantially all of the assets of Westek for $1,380,000. The assets included real property, machinery, and equipment. Plaintiff also agreed to assume most of Westek’s financial obligations. Defendants negotiated the sale on behalf of Westek.
Adam Singer, CPA, has served as a consultant to Plaintiff since the summer of 2002. Mr. Singer assisted Plaintiff in its due diligence analysis for the purchase of Westek’s assets and assumption of its obli*852gations. Mr. Singer, in his affidavit, testifies, “From our due diligence, we knew that Westek was in terrible financial condition and could not meet its obligations as they became due.”3
Plaintiff and Westek entered into an Asset Purchase Agreement dated October 30, 2002. Pursuant to the agreement, Plaintiff was to pay $300,000 at closing to Westek. Plaintiff and Defendants were to enter into a non-competition agreement which, over time, would pay $1,080,000 to Defendants. Plaintiff was to employ Mr. Oglesbee and Mr. Johnson.
The sale closed on November 15, 2002. Plaintiff paid $300,000 to Westek. Westek distributed the funds to Martha Mills which in turn distributed the funds to Defendants. Plaintiff and Defendants executed a Noncompetition Agreement. The Noncompetition Agreement provides, in part, that Defendants would not disclose certain confidential information or work in a competitive business for a period of five years. The Noncompetition Agreement was the primary vehicle for payment of cash to Defendants as consideration for the sale. Plaintiff was to make quarterly payments to Defendants through October 2008. The payments would total $1,080,000. As security for the obligations, Plaintiff executed a deed to secure debt on its real property in favor of Defendants. Plaintiff also executed a security agreement on its machinery and equipment in favor of Defendants.
After the closing, Plaintiff employed Mr. Phillips as its chief financial officer and as general manager for operations at the tire cordage facility. Mr. Johnson was employed as human resources manager. Plaintiff also employed Mr. Oglesbee. Defendants were not officers, directors, or shareholders of Plaintiff.
Plaintiffs business was not successful. Plaintiff fired Defendants. Plaintiff contends that Defendants fraudulently misrepresented the financial obligations of Westek. Plaintiff contends that Defendants disclosed that Westek had obligations of some $10,000,000. Plaintiff contends that Defendants failed to disclose that Westek had another $1,000,000 in obligations.4
Plaintiff ceased operations and leased its real property and equipment to a third party, Royal Cord, Inc.
Plaintiff filed on October 24, 2003, a complaint against Defendants and Westek in the Superior Court of Upson County, Georgia. Plaintiff asserts claims for fraud, breach of contract, and indemnification. Defendants filed a response, a counterclaim, and a third party complaint. The state court action will determine the mutual claims and obligations of Plaintiff and Defendants. The state court action is currently pending.
Defendants and other creditors filed on November 12, 2003, an involuntary petition under Chapter 7 of the Bankruptcy Code against Plaintiff. Plaintiff, on January 14, 2004, exercised its right to convert the Chapter 7 case to a Chapter 11 case. Plaintiff is the debtor-in-possession in the Chapter 11 case. Defendants filed proofs of claims asserting secured claims that total almost $1.13 million.
Plaintiff filed this adversary proceeding on April 15, 2004. Plaintiff contends that Defendants’ claims should be subordinated to all unsecured claims for purposes of *853distribution. Plaintiff also contends that Defendants’ deed to secure debt and security agreement should “in effect be voided.”
Section 510(c) of the Bankruptcy Code provides:
§ 510. Subordination
(c) Notwithstanding subsections (a) and (b) of this section, after notice and a hearing, the court may — ■
(1) under principles of equitable subordination, subordinate for purposes of distribution all or part of an allowed claim to all or part of another allowed claim or all or part of an allowed interest to all or part of another allowed interest; or
(2) order that any lien securing such a subordinated claim be transferred to the estate.
11 U.S.C.A. § 510(c) (West 2004).
In Estes v. N & D Properties, Inc., (In re N & D Properties, Inc.)5, the Eleventh Circuit Court of Appeals stated in part:
A. Equitable Subordination
Section 510(c) of the Bankruptcy Code provides that claims against the debtor’s estate may be accorded a priority inferi- or to those of secured or unsecured creditors where “the principles of equitable subordination” so dictate. This section’s legislative history indicates that such principles are to be found in case law on the subject. Binding precedent in this circuit holds that equitable subordination is proper where three elements are established:
(1) that the claimant has engaged in inequitable conduct;
(2) that the conduct has injured creditors or given unfair advantage to the claimant; and
(3) that subordination of the claim is not inconsistent with the Bankruptcy Code.
The burden and sufficiency of proof required are not uniform in all cases. Where the claimant is an insider or a fiduciary, the trustee bears the burden of presenting material evidence of unfair conduct. Once the trustee meets his burden, the claimant then must prove the fairness of his transactions with the debtor or his claim will be subordinated. If the claimant is not an insider or fiduciary, however, the trustee must prove more egregious conduct such as fraud, spoliation or overreaching, and prove it with particularity.
In light of these distinctions, the trustee’s claim of error on equitable subordination cannot be properly evaluated until the appropriate standard and burden of proof are determined. The correct standard, of course, depends upon if and when appellee became an insider or fiduciary of the debtor. The Bankruptcy Code defines an insider as an officer, director, or “person in control of the debtor” corporation. See § 101(28)(B). A fiduciary, under general corporate theory, includes an officer, director, agent, majority shareholder or a minority shareholder exercising actual control over the corporation. A shareholder has control when she determines corporate policy, whether by personally assuming management responsibility or by selecting management personnel.
799 F.2d at 731-32. (citations omitted).
*854Turning to the case at bar, the cross-motions for partial summary judgment ask the Court to determine whether Defendants were insiders or fiduciaries of Westek Georgia, LLC, the Chapter 11 debtor-in-possession and the Plaintiff in this adversary proceeding. This determination will decide the appropriate standard and burden of proof in this adversary proceeding. Plaintiff contends that “The critical time period for determining [Defendants’] insider and fiduciary status is October 2002, through November 15, 2002—the time period during which [Defendants] committed the inequitable conduct in question by transferring Westek Inc.’s liabilities to the Debtor [Plaintiff] and assuming a ‘me-first’ secured creditor position over all of those liabilities.” Debtor’s Response And Opposition To OJP’s Motion For Partial Summary Judgment, p. 2 (filed July 28, 2005), Docket No. 49.
Thus, the “critical time period” occurred prior to the closing of the sale and prior to Defendants’ employment by Plaintiff.
Defendants concede that they were officers, directors, and insiders of Westek, the entity that sold its assets to Plaintiff.6 Westek was having serious financial problems during the time Defendants were negotiating the sale of Westek’s assets. Under Georgia law, the directors and managing officers of an insolvent corporation stand in a trust relationship with creditors and must manage the remaining corporate assets in trust for creditors.7
Plaintiff purchased Westek’s assets and assumed its financial obligations. Plaintiff contends that Defendants’ fiduciary obligations to Westek’s creditors shifted to Plaintiffs creditors. Plaintiff contends that Defendants became insiders or fiduciaries of Plaintiff. Plaintiff concedes that there is no case law to support its contentions.8
Article 13.15 of the Asset Purchase Agreement states that the agreement was negotiated at arms length by the parties and their respective counsel. Article 13.14 states that the parties were not partners or joint venturers. Under Georgia law parties negotiating the sale of a business should have trust and confidence in each other’s integrity, but there is no confidential relationship or fiduciary duty between the parties. The parties to the sale seek to further their own separate business objectives and have no duty to represent or advance the other party’s interests. Infrasource, Inc. v. Hahn Yalena Corp., 272 Ga.App. 703, 613 S.E.2d 144, 146-47 (2005); Newitt v. First Union National Bank, 270 Ga.App. 538, 607 S.E.2d 188, 196 (2004); Mail & Media, Inc. v. Rotenberry, 213 Ga.App. 826, 446 S.E.2d 517, 520 (1994), cert denied.
Plaintiff and Westek are separate legal entities. Plaintiff has not cited any case law holding that a fiduciary obligation shifted from the creditors of the selling corporation to the creditors of the purchasing corporation. The Court is not persuaded that Plaintiff has demonstrated that Defendants stood in a trust relationship with Plaintiffs creditors. The Court *855is not persuaded that Defendants were insiders or fiduciaries of Plaintiff.
Plaintiff also contends that Defendants’ claims9 should be treated as stock redemption claims subject to no fault subordination. Plaintiff contends that its purchase of Westek’s assets was essentially a sale of Westek’s stock to Plaintiff. Plaintiff contends that Defendants essentially exchanged their ownership interest in Westek for secured debt through the Non-competition Agreement.
A stock redemption is a transaction in which a corporation acquires its own stock from shareholders. The transaction is not a sale of stock but simply a method of distributing a portion of the assets of the corporation to shareholders. Former shareholders who redeemed their stock in exchange for debt are considered to be creditors. The former shareholders, however, are not entitled to payment unless other creditors are paid in full. If the corporation is or becomes insolvent, the former shareholders’ claims may be equitably subordinated to the claims of other creditors. The former shareholders, in substance, become equity holders rather than creditors. In re Envirodyne Industries, Inc., 79 F.3d 579, 582 (7th Cir.) cert. denied 519 U.S. 821, 117 S.Ct. 77, 136 L.Ed.2d 36 (1996); See Robinson v. Wangemann, 75 F.2d 756 (5th Cir.1935). But see Merrimac Paper Co. v. Harrison, (In re Merrimac Paper Co.), 420 F.3d 53 (1st Cir.2005) (rejecting automatic subordination of stock redemption claims and requiring that subordination of a particular claim be fairly based on the totality of the circumstances).
Plaintiff cites a number of cases in which stock redemption claims were subordinated to the claims of other creditors. In those cases the claims arose from re-demptions of stock in the debtor corporation.
In the case at bar, Defendants never owned any stock in Westek Georgia, LLC, the Chapter 11 debtor-in-possession and the Plaintiff in this adversary proceeding. Defendants were shareholders of Martha Mills, the parent company of Westek. Plaintiff and Martha Mills are separate legal entities. Plaintiff has not cited any ease law which supports its contentions.
The Court is not persuaded that Defendants were insiders or fiduciaries of Plaintiff during the “critical time period”. Under Eleventh Circuit law, Plaintiff must therefore prove more egregious conduct such as fraud, spoliation or overreaching, and prove it with particularity, in order for Plaintiff to carry its burden of proof.
The Court has considered each of the cross-motions for partial summary judgment on an individual and separate basis in accordance with the requirements of Federal Rule of Civil Procedure 56. The Court is persuaded that Plaintiffs motion for partial summary judgment should be denied and that Defendants’ motion should be granted.
An order in accordance with this memorandum opinion will be entered this date.
. In their motions for partial summary judgment, Plaintiff and Defendants ask the Court to rule upon the standard and burden of proof that will be required at the trial of this adversary proceeding.
. See Debtor's Statement Of Material Facts As To Which There Is No Genuine Issue To Be Tried, (filed July 6, 2005), Docket No. 36; Affidavit Of Alan R. Oglesbee (filed July 5, 2005), Docket No. 33; Affidavit Of Adam Singer (filed July 28, 2005), Docket No. 51 Exhibit A.
. Affidavit Of Adam Singer, para 7 (filed July 28, 2005), Docket No. 51 Exhibit A.
. See Debtor's Brief In Support Of Motion For Partial Summary Judgment On Subordination, pp. 4-5, (filed July 6, 2005), Docket No. 35.
. 799 F.2d 726 (11th Cir.1986).
. Defendants’ Brief In Support Of Motion For Partial Summary Judgment, pp. 1,5 (filed July 5, 2005), Docket No. 33.
. Smith Drug Co. v. Pharr-Luke (In re Pharr-Luke) 259 B.R. 426, 430 (Bankr.S.D.Ga.2000); Kaplan’s Nadler, Georgia Corporations, Limited Partnerships and Limited Liability Companies, § 10-19 (2000).
.Debtor’s Brief In Support Of Motion For Partial Summary Judgment On Subordination, p. 12 (filed July 6, 2005), Docket No. 35.
. Defendant's claims arose from the Noncom-petition Agreement. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493794/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
JERRY A. FUNK, Bankruptcy Judge.
This proceeding came before the Court upon a complaint filed by John Talarico *923and Philbert Smaw (“Plaintiffs”) seeking to except the debt owed to them by Ellen Martel (“Debtor”) from her discharge pursuant to 11 U.S.C. § 523(a)(2)(A) and (a)(6). In lieu of oral argument, the Court directed the parties to submit memoranda in support of their respective positions. Upon the evidence and arguments of parties, the Court makes the following Findings of Fact and Conclusions of Law.
FINDINGS OF FACT
On September 21, 1998 Plaintiffs filed a complaint in the Superior Court of New Jersey (“the Superior Court”) alleging, among other things, fraud and willful and malicious injury. Plaintiff named Debtor, Mobile Communication Solution, Inc. (“MCSI”) and other persons as defendants (collectively “Defendants”). After Debtor attempted unsuccessfully to defend herself, MCSI retained an attorney to collectively represent all Defendants. Debtor terminated her affiliation and employment with MCSI in March 1999. The attorney retained to represent Defendants withdrew representation in July 1999 because Defendants failed to comply with discovery requests and failed to pay attorney’s fees.
After Defendants’ counsel withdrew the Superior Court suppressed Debtor’s pleadings and answer without prejudice as sanctions for Debtor’s failure to comply with discovery obligations. Thereafter, the Superior Court suppressed Debtor’s pleadings and answer with prejudice as a further discovery sanction. Subsequently, the Superior Court entered a default judgment in favor of Plaintiffs. After a proof hearing the Superior Court determined the amount of damages (“the debt”) owed to Plaintiffs by Defendants.
On February 26, 2003 Debtor filed a Chapter 7 bankruptcy petition. On June 27, 2003 Debtor received a discharge.
The Court conducted a trial on January 27, 2005. Plaintiffs and Debtor agreed to litigate only the issue of collateral estoppel and not revisit the underlying merits of the complaint and subsequent default judgment. Consequently, Plaintiff and Debtor agreed that a ruling in favor of Debtor would result in a dismissal of the adversary proceeding.
CONCLUSIONS OF LAW
Plaintiffs contend that collateral estop-pel prevents Debtor from relitigating the merits of the debt. Plaintiffs argue that because the complaint filed in the Superior Court alleged fraud and willful and malicious injury, the default judgment renders the debt nondischargeable under § 523(a)(2)(A) and § 523(a)(6). Sections § 523(a)(2)(A) and § 523(a)(6) provide:
(а) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt-
12) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by-
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition; 11 § 523(a)(2)(A);
(б) for willful and malicious injury by the debtor to another entity or to the property of another entity. 11 § 523(a)(6);
The Court must apply New Jersey’s collateral estoppel law to determine whether Debtor can litigate the merits of the debt. St. Laurent v. Ambrose, 991 F.2d 672, 676(11th Cir.1993) (citations omitted). In order for collateral estoppel to apply under New Jersey law five conditions must be met:
*924(1) the issue to be precluded is identical to the issue decided in the prior proceeding;
(2) the issue was actually litigated in the proceeding;
(3) the court in the prior proceeding issued a final judgment on the merits;
(4) the determination of the issue was essential to the prior judgment; and
(5) the party against whom the doctrine is asserted was a party to or in privity with a party to the earlier proceeding.
In re Hawkins, 231 B.R. 222, 231 (D.N.J.1999) (citations omitted).
In determining whether collateral estoppel applies to default judgments, New Jersey law focuses on the second element of collateral estoppel. “Pursuant to New Jersey law, collateral estoppel does not apply to default judgments because such judgments are not ‘actually litigated’ as required by the second prong in the above test.” Hawkins, 231 B.R. at 231 (citing Slowinski v. Valley Nat. Bank, 264 N.J.Super. 172, 624 A.2d 85 (1993); N.M. v. J.G., 255 N.J.Super. 423, 605 A.2d 709 (1992)).
Even though Plaintiffs received a default judgment as a result of sanctions imposed against Debtor, collateral estoppel does not prohibit Debtor from relitigating the merits of the debt. New Jersey’s collateral estoppel law does not distinguish between a default judgment entered for failure to litigate and a default judgment entered for noncompliance with court orders. See Slowinski, 624 A.2d at 90.; Allesandra v. Gross, 453 A.2d 904 (1982).
Plaintiffs correctly argue that there is an exception carved out under federal law. See Bush v. Balfour Beatty Bahamas, 62 F.3d 1319 (11th Cir.1995); Fed. Dep. Insurance Corp., 47 F.3d 365 (9th Cir.1995); United States v. Gottheiner, 703 F.2d 1136 (9th Cir.1983). If a party participates in litigation for a substantial period of time then fails to defend his case and a default judgment is entered, a federal court can apply collateral estoppel and prevent that party from relitigating the issues decided by the default. Id. However, this Court must apply the law as it stands in New Jersey. Collateral estoppel cannot be applied to the default judgment entered by the Superior Court in favor of the Plaintiffs. See Slowinski, 624 A.2d at 90.; Allesandra, 453 A.2d at 909.
CONCLUSION
Because collateral estoppel does not apply to the default judgment entered by the Superior Court, Debtor’s debt to Plaintiffs is not excepted from discharge on that basis. Based on the stipulations of counsel, the case will be dismissed. The Court will enter a separate judgment in accordance with these Findings of Fact and Conclusions of Law. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493797/ | MEMORANDUM OF OPINION AND ORDER
RANDOLPH BAXTER, Bankruptcy Judge.
Before the Court is Defendant Wellspring Media, Inc.’s (“Wellspring”) Motion to Dismiss or Stay Adversary Proceeding or, in the Alternative, for a Partial Dismissal of the Amended Complaint (‘Wellspring’s Motion”).
The Court acquires core matter jurisdiction over this matter pursuant to 28 U.S.C. §§ 157(a), (b) and 1334(b). Upon a duly noticed hearing, the following factual findings and conclusions of law are hereby rendered:
*
Winstar Communications provided integrated broadband communications and information services, including local and long distance voice services, Internet connectivity, data transmission, web hosting, web design and development and other enhanced services. Winstar Communications also developed and distributed information content and provided related services through traditional media, such as television, video, cable, radio, and the Internet.
On April 18, 2001, Winstar Communications, Inc. and certain of its direct and indirect subsidiaries (collectively, the “Debtors”) filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code (the “Code”). The Debtors continued operations as debtors in possession. On January 24, 2002, after the Debtors defaulted on their post-petition financing, this Court entered an order converting the Debtors’ Chapter 11 cases to proceedings under Chapter 7 of the Code.
Winstar New Media Company, Inc. (“New Media”), a subsidiary of Winstar Communications, Inc., owned all of the outstanding stock of Winstar TV and Video, Inc. (“TW”) and the membership unit of Winstar Productions, LLC (“WSP”) (collectively, the “Winstar Entities”). TW and WSP were worldwide producers, distributors, and releasors of television and film programs. On July 19, 2001, after filing their bankruptcy petitions, the Debtors decided to sell the Winstar Entities, and entered into an Agreement and Plan of Organization1 (the “Agreement”) with Regulus (now known as Wellspring Media, Inc.).2
*560The payment option selected by Regulus under the Agreement called for an immediate cash payment of $2,000,000, and the issuance of a promissory note in the amount of $3,000,000 (the “Note”). The Agreement called for the Note to bear 8% interest, with a $750,000 payment due on March 1, 2002, and the balance of principal and interest being due two years from the closing date.
Pursuant to the terms of the Agreement, New Media agreed that on July 31, 2001, the Winstar Entities would carry at least $3,000,000 of Working Capital, as defined by Paragraph 1.03(a) of the Agreement. Paragraph 1.03(c) sets forth the mechanism for resolving any disputes arising from the Working Capital calculation. The Agreement provides that Regulus would calculate Working Capital as of July 31, 2001, and that within ninety days of the closing of the sale, Regulus would deliver to New Media a Working Capital Statement of its calculations. Upon receipt of the Working Capital Statement, New Media would have fifteen business days to make an objection. Regulus and New Media would then have an additional period of fifteen days to resolve any objections. If that period lapsed without resolution, New Media had the right to employ a certified public accountant to audit the books of the Winstar Entities (the “Auditor’s Report”). Paragraph 1.03(c) of the Agreement then provided that,
If, after fifteen (15) business days after both parties’ receipt of the Auditor’s report, the parties are still unable to resolve the dispute, either party may elect to commence arbitration before a single, mutually approved arbitrator, under the rules and administration of the American Arbitration Association in New York, New York.
If the Working Capital on the proscribed date was ultimately determined to be an amount less than $3,000,000, Paragraph 1.03(b) states that Regulus’ sole remedy would be to reduce the principal amount of the Final Payment of the promissory note (and then the First Payment, if necessary) by the amount of the deficiency. On August 3, 2001, this Court entered an order approving the Agreement. The transaction was closed on September 10, 2001.
On November 30, 2001, in accordance with the Agreement, Regulus sent a Working Capital Report to New Media, concluding that the Working Capital of the Wins-tar Entities on July 31, 2001 was a deficit of $779,929, as opposed to the surplus of $3,000,000 required by the Agreement. This Working Capital Report was received on December 3, 2001. New Media responded with a letter dated December 17, 2001, disputing the Working Capital Report’s calculations.3 Wellspring offers an affidavit from Lee Miller, Regulus’ former Chairman, testifying that it never received an Auditor’s Report from New Media.4
Wellspring did not make payments on the promissory note, asserting that the deficiency in Working Capital relieved it of its obligations under the Agreement. On March 14, 2005, Christine C. Shubert, as Chapter 7 Trustee, brought suit against Wellspring,5 alleging: 1) breach of promissory note, 2) turnover of property of the *561estate pursuant to 11 U.S.C. § 542, and 3) unjust enrichment. On July 11, 2005, the Trustee received a letter indicating Wellspring’s desire to submit the matter to arbitration. Wellspring also filed the pending Motion to Dismiss or Stay pending arbitration.
* *
Wellspring asks the Court to order the parties to submit the dispute to arbitration, and to stay or dismiss proceedings pending arbitration. Wellspring initially argues that under Paragraph 1.03 of the Agreement, as enforced by Section 2 of the Federal Arbitration Act (FAA), the dispute is subject to mandatory arbitration, and that a contrary reading would render the provision illusory. Alternatively, even if arbitration were permissive, Wellspring argues that the Court, in its discretion, should submit this dispute to arbitration.
In the event that the Court decides not to refer the matter to arbitration, Wellspring asks the Court to dismiss Counts II and III of the Trustee’s Complaint, seeking turnover of property of the estate under § 542, and unjust enrichment. Wellspring argues that the dispute does not meet the requirements of a turnover action under § 542, since a bona fide dispute exists as to the liability of the defendant to the debtor. Wellspring next argues that the Trustee cannot pursue an unjust enrichment claim when a valid, enforceable contract exists. Additionally, Wellspring claims that the Trustee has failed to establish that Wellspring has received a benefit to which New Media was entitled.
The Trustee contends that by using the word “may,” instead of the words “shall” or “must,” the parties intended the arbitration clause of Paragraph 1.03 to be permissive. The Trustee also points to the Court’s Order approving the Agreement, in which the Court retained jurisdiction over the Purchase Agreement. The Trustee asserts that arbitration would be more expensive, more time consuming, and less efficient to the Debtors. Finally, the Trustee notes that Wellspring did not seek arbitration in this matter until after the Trustee brought this suit. Therefore, it would be permissible and appropriate for the Court to exercise its discretion and to refuse to compel arbitration.
In response to Wellspring’s arguments regarding its turnover claims, the Trustee believes that it should be permitted to seek turnover under § 542 of the amount due on the face of the promissory note, with the funds subject to the Working Capital dispute addressed as a separate asset subject to a right of setoff. Finally, the Trustee asserts that a claim for unjust enrichment is an alternative basis for relief, which is permitted by Rule 8(e)(2) of the Federal Rules of Civil Procedure.
Wellspring replies to the Trustee’s arguments by noting that a pre-suit demand for arbitration is unnecessary for a court to compel parties to arbitration, and that imposing such a requirement would place the unusual burden upon the party to be charged of instituting proceedings to establish his own liability. Wellspring notes that the reason that it has asked to submit the matter for this arbitration at this late date is because Paragraph 1.03 provides for arbitration only after receipt of the Auditor’s Report, which in this case was allegedly never requested.
Before proceeding to the merits of the allegations contained in the Trustee’s complaint and Wellspring’s motion to dismiss these counts, the Court examines whether proceedings should be stayed in order for the matter to be resolved in arbitration. In making this determination, the Court conducts a three-step analysis: 1) whether the dispute is governed by an *562enforceable arbitration clause, 2) whether the Court has discretion to deny the enforcement of the arbitration clause (i.e., whether the issue is core or non-core), and 3) whether the Court should exercise its discretion to deny arbitration. See generally Videsh Sanchar Nigam Limited v. Startec Global Comm. Corp., 300 B.R. 244, 250 (D.Md.2003).
1. Whether the dispute is subject to an enforceable arbitration clause
It is evident that the Agreement, which involves an agreement between a Connecticut corporation and a Delaware corporation for the acquisition of a New York corporation and a Delaware limited liability company, is a “transaction involving commerce,” and therefore falls within the scope of § 2 of the Federal Arbitration Act (FAA). Section 2 of the FAA provides that
A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.
9 U.S.C. § 2. “The Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.” Moses H. Cone Memorial Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). “When determining both the existence and the scope of an arbitration agreement, there is a presumption in favor of arbitrability. ‘[A]n order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.’ ” Trippe Mfg. Co. v. Niles Audio Corp., 401 F.3d 529, 532 (3d Cir.2005) (quoting AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 650,106 S.Ct. 1415, 89 L.Ed.2d 648 (1986)). “Accordingly, there is a strong presumption in favor of arbitration and a party seeking to invalidate an arbitration agreement bears the burden of establishing its invalidity.” Carter v. Countrywide Credit Industries, Inc., 362 F.3d 294, 297 (5th Cir.2004) (citing Gilmer v. Interstate / Johnson Lane Corp., 500 U.S. 20, 26, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991)).
The arbitration clause in question unambiguously applies to the precise question at hand, the determination of the amount of Working Capital held by the Winstar Entities on July 31, 2001. The Trustee does not dispute that the Agreement was the product of arms length dealings between the parties. Yardis Corp. v. Silver, 2005 WL 2405970, *4 (E.D.Pa.2005) (“Whenever possible, arbitration awards should be construed to uphold their validity because a contrary course would result in the substitution of the judgment of the court for the judgment of the arbitrators chosen by the parties and that would make the award itself the beginning, not the end, of litigation.”). The Trustee “stands in the shoes of the debtor for purposes of the arbitration clause and that the Trustee-plaintiff is bound by the clause to the same extent as would be the debtor.” Matter of Esco Mfg., Co., 33 F.3d 509, 514 (5th Cir. 1994) (citing Hays and Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 885 F.2d 1149, 1154-62 (3rd Cir.1989)).
*563The Trustee argues, however, that by using the term “may,” instead of terms such as “shall” or “must,” the provision cannot be interpreted as mandating arbitration. This argument was specifically dismissed by the Southern District of New York, which determined:
Instead, the proper interpretation is that the arbitration provision did not have to be invoked, but once raised by one party, it became mandatory with respect to the other party. A plain reading of the clause supports such an interpretation. If the clause were wholly optional, as defendants contend, it would serve no purpose. Parties can always submit disputes to arbitration if they both agree to do so, therefore, there would be no reason to include such a provision. It follows that the word ‘may’ was used to mandate arbitration at the insistence of any one party to the agreement, but to indicate that arbitration was not mandatory absent the invocation of the provision by one of the parties.
Chiarella v. Vetta Sports, Inc., 1994 WL 557114, *3 (S.D.N.Y.1994); see also Allis-Chalmers Corp. v. Lueck, 471 U.S. 202, 204 n. 1, 105 S.Ct. 1904, 85 L.Ed.2d 206 (1985) (“The use of the permissive ‘may’ is not sufficient to overcome the presumption that parties are not free to avoid the contract’s arbitration procedures.”); United Steelworkers of America, AFL-CIO v. Fort Pitt Steel Casting, Division of Conval-Penn, Inc., Division of Conval Corp., 598 F.2d 1273, 1279 n. 18 (3d Cir.1979) (holding that the district court did not commit plain error by finding that “grievance procedures are mandatory despite language in the collective bargaining agreement that the parties ‘may’ invoke those procedures.”) (citations omitted). By using the word “may,” both parties were given the power to enforce the arbitration clause. Deaton Truck Line, Inc. v. Local Union 612, Affiliated with Intern. Broth, of Teamsters, Chauffeurs, Warehousemen and Helpers of America, 314 F.2d 418, 422 (5th Cir.1962) (“Clearly, however, ‘may’ should be construed to give either aggrieved party the option to require arbitration.”). The word “may,” therefore, cannot reasonably imply that either party had the option to avoid arbitration once that clause had been triggered. Block 175 Corp. v. Fairmont Hotel Management Co., 648 F.Supp. 450, 452 (D.Colo. 1986) (“Plaintiff contends the presence of the word ‘may’ in the arbitration clause renders arbitration permissive and not mandatory. A common sense reading of the clause belies this contention. When either party elects to arbitrate and serves the proper notice, as was done here, then arbitration must ensue.”).
The Trustee further argues that language in the Court’s Sale Order “evinces the parties’ intention that either party need not first seek arbitration prior to commencing an action in this Court.”6 The Trustee correctly asserts that the Court retained jurisdiction to compel payment of the purchase price. The Trustee seemingly views this matter as being comprised of two separate issues, including “whether Defendant is entitled to any set off based on the Working Capital calculation and whether Defendant breached the Agreement and Promissory Note.”7 Under this reasoning, the calculation of Working Capital would operate only as a set-off to be applied against the amount due on the face of the Note.8 The Trustee’s characterization, however, ignores the fact that the Agreement itself intertwines the amount of *564Working Capital with the amount due on the Note, stating that “[i]f the Working Capital is less than $3,000,000, the Company’s sole remedy will be to reduce the principal amount first of the Final Payment (as defined in the Promissory Note) and then of the First Payment (as defined in the Promissory Note) of the Promissory Note by the difference between $3,000,000 and the Working Capital.”9 Under the terms of the agreement, the Court cannot compel payment of the purchase price without a determination of what Wellspring owes on the Note. The Agreement merely provides for an agreed-upon mechanism to resolve this dispute. Once the proper amount is resolved, the Court unquestionably has the power to enforce payment pursuant to the Agreement.
The Trustee has not presented any evidence to support its assertion that the parties “by no means intended to require arbitration.”10 The parties expressly created an ability to submit the matter for arbitration. There is nothing in the Agreement to indicate that the mutual consent of the parties was necessary to seek arbitration. New York Cross Harbor R.R. Terminal Corp. v. Consolidated Rail Corp., 72 F.Supp.2d 70, 77 (E.D.N.Y.1998) (distinguishing Gangemi v. General Elec. Co., 532 F.2d 861 (2d Cir.1976)) (recognizing that an arbitration clause containing the word “may” could be permissive where arbitration required mutual consent of the parties). Therefore, the Trustee has not produced evidence to rebut the language creating an enforceable arbitration agreement. Ceres Marine Terminals, Inc. v. International Longshoremen’s Ass’n, Local 1969, AFL-CIO 683 F.2d 242, 248 (7th Cir.1982) (“Even if the scales of plausibility tipped the other way, the principle that doubts must be resolved in favor of arbitration would lead us to conclude that the district court correctly determined the Agreement did not give [the party opposing arbitration] a choice between arbitration of its grievance and the immediate filing of a civil action for damages in the courts.”).
2. Whether the Court has discretion to deny enforcement of the arbitration clause
Even, however, if the arbitration clause is applicable to the issue at hand, the Court may still have discretion to deny the enforcement of the arbitration clause. The determination of whether the bankruptcy court has discretion to deny enforcement of an arbitration clause rests on whether the proceeding is core or non-core. E.g., In re Startec, 300 B.R. at 252. ‘While it is clear that bankruptcy courts do not possess discretion with respect to enforcement of an arbitration clause in a non-core adversary proceeding, it does appear manifest that such discretion exists with respect to core adversary proceedings.” In re Oakwood Homes Corp., 2005 WL 670310, *3 (Bankr.D.Del.2005). When exercising this discretion in core proceedings, the Court “must carefully determine whether any underlying purpose of the Bankruptcy Code would be adversely affected by enforcing an arbitration clause and ... should enforce such clause unless that effect would seriously jeopardize the objectives of the [Bankruptcy] Code.” In re American Classic Voyages, Co., 298 B.R. 222, 226 (D.Del.2003) (quoting Hays, 885 F.2d at 1161); In re Mintze, 2003 WL 22701020, *3 (E.D.Pa.2003) (In a core proceeding, the “bankruptcy court may properly deny enforcement if the arbitration would have a significant adverse impact on *565the administration of the bankruptcy case.”).
Wellspring does not appear to dispute that this matter is a core proceeding. This adversary proceeding arises from a post-petition agreement to sell assets of the debtor-in-possession. It is well settled in this circuit that such an action is a core proceeding. E.g., Northwestern Institute of Psychiatry, Inc. v. Travelers Indem. Co., 272 B.R. 104, 108 (E.D.Pa.2001) (“Therefore, the adversary action involves a post-petition contract with a debtor-in-possession, and such an action is categorized as core under 28 U.S.C. §§ 157(b)(2)(A), ‘matters concerning the administration of the estate,’ and section (b)(2)(0) ‘other proceedings affecting the liquidation of the assets of the estate or the adjustment of the debtor-creditor relationship.’ ”); In re LaRoche Industries, Inc., 312 B.R. 249, 253 (Bankr.D.Del.2004); In re Coram Healthcare Corp., 2003 WL 22948234, *3 (Bankr.D.Del.2003) (“The adversary proceeding involves post-petition contract claims of the trustee and arises in the Debtors’ bankruptcy case. The Trustee’s post-petition breach of contract claims are core proceedings.”) (citations omitted); In re Porter, 295 B.R. 529, 536 n. 3 (Bankr.E.D.Pa.2003) (“Contracts entered into with a bankruptcy fiduciary — a trustee or debtor in possession — are ‘integral to the estate administration from the date they are entered into’ and so ‘arises in’ those bankruptcy cases.”).
3. Whether the Court should exercise its discretion and decline to compel arbitration
Since this matter is a core proceeding, the Court may decline to compel arbitration, but only if it finds that enforcement of the arbitration clause would conflict with the policies of the Bankruptcy Code, or where the dispute underlying the arbi-
tration is based on rights created by the Bankruptcy Code. In re Slipped Disc Inc., 245 B.R. 342, 344 (Bankr.N.D.Iowa 2000) (“If conflicts exist between the Bankruptcy Code and the Federal Arbitration Act, mandatory enforcement of arbitration agreements becomes discretionary in bankruptcy.”); In re Barney’s, Inc., 206 B.R. 336, 343 (Bankr.S.D.N.Y.1997) (citing Dean Witter Reynolds v. Byrd, 470 U.S. 213, 221, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985)) (“Even assuming, arguendo, that the arbitration provisions could be construed to encompass the issues raised either in this litigation or by defendants in the arbitration counterclaim, we would not compel the matter to be resolved in the pending arbitration. The strong federal policy favoring rigorous enforcement of arbitration clauses may be overridden ‘by a countervailing policy manifested in another federal statute.’ The Bankruptcy Code is such a federal statute.”); In re Mintze, 2003 WL 22701020, *3 (E.D.Pa.2003).
When determining whether an otherwise enforceable arbitration clause should be enforced, “a bankruptcy court retains significant discretion to assess whether arbitration would be consistent with the purpose of the Code, including the goal of centralized resolution of purely bankruptcy issues, the need to protect creditors and reorganizing debtors from piecemeal litigation, and the undisputed power of a bankruptcy court to enforce its own orders.” In re Startec, 292 B.R. at 253 (citing In re National Gypsum, 118 F.3d 1056 (5th Cir.1997)). The Court may also consider factors such as: “(1) Whether the issue can be resolved more expeditiously by the bankruptcy judge as opposed to through the arbitration process; (2) Whether or not special expertise is necessary in deciding the issue; (3) The impact on creditors of the debtor who were never parties to the agreement containing the *566arbitration clause; and (4) Whether arbitration threatens the assets of the estate.” In re Slipped Disc, 245 B.R. 342, 345 (Bankr.N.D.Iowa 2000); In re Dunes Hotel Associates, 194 B.R. 967, 993 (Bankr. D.S.C.1995).
The Trustee advances three arguments for why the Court should exercise its discretion to decline to enforce the arbitration clause. First, the Trustee argues that the Debtors would be forced to litigate in two separate forums. Second, the Trustee alleges that there would be “significant expense involved in litigating this issue in New York before an arbitrator, not to mention the burden on the Trustee and her professionals to appear in New York.” 11 Third, the Trustee implies that Wellspring should be barred from enforcing the arbitration clause, since it did not seek to submit the matter to arbitration until after the Trustee commenced the pending adversary proceeding.
The Trustee first argues that enforcement of the arbitration clause would conflict with one of the “essential purposes of the Bankruptcy Code, which is to provide for one forum the bankruptcy court, to determine all issues regarding property of the estate.”12 In this case, there is only one issue, the proper calculation of Working Capital. The issue before the Court does not involve a number of core proceedings that were “premised on provisions of the Bankruptcy Code,” and where the Court is asked to enforce arbitration of “only some of these closely related claims.” In re Startec, 300 B.R. at 254 (finding that given the complexity of the facts and the estate’s interest in the disputed amounts due, the bankruptcy court did not abuse its discretion in finding that the “best interests of the estate will be served by litigation of all claims before this court so as to provide one forum to determine all issues.”).
The Trustee states that if the arbitration clause is enforced “Plaintiff would be required to arbitrate the narrow issue of Working Capital and then return to the bankruptcy court to compel payment of the purchase price.”13 That scenario, however, is the exact procedure contemplated by the parties to the Agreement. The Trustee cannot now use this alternate forum as a reason to circumvent the agreed-upon dispute resolution procedures.
In any event, the need to return to this Court after arbitration to compel payment of the purchase price is speculative and unsupported by Wellspring’s position in this proceeding. Wellspring does not contest the terms or binding effect of the Agreement. Presumably, Wellspring does not dispute that it owes a purchase price, which includes the amount due on the Note, with proper adjustments made for any amount that the ultimate Working Capital amount is less than $3,000,000. Wellspring only asserts that the amount that it owes on the note, after adjusting for what it believes to be a Working Capital deficiency, is zero. Therefore, assuming that Wellspring is willing to abide by the outcome of the arbitration, the Trustee’s pending adversary complaint would be rendered moot, as would the alleged hardship of litigating in two forums.
The Trustee is correct in asserting that the Court could resolve the dispute regarding the Working Capital calculation. The Debtors, however, in agreeing to the arbitration clause, determined that arbitration, and not this Court, would be *567the avenue through which this issue should be addressed. Absent evidence that arbitration would jeopardize the objectives of the Bankruptcy Code, the Court gives deference to the procedures agreed upon by the parties for resolving this dispute. See Hays, 885 F.2d at 1162 n. 23 (citing Scherk v. Alberto-Culver Co., 417 U.S. 506, 519, 94 S.Ct. 2449, 41 L.Ed.2d 270 (1974)) (“An agreement to arbitrate before a specific tribunal is, in effect, a specialized kind of forum selection clause. Moreover, based on the recent Supreme Court arbitration cases we have previously reviewed, the national policy favoring enforcement of agreements to arbitrate is at least as strong or stronger than that favoring enforcement of forum selection agreements.”).
At the time of the Agreement, the Debtors presumably understood the costs and benefits of submitting the Working Calculation to arbitration. The Trustee cannot now attempt to avoid the forum designated by the Debtors and Regulus to resolve this specific dispute by making unsupported allegations of excessive costs. Thyssen, Inc. v. Calypso Shipping Corp., S.A., 310 F.3d 102, 105 (2d Cir.2002) (“Absent evidence of excessive cost, the presumption in favor of arbitration cannot be overcome merely on the basis of the length of the delay.”). It is difficult to imagine that the costs involved in litigating this issue would be significantly greater in arbitration in New York, as opposed to in proceedings in this Court in Delaware. In any event, the Trustee has not made any attempt to quantify such costs, and therefore has certainly not met her burden of establishing this proposition. In fact, there is persuasive authority to suggest that, absent evidence to the contrary, arbitration will often be less expensive and more efficient than proceedings in this Court. In re GWI, Inc., 269 B.R. 114, 118-19 (Bankr.D.Del.2001) (quoting Rudolph v. Alamo Rent A Car, 952 F.Supp. 311, 317 (E.D.Va.1997)) (“the presumption in favor of arbitration is not a mindless mantra repeated merely for the sake of consistency; instead, the presumption reflects courts’ acknowledgment that the ar-bitral process often exceeds the judicial process in speed, efficiency, and inexpense [sic]”); Johnson v. Pfizer, Inc., 2004 WL 2898076, *3 n. 2 (D.Kan.2004) (“One of the reasons arbitration is favored is the presumption that arbitration (and other contractual ADR procedures) will resolve disputes more quickly and at less expense to the parties than litigation in court.”). Even if such costs could conceivably be higher, this possibility alone does not establish “the sort of substantive unfairness that would be necessary to overcome the strong federal policy and presumption in favor of arbitration.” Ritch v. Eaton, 2002 WL 32107628, *4 (E.D.Pa.2002).
The Trustee also implies that, since Wellspring did not seek arbitration until after the Trustee commenced this adversary proceeding, Wellspring, in essence, waived the option to have the matter determined at arbitration. “The Third Circuit has established that ‘prejudice is the touchstone for determining whether the right to arbitrate has been waived.’ The party trying to avoid arbitration has the burden of establishing prejudice.” In re Fleming Companies, Inc., 325 B.R. 687, 691 (Bankr.D.Del.2005) (quoting Hoxworth v. Blinder, Robinson & Co., 980 F.2d 912, 925 (3d Cir.1992)).
To this point, it appears that Wellspring had followed the procedures set forth in the Agreement. Section 1.03 of the Agreement sets forth an explicit procedure for the resolution of any disputes concerning the Working Capital calculations. This procedure gives Wellspring the option of commencing arbitration only “after fifteen *568(15) business days after both parties’ receipt of the Auditor’s report.”14 There is no evidence that such an Auditor’s Report was conducted or received by Wellspring. Wellspring was not obligated to seek arbitration upon learning that New Media believed that the Working Capital amount was actually higher than Wellspring believed. General Guaranty Ins. Co. v. New Orleans General Agency, Inc., 427 F.2d 924, 928 (5th Cir.1970) (“Requiring pre-suit demand will place on the party sought to be charged the duty to institute proceedings which may establish his own liability, though if he remains inactive the claims asserted against him may never be formally pressed in either arbitration or court proceedings (and in some instances may be wholly without merit).”).
The Agreement specifically gave New Media the ability to seek an Audit Report. The Trustee cannot now allege that Wellspring waived its right to seek arbitration, since New Media’s failure to provide an Audit Report denied Wellspring the ability to exercise such right. See, e.g., Welborn Clinic v. MedQuist, Inc., 301 F.3d 634, 638 (7th Cir.2002) (“a party cannot avoid arbitration because of the other party’s failure to comply with the negotiation steps of a grievance procedure as long as that other party acted in good faith to preserve its right to arbitration.”). The Trustee’s actions, taken outside of the mandatory arbitration procedures, cannot be used to cutoff Wellspring’s power to invoke the arbitration mechanism in the agreement.
The Fifth Circuit, when faced with a similar situation, held that
‘While the mere failure to assert the right of arbitration does not alone translate into a waiver of that right ... such failure does bear on the question of prejudice, and may, along with other considerations, require a court to conclude that waiver has occurred.” Balancing all the considerations, plaintiffs simply have not presented enough evidence that [the defendant’s delay materially prejudiced them. Because “waiver of an arbitration right will not be lightly inferred without some showing of prejudice,” plaintiffs’ failure to bring forth more than generalized protestations about the costs of delay are insufficient to overcome the strong federal presumption in favor of arbitration.
We recognize that [the defendant] simply may be requesting arbitration so that it might further delay these proceedings. In Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 105 S.Ct. 1238, 1242, 84 L.Ed.2d 158 (1985), however, the Supreme Court expressly “rejected] the suggestion that the overriding goal of the Arbitration Act was to promote the expeditious resolution of claims.... [P]assage of the Act was motivated, first and foremost, by a congressional desire to enforce agreements into which parties had entered.”
Walker v. J.C. Bradford & Co., 938 F.2d 575, 578 (5th Cir.1991) (citations omitted).
This is not a situation involving several contracts, as presented to the court in In re APF Co., 264 B.R. 344, 364 (Bankr. D.Del.2001), which was cited by the Trustee at oral argument. The APF court declined to enforce an arbitration clause between the parties, holding that the strong federal policy favoring arbitration was outweighed by the costs of litigating in separate forums, and that “particularly in a case such as this, where the parties have not commenced or requested arbitration outside of bankruptcy, this court is the most efficient and effective forum in which *569to resolve these fundamental Bankruptcy Code issues.” Id. The court noted that
It is one thing to force a trustee who has voluntarily commenced suit against a third party for the benefit of the estate on a claim inherited from the debtor to abide by the forum selection terms of the contract he is attempting to enforce. It is quite a different matter, however, to permit various creditors to bypass carefully established procedures ... to force an unwilling debtor to litigate a number of actions in a number of forums merely because those creditors’ contracts happen to include a standard arbitration clause. In such a world, the mere cost of defending these various suits could deplete the corpus of substantial funds.
Id. This case appears to resemble the first scenario cited by the APF court (in which a trustee is forced to abide the forum selection terms agreed upon by the debtor) more than the latter, in which case the court declined to compel arbitration. In this case, it is the Trustee, and not Wellspring, who seeks to bypass the procedures set forth in the Agreement. The APF court also noted that several contracts were involved, some of which did not include arbitration clauses. In this case, there is one sole, narrowly defined issue, which was specifically addressed by the arbitration clause contained in the Agreement. Therefore, even if this Court could, in its discretion, decline to compel arbitration, the Trustee has not provided any evidence to show that the Court should exercise such discretion in this case.
‡ *
Pursuant to Section 3 of the FAA: [i]f any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.
9 U.S.C. § 3.
Therefore, the above styled adversary proceeding should be stayed, pending the determination, in arbitration, of the amount of Working Capital held by the Winstar Entities on July 31, 2001.
* }[i « * *
For the foregoing reasons, the Court holds that the arbitration agreement between Wellspring and New Media should be enforced. Accordingly, the defendant’s motion to stay the adversary proceeding pending arbitration is hereby GRANTED. Each party is to bear its respective costs.
IT IS SO ORDERED.
JUDGMENT
In Delaware, in said District, on this 30th day of November, 2005.
A Memorandum Of Opinion And Order having been rendered by this Court in this matter.
IT IS THEREFORE ORDERED, ADJUDGED AND DECREED that the Movant’s motion to stay the above styled adversary proceeding pending arbitration is hereby granted. Each party is to bear its respective costs.
IT IS SO ORDERED.
. Exhibit A to Trustee’s Amended Complaint.
. At the relevant times, Wellspring was known as Regulus International Capital Co., Inc. (''Regulus”).
. At oral argument, the Trustee stated the Debtors' belief that the correct Working Capital calculation was a surplus of $3,200,000.
. Affidavit of Lee H. Miller in Support of the Motion of Wellspring, Media, Inc. to Dismiss or Stay the Adversary Proceeding or in the Alternative, for Partial Dismissal of the Amended Complaint (“Miller Affidavit”).
.Subsequent to the closing, Regulus changed its name to Wellspring. Wellspring is the named defendant in the above captioned adversary proceeding.
. Trustee’s Opposition, at 9.
. Id. at 12.
.Id. at 9.
. Agreement, at ¶ 1.03(b).
. Trustee’s Opposition, at 8.
. Trustee's Opposition, at 13.
. Id. at 12.
. Id.
. Agreement, at 1.03(c). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493799/ | MEMORANDUM DECISION
EILEEN W. HOLLOWELL, Bankruptcy Judge.
I. INTRODUCTION
While the Debtor has demonstrated that she is eligible for a complete discharge of her student loan obligation, the Defendant has carried its burden of proof in demonstrating that the debt should only be partially discharged. The reasons for this conclusion are set forth in the balance of this decision.
II. FACTS AND PROCEDURAL HISTORY
On July 9, 2004 the Debtor, Rebecca Bossardet (“Bossardet”) filed a Chapter 7 petition pro se. On August 30, 2004, she filed a complaint against the Defendant, Educational Credit Management Corporation (“ECMC”) seeking a § 523(a)(8) discharge of approximately $23,000.00 in stu*454dent loan debt (“Student Loan”).1 Her case was selected for a pro bono legal representation project.2 A trial was held on April 27, 2005. At the trial’s conclusion, an oral decision was entered finding that Bossardet had demonstrated that she was entitled to a § 523(a)(8) undue hardship discharge of the Student Loan because she satisfied all three prongs of the test set forth in Brunner v. New York State Higher Education Services Corp. (In re Brunner), 831 F.2d 395 (2nd Cir.1987),3 which was adopted by the Ninth Circuit in In re Pena, 155 F.3d 1108, 1111 (9th Cir.1998). That ruling is contained on the record, but will be briefly summarized in this Memorandum Decision. The balance of the decision will address the student loan creditor’s request for partial discharge.
III. ISSUES
1. Can Bossardet discharge the Student Loan under the Brunner test?
2. If she can, should the court invoke its powers under § 105 to partially discharge the Student Loan?
IV. JURISDICTIONAL STATEMENT
Jurisdiction is proper under 28 U.S.C. §§ 1334(a) and 157(b)(2)(J).
V. DISCUSSION
A. The Debtor Satisfies the Brunner Requirements.
1. The Minimal Standard of Living Requirement.
The first prong of Brunner requires that Bossardet establish that, based on her current income and expenses, she cannot maintain a minimal standard of living for herself and her dependants if forced to repay the Student Loan.4 In re Pena, 155 F.3d at 1112. Bossardet’s current income as set forth in her revised Schedule I is approximately $20.00 per month more than the expenses set forth in her revised Schedule J.
Bossardet’s overall monthly expenses fall generally within the guidelines promulgated by the local panel Chapter 13 trustee (“Chapter 13 Trustee Guidelines”) for a one-person household. While some of her expenses, such as her monthly phone bill, exceed the Chapter 13 Guidelines, other expenses such as transportation, charitable contributions, and miscellaneous and contingent expenses fall below the Chapter 13 Trustee Guidelines. ECMC argues that it would be more appropriate for the court to consider federal *455poverty guidelines in analyzing Bossardet’s expenses. While the Brunner test is strict, it does not require that debtors live at or below the poverty line to obtain relief under § 523(a)(8). See In re Howe, 319 B.R. 886, 889 (9th Cir. BAP 2005) (rejecting a rule that a person must fall below the poverty guidelines to discharge a student loan); see also In re Nys, 308 B.R. 436, 446 (9th Cir. BAP 2004). A number of bankruptcy courts, including this one, have looked to local Chapter 13 Trustee Guidelines in analyzing the reasonableness of a debtor’s expenses in deciding whether the debtor can maintain a minimal standard of living. See In re Cota, 298 B.R. 408, 415 (Bankr.D.Ariz.2003); see also In re Stewarb-Johnson, 319 B.R. 192, 197 (Bankr. D.Ariz.2005). Because Bossardet’s current expenses fall generally within the Chapter 13 Guidelines and basically equal her current income, Bossardet meets the first prong of the Brunner test.
2. The Additional Circumstances Requirement.
The second prong of Brunner requires that “additional circumstances” exist indicating that Bossardet’s financial situation will not improve in the foreseeable future. In re Pena, 155 F.3d at 1112. The “additional circumstances” prong of Brunner need not be exceptional circumstances, such as serious illness, but may be “any circumstances, beyond mere current inability to pay, that show this inability to pay is likely to persist for a significant portion of the loan repayment period.” In re Nys, 308 B.R. at 444; see also In re Mason, 315 B.R. 554, 562 (9th Cir. BAP 2004).5
Bossardet, a gifted teacher according to her work evaluations, started as a teacher’s assistant, then attended a community college, earned a bachelor’s degree, and has worked in the same school district as a teacher for the last nine years. In 1997, she consolidated various outstanding student loans to one obligation totaling $15,239.12 at 9% interest. By the time of trial, the outstanding balance on the Student Loan had increased to $23,669.75, primarily as a result of the accrual of interest during the 61-month duration of nine forbearance periods Bossardet requested and was granted. Bossardet testified that while she had received increases in pay between 2001 and 2004, that she is now at the top of her pay grade and cannot advance significantly in the future unless she obtains additional education. ECMC did not contradict that testimony.
In Nys, the Ninth Circuit Bankruptcy Appellate Panel held that the additional circumstances test is a “case by case” test, and set forth a non-exhaustive list of factors the court should take into account.6 In this case, a number of the Nys factors are present, including:
*456(a) having or being close to having “maxed out” in her career opportunities and no better financial options exist elsewhere (Nys factors 7 and 12).
Bossardet testified that she is at the top of her pay grade and her ability to move to a higher grade is uncertain. She also testified that changing school districts to a higher-paying school district in the Tucson area is not a realistic option because school districts do not give credit for experience gained by teaching in other districts. According to Bossardet, if she moved to another school district, she would start at the bottom of the pay range;
(b) maximized income potential in a chosen educational field and no other more lucrative job skills available. (Nys factor 7).
Bossardet testified that she has tried to increase her income potential by obtaining certification as an ESL teacher. She does not have the funds to pursue a masters degree which is the only other way that she could significantly increase the possibility of moving up to higher pay grades;
(c) age or other factors that prevent retraining or relocation. (Nys factors 8 and 9).
At 42$ years old, Bossardet is not a candidate for retraining for some other profession or job. Also, she has no additional income from which to pay for such retraining. While she has no legal dependents, her children are all in Tucson. She also has elderly parents who live in the area who rely on her for non-financial assistance.
(d)potential increase in value of assets or income outweighed by rising expenses (Nys factor 11).
Other than the fact that her car will be paid off in five years, there was no other evidence presented that Bossar-det’s income and the value of her assets would significantly exceed her expenses in the future. The fact that her car will be paid off does not mean that she will have the money used for the car payment available to make payments on the Student Loan. She will still have transportation expenses. The amount she pays for her car is already below the Chapter 13 Trustee Guidelines.7 Since she is at the top of her pay grade, and most likely cannot move to a higher pay grade without further education, it is unlikely that her income will significantly increase in the future.
Considering the evidence as a whole. Bossardet has demonstrated that “additional circumstances” exist which make it unlikely that she can maintain a minimal standard of living and make payments on the Student Loan for a significant period of the loan term.
3. The Good Faith Requirement.
Bossardet made $4,375.89 in payments on the Student Loan. She also timely requested and was granted nine forbearances. She testified that she unsuccessfully tried to work a repayment plan out with one of ECMC’s predecessors in interest. Exhibit 37 indicates that under the most favorable plan available under the William D. Ford Federal Direct Loan Program, Bossardet would have to immediately begin making monthly pay*457ments of $163.42.8 Furthermore, under that program, interest would continue to accrue on the unpaid balance and the payments on the Student Loan could increase substantially in the future. Bossardet, however, does not currently have disposable income from which to make $163.42 per month in payments and it is unlikely, given her “additional circumstances” that she will have that amount in the future. Accordingly, Bossardet has satisfied all three prongs of the Brunner test and is entitled to a discharge of the Student Loan.
B. Partial Discharge
Having found that Bossardet has satisfied the requirements of Brunner to obtain a full discharge of the Student Loan, the court turns to the question of whether she should only be granted a partial discharge. The Ninth Circuit has held that bankruptcy courts may partially discharge student loan obligations pursuant to their equitable powers under § 105. But before the court can exercise its discretion “it must first find that the portion being discharged satisfies the requirements under § 523(a)(8).” In re Saxman, 325 F.3d 1168, 1175 (9th Cir.2003). Unfortunately, Saxman provides little guidance to trial courts as to what standards should be applied in determining if the court should invoke its § 105 jurisdiction to partially discharge an already fully discharge-able loan or how to determine the amount which should not be discharged.
One of my colleagues has concluded that Saxman does not require that partial discharges be considered in every student loan case where a debtor has satisfied the Brunner test, even when the student loan creditor explicitly requests such a determination. See In re Stewart-Johnson, 319 B.R. at 198. I respectfully disagree. Congress has determined that student loans should only be discharged in cases of undue hardship due to the importance of maintaining the solvency of student loan programs. See In re Hesselgrave, 177 B.R. 681 (Bankr.D.Or.1995). Therefore, courts should, whenever asked to do so, examine whether there are grounds to discharge only a portion of an otherwise fully dischargeable loan.
Stewarts Johnson also held, and I agree, that once a debtor satisfies the Brunner test, the burden of proof shifts to the student loan creditor to establish what amount of debt it contends would not impose an undue hardship. “The court would then merely need to determine whether the creditor has carried the burden of proof that that amount of the debt does not impose an undue hardship.” In re Stewart-Johnson, 319 B.R. at 199. However, the task is not quite that simple. What must the student loan creditor demonstrate in order to meet its burden of proof? Must the creditor re-address all three Brunner prongs in order to demonstrate that partial discharge is warranted? In this case, that is what ECMC has done in its post-hearing brief in support of partial discharge. Much of the brief is a restatement of arguments asserted at or before trial regarding the amount of Bossardet’s expenses, the possibility of Bossardet’s income increasing over time and her alleged lack of good faith. However, if the evidence demonstrates that the “additional circumstances” of the second prong of Brunner may abate in the foreseeable future, then Bossardet cannot have satisfied all the Brunner prongs, and under Saxman is not eligible for a partial discharge. See Educ. Credit Mgmt. v. *458Moore, 97 Fed.Appx. 88, 89 (9th Cir.2004) (reversing both the bankruptcy court and district court because the debtor had not satisfied the three-part undue hardship test, debtor was not, therefore, entitled to partial discharge); but see In re Mason, 303 B.R. 459, 470 (Bankr.D.Idaho 2004) (where partial discharge was granted based on the determination that the debt- or’s situation would improve in two years), aff'd, 315 B.R. 554 (9th Cir. BAP 2004).
Similarly, are-examination of the good faith prong of the Brunner test will not provide any useful information about what amount of a student loan obligation should be partially discharged. The good faith test is generally a “black and white” determination. The debtor has, or has not, made a reasonable effort, in the debtor’s circumstances, to make payments on a student loan. If it is found that the debtor has not done so, then the debtor has not established undue hardship under Brunner and is not eligible for any discharge of the student loan under the holding in Sax-man.
In most cases when considering the issue of partial discharge, the parties and the court are left with a re-examination of the first prong of Brunner with the burden shifted to the student loan creditor to demonstrate that the debtor is currently able to make payments on a portion of the student loan and still maintain a minimal standard of living. In short, does the evidence indicate that the debtor currently has sufficient income to pay part of the student loan obligation? See In re Pena, 155 F.3d at 1112-13 (requiring that the income and expenses of a debtor be examined at the time of trial).
In this case, ECMC argues that Bossardet can currently make payments of $143.56 per month and can continue to make those payments for the next twenty years at an interest rate of 4.5% (half the 9% otherwise due on the Student Loan), based on its evaluation of Bossardet’s current expenses. ECMC has cited to evidence that indicates that Bossardet currently has fewer expenses than indicated in her revised Schedule J and, with some adjustments, could further lower her expenses. The amount “saved” by making the suggested adjustments by ECMC would be insufficient to pay the outstanding balance of the Student Loan plus interest or the minimum monthly amount under the William D. Ford Federal Direct Loan Program, but for the reasons discussed below, it would be sufficient to make the payment suggested by ECMC.
Bossardet admitted at trial that her car insurance was $75.00 per month less than stated in her revised Schedule J. While she testified that she believed her car insurance expense would go up, there is no evidence in the record to support that assertion. In addition, Bossardet’s monthly phone expenses exceed the Chapter 13 Trustee Guidelines for this district by over $137.00 per month. While the reasons for the size of Bossardet’s phone bill are understandable (her elder son is incarcerated and makes collect calls to her), he is not her legal dependent and there are other less expensive ways that Bossardet can communicate with her son, by mail and/or possibly e-mail.9
ECMC has carried its burden of proof of demonstrating, by a preponderance of the evidence, that Bossardet can, with some adjustments to her monthly budgeted expenses, afford to make payments of *459$144.00 per month at 4.5% interest over twenty years.
VI. CONCLUSION
ECMC’s request to modify the Student Loan by partially discharging $1,073.44 in principal, reducing the principal balance to $22,691.36, reducing the fixed interest rate from 9% to 4.5%, and setting the term of the loan at 20 years, is granted. The foregoing are the findings of fact and conclusion of law required by Rule 7052. ECMC’s counsel is directed to lodge a form of judgment setting forth the new terms of the Student Loan.
. Unless otherwise indicated, all chapter, section, and rule references are to the Bankruptcy Code, 11 U.S.C. § 101-1330 and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9036.
. The Tucson division of the U.S. Bankruptcy Court for the District of Arizona has a Bankruptcy Pro Se Debtor Project in which law students from the James E. Rogers College of Law at the University of Arizona, assist experienced licensed bankruptcy attorneys in the pro bono representation of pro se debtors in non-dischargeability litigation.
. The Brunner test requires that Bossardet establish, by a preponderance of the evidence, that: 1) she cannot maintain, based on current income and expenses, a "minimal'’ standard of living and repay the Student Loan; 2) additional circumstances exist indicating that this state of affairs will persist for a significant portion of the repayment period; and 3) she made good faith efforts to repay the Student Loan. Brunner, 831 F.2d at 396.
.Bossardet's children are all over the age of 18. Therefore, Bossardet does not have any dependants she is legally obliged to support. The evidence demonstrated that Bossardet's two daughters who live with her (both over the age of 18) contribute money to Bossardet to help cover household expenses.
. There is no statute of limitations applicable to the collection of student loans. See 20 U.S.C. § 1091(a). Ms. Bossardet is 42 'k years old. It is reasonable to assume that she will work for another 20 years, therefore, the remaining loan term will be at least that long.
. "[A]dditional circumstances” may include the following non-exhaustive list of factors: 1) serious mental or physical disability of the debtor or dependents; 2) debtor’s obligation to pay for dependants; 3) lack of or a severely limited education; 4) poor quality of education; 5) lack of useable or marketable skills; 6) underemployment; 7) maximized income potential in the chosen educational field, and no other more lucrative job skills; 8) limited number of years remaining in work life to allow payment of the loan; 9) age or other factors that prevent retraining or relocation as a means for payment of the loan; 10) lack of assets, whether or not exempt, which could be used to pay the loan; 11) potentially increasing expenses that outweigh any potential appreciation in the value of the debtor's assets and/or likely increases in the debtor's income; 12) lack of better financial *456options elsewhere. In re Nys, 308 B.R. at 446-447.
. Bossardet's revised Schedule J indicates her monthly car payment is $282.00. The Chapter 13 Trustee Guidelines permit payments of $450.00 per month for a vehicle lease.
. There are four types of repayment plans under the William D. Ford Federal Direct Loan Program. See 34 C.F.R. § 685.208 (2005).
. Because these two adjustments to Bossar-det's monthly expenses equal or exceed the monthly amount that ECMC urges be paid, ECMC's other arguments regarding ways Bossardet could "save” on her current monthly expenses will not be addressed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493802/ | MEMORANDUM ORDER (A) COMPELLING ADEQUATE PROTECTION, AND (B) GRANTING CONDITIONAL RELIEF FROM STAY
1
JEFFERY A. DELLER, Bankruptcy Judge.
AND NOW, this 1st day of February, 2006, the Court having heard the Movants’ Motion for Relief From Stay and the Objection of the Respondent, and having considered the record made before the Court, the Court hereby FINDS AS FOLLOWS:
A. Constance K. Elliott, Patricia J. Kiesewetter, Linton A. Elliott, Jonathan B. Elliott and Charles L. Elliott (hereinafter referred to as the “Movants”) were plaintiffs in a lawsuit concerning fraudulent conveyances before Judge Lancaster of the United States District Court for the Western District of Pennsylvania, docketed at Civil Action No, 94-0576. Defendants in that action were Jayne H. Kiesewetter (hereinafter referred to as the “Respondent”) and her non-debtor husband, William B. Kiesew-etter. Following years of litigation and *77a jury trial, an order was granted by Judge Lancaster stating in pertinent part that the Property (as defined in paragraph D of this Order) was to be sold by way of execution (the proceeds being paid to the Movants) and held in constructive trust for the benefit of the Movants until such time. This order and the judgments contained within it were upheld on appeal to the Third Circuit Court of Appeals. (See Bankruptcy Case Doc. No. 24 — Motion for Relief From Stay (Exhibits 1 — 2); Adversary Proceeding Doc. No. 9 — Motion to Dismiss Case/ Complaint (Exhibits 12-16)). B.Following entry of the order and judgments by Judge Lancaster, the Respondent and her husband claimed that the Property constituted a homestead exemption under Section 4, Article X of the Florida State Constitution. The Movants then commenced proceedings against the Respondent and her husband in Florida state court, obtaining a judgment that declared the Property non-exempt and entitled the Movants to proceed with levy and execution. See Elliott v. Kiesewetter, Case No. 502003CA 012611XXORAF (Fla. 15th Cir. Ct. Palm Beach County, filed. Aug. 4, 2004). A stay of execution was entered pending final appeal however, as long as certain enumerated conditions were met by the Respondent and her husband. These conditions included placing a quit-claim deed transferring the Property to the Constance K. Elliott and Patricia J. Kiesewetter into escrow and the payment of One-Thousand Eight-hundred dollars ($1,800.00) a month rent from November 1, 2004, going forward. Subsequently, the Florida state court judgment was affirmed on appeal per curiam on October 5, 2005. With no further appeals filed within thirty (30) days of the affirmation, the judgment has become final in all respects. {See Bankruptcy Case Doc. No. 24— Motion for Relief From Stay (Exhibits 3-6)).
C. On October 14, 2005, the Respondent commenced this bankruptcy case at 05-38469JAD (the “Bankruptcy Case”) by filing a bankruptcy petition under Chapter 11 of Title 11 of the United States Code (hereinafter referred to as the “Bankruptcy Code”). {See Bankruptcy Case Doc. No. 1 — Chapter 11 Voluntary Petition).
D. On November 29, 2005, the Movants filed a Motion for Relief from Stay. The Motion was in reference to property subjected to the automatic stay provisions of the Code, said property being a condominium being located at 13254 Polo Club Road, Meadowbrook C-104, West Palm Beach, FL (hereinafter referred to as the “Property”). {See Bankruptcy Case Doc. No. 24 — Motion for Relief From Stay).
E. Prior to filing for bankruptcy, the Respondent’s husband brought several state court actions in the Court of Common Pleas in Allegheny County, PA claiming, among other things, “fraud on the court” regarding the actions heard before Judge Lancaster. . These actions challenge the validity of the judgments entered by Judge Lancaster and allege that the Movants, among others, perjured themselves, presented false evidence and conspired to do the same. The State Court Actions were consolidated, for procedural purposes, by Judge Wettick at case No. AR 01-005903 in the Court of Common Pleas. The Movants subsequently removed the actions to this court at Adversary No. 05-03171-JAD (the “Adversary Proceeding”) and the Adversary Proceeding was eventually sent to the District Court, under a Motion to Withdraw Reference. This Motion to Withdraw refer*78ence remains pending. All proceedings in the Adversary Proceeding in the bankruptcy court were stayed pending the decision of the District Court in regard to the Motion to Withdraw Reference This includes a Motion to Remand filed by the Respondent and a Motion to Dismiss filed by the Movants. (See Adversary Proceeding Doc. No. 9— Motion to Dismiss Case/ Complaint; Adversary Proceeding Doc. No. 12—Mo-tion to Withdraw Reference; Adversary Proceeding Doc. No. 25—Motion for Remand and Abstention; Adversary Proceeding Doc. No. 36—Order of Court). F. A hearing was held in relation to the Movants’ Motion for Relief from Stay on December, 21, 2005. At this hearing, and as stated in the Debtor’s bankruptcy petition, it was discovered that the Respondent and her husband have been residing in Oakmont, Pennsylvania at a Days Inn hotel/motel, with a P.O. Box serving as their address. The Court then instructed the Parties to file briefs on the issue of whether or not the Complaint in Equity removed to this Court is relevant to the Court’s disposition of the Motion for Relief From Stay. No further hearing was to be held unless specifically requested by one or both parties, and the Court has not received any such request. (See Bankruptcy Case Doc. No. 38—Proceeding Memo for Hearing Held 12/21/2005).
? the hearing of December 29, 2005, and upon due consideration of the parties’ arguments and briefs in support of their arguments (See Bankruptcy Case Doc. Nos. 47 and 54), and points of law which the Court finds pertinent to this ruling, the Court concludes that the constructive trust put into effect by Judge Lancaster has effectively stripped the Respondent of equitable ownership of the Property, leaving her with bare legal title. Courts have held that such bare legal title is not properly classified as property of the estate under § 541 of the Bankruptcy Code, and therefore cannot be administered through the estate. See In re Columbia Gas, 997 F.2d 1039, 1059 (3rd Cir.1993)(“Congress clearly intended the exclusion [of trust funds from the debtor’s estate] created by § 541(d) to include not only funds held in express trust, but also funds held in constructive trust.”); In re Aultman, 223 B.R. 481, 484 (Bankr.W.D.Pa.1998) In turn, the Property cannot benefit from the automatic stay provisions of § 362 of the Bankruptcy Code.
However, the claims of the Respondent that were delivered to the District Court by way of Movants’ Motion for Withdraw of Reference remain pending. If found to be true, the accusations within those claims could alter the effectiveness of the constructive trust imposed by Judge Lancaster. Absent a constructive trust, the Respondent would have both an equitable and legal interest in the Property as of the commencement of the case. This interest would pass into the bankruptcy estate and enjoy the benefits of the § 362 stay. In re Bigalk, 75 B.R. 561, 568 (Bankr.D.Minn.1987). With the possibility of such a situation, it is prudent to maintain the status quo, notwithstanding the speculative nature of the Respondents’ causes of action.2 This conclusion is particularly acute since Movants requested that this Court stay the prosecution of the Adversary Proceeding pending the District Court’s adjudication of the Motion to Withdraw Reference.
Movants, nonetheless, are entitled to adequate protection. See 11 U.S.C. *79§ 361. As adequate protection to the Movants’ interests, the Court hereby ORDERS that the Respondent comply completely with the following (the “Adequate Protection Compliance Events”):
1. The Respondent shall adequately protect the Movants by paying an amount equal to One-Thousand Eight Hundred dollars ($1,800.00)3, by means of cash or cash equivalent (hereinafter referred to as the “Funds”), to the law firm of Meyer, Unkovic and Scott LLP on the 1st of each month, retroactive to the date of the filing of the bankruptcy petition and such monthly payments shall continue to be paid by Respondent pending further order of the Court. The Funds shall be held in an interest-bearing escrow account of Meyer, Unkovic and Scott LLP. Any arrearage currently owed by the Respondent shall be cured within thirty (30) days of the entry of this Order. The funds shall be released only upon order of the Court.
2. The Respondent shall provide to the Movants evidence that adequate insurance exits on the Property and that said insurance is current. The Respondent shall also be responsible for maintaining insurance on the Property going forward pending further Order of the Court.
3. The Respondent shall provide to the Movants evidence that all property taxes relating to the Property are current. The Respondent shall also be responsible for paying all property taxes on the Property going forward pending further Order of the Court.
4. The Respondent shall be responsible for maintenance of, and ordinary repairs to, the Property.
5. The Respondent shall allow the Movants and/or their agent(s) an opportunity to inspect the Property. Said inspection(s) shall be at a reasonable time and be preceded by reasonable notice to the Respondent or Respondent’s legal counsel.
IT IS FURTHER ORDERED THAT time is of the essence in regards to each and every Adequate Protection Compliance Event in this Order. If the Respondent fails to timely and promptly complete any of the duties set forth herein, the automatic stay shall be deemed unconditionally lifted as it affects the interests of the Movants with respect to the Property upon the filing of an Affidavit of Default by Movants without further hearing or without entry of an additional order. Such Affidavit of Default shall contain a statement of default as supported by the Mov-ants’ own records.
. This Memorandum Order constitutes the Court's findings of fact and conclusions of law pursuant to Fed.R.Bankr.P. 7052. The facts, as presented, were not disputed by the parties at the hearing held on December 21, 2005. In addition, the Court takes judicial notice of the facts and circumstances surrounding the debtor's bankruptcy filing as set forth in the Court's file, including the statements made by the debtor in documents filed on her behalf. See Fed.R.Evid. 201; Nantucket Investors, II v. California Federal Bank (In re Indian Palms Associates, Ltd.), 61 F.3d 197, 204-206 (3d Cir.1995).
. Nothing contained herein should be deemed or construed to be a determination of the bona fides of the "fraud on the court” claims asserted by the Respondents.
. This sum is equal to the adequate protection payments required by the Florida courts. At the hearing on this matter, counsel to the debtor had no opposition to the debtor’s payment of such amounts. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493803/ | OPINION REGARDING DISCHARGEABILITY OF DEBT
JAMES D. GREGG, Bankruptcy Judge.
I.JURISDICTION
This court has jurisdiction over this bankruptcy case. 28 U.S.C. § 1334. This bankruptcy case and all related proceedings have been referred to this bankruptcy court for decision. 28 U.S.C. § 157(a) and L.R. 83.2(a) (W.D.Mieh.). This adversary proceeding is to determine the discharge-ability of a debt and is therefore a core proceeding. 28 U.S.C. § 157(b)(2)(I). This opinion constitutes the court’s findings of fact and conclusions of law required to be made after the conclusion of the Plaintiffs proofs. Fed. R. Bankr. P. 7052(c).
II.ISSUES
Does the Debtor owe the Plaintiff a nondisehargeable debt under 11 U.S.C. § 523(a)(2)(A), (a)(4) and/or (a)(6)? Under Fed. R. Bankr. P. 7052(c), should the court determine the dischargeability of the debt at the conclusion of the Plaintiffs eviden-tiary proofs?
III.FACTS
On November 14, 2000, Michael J. Stro-jny, d/b/a Allied Land Services, a sole proprietorship, (“Debtor”), submitted a bid to the Ingham County Parks Department pertaining to the so-called Hawk Island Project. Exh. 1. Subsequently, an Agreement (“contract”) between the Ingham County Parks Department (“Ingham County”) and the Debtor was executed. The Debtor signed the contract on January 10, 2001; Ingham County signed the contract on March 27, 2001. The original contract was for “Beach Dredging and Grading” in the amount of $329,600.00. Exh. 1. In accordance with the contract, the Debtor obtained a Performance Bond from the National American Insurance Company. The Debtor also obtained a Payment Bond from the same insurance company. Exh. 1.
In accordance with Change Order No. 1, dated April 24, 2001, the amount of the contract was reduced to $259,600.00. Subsequently, in accordance with Change Order No. 2, dated September 26, 2001, the contract price was increased to the final amount of $264,600.00. Exh. 2.
As work was completed by the Debtor, the contract provided for progress payments. In accordance with the first Application for Payment submitted on March 1, 2001 by the Debtor, and approved by the Ingham County Project Manager, the Debtor received $48,865.50. Exh. 3. The second Application for Payment was submitted on April 4, 2001 by the Debtor. The application was approved by the Ing-ham County Project Manager on April 13, 2001, in the amount of $61,986.15. When read together, the amounts on the first and second Applications for Payment are consistent. Exh. 4.
*154The third Application for Payment was submitted by the Debtor on May 5, 2001. The Ingham County Project Manager approved the payment, on May 21, 2001, in the amount of $78,678.00. Exh. 5. Comparing the second and third Applications for Payment, it is readily apparent that a mistake in the calculations occurred. On the third payment, the line for “less previous payments” was stated to be $61,986.15. A quick perusal of the second Application for Payment discloses that the Debtor had previously received $110,851.65. The Debtor erroneously carried over the “amount due this application” from the second application to the “less previous payments” in the third application.1 This resulted in a $48,865.50 difference.
Without question, the Debtor made a mistake in calculating the amount due in the third Application for Payment. To further compound the Debtor’s mistake, the Ingham County Project Manager failed to identify the mistake.2
This mistake was carried over to the fourth Application for Payment, Exh. 6, the fifth Application for Payment, Exh. 7, and the final Application for Payment, Exh. 8. In each instance, both the Debtor and the Ingham County Project Manager failed or neglected to recognize the mistake.
In accordance with the testimony of Robert C. Moore, Ingham County Director of Parks, it was the Ingham County Project Manager’s responsibility to review and approve all progress payments. Moore testified that it was not Moore’s responsibility. He further stated that Ingham County did not have financial controls to determine when a contractor, such as the Debtor, had been fully paid in regard to a given contract. Ingham County only maintained records of the funds paid bn the entire project, which often consists of numerous separate contracts. Because Ingham County did not keep track of the payments, it failed or neglected to realize that the Debtor had been overpaid.
After all payments to the Debtor had been made, Ingham County realized that a mistake had been made. Total payments received by the Debtor equaled $313,465.40. Exh. 9. Regretfully for Ing-ham County, it released the Performance Bond and the Payment Bond and could not make any claim thereunder.
On August 27, 2002, the Ingham County Project Manager sent the Debtor a letter requesting reimbursement of the $48,865.50 overpayment within fourteen days. Exh. 13. In that letter, the Ingham County Project Manager identified the miscalculation which occurred, in accordance with the second and third Applications for Payment. Moore, who had over*155all supervisory authority over the project, believed that a “clerical error” had occurred. He originally assumed that the Project Manager had made an error. Later, based upon subsequent events, Moore changed his opinion and came to believe that the Debtor had engaged in fraudulent conduct.
After telephone conversations between the parties, the Debtor stated he intended to reimburse the overpayment by obtaining a loan from National City Bank. Exh. 14. The Debtor requested forty-five days for the loan to be approved. Id. Shortly thereafter, by correspondence dated October 11, 2002, the attorneys for Ingham County sent the Debtor a letter setting forth Ingham County’s understanding of the repayment terms. Exh. 15.
Although the Debtor intended to reimburse the overpayment, and he was successful in subsequently procuring a loan, his business was in trouble. Rather than utilizing the loan proceeds to repay Ing-ham County, the Debtor was forced to pay other business bills in a futile attempt to keep his business alive. Therefore, Ing-ham County was not paid.
On or about February 27, 2003, Ingham County filed a Complaint against the Debt- or in the State of Michigan, Circuit Court for the County of Ingham, seeking judgment for $48,865.50. Exh. 10. The Debt- or, representing himself, filed an answer on or about May 1, 2003. This pro se answer set forth a number of asserted affirmative defenses, none of which were legally valid. Apparently, the Debtor subsequently recognized that his defenses were of little, if any, weight. At a state court hearing on August 20, 2003, the Debtor stipulated to a judgment in the principal sum of $48,865.50. Exh. 12.
When the judgment was not paid, Ing-ham County obtained an order from the State of Michigan, Ingham County Circuit Court, to seize the Debtor’s property. Exh. 16. Not surprisingly, the Debtor filed for bankruptcy relief on October 28, 2004. ■
At the trial, the court heard the testimony of the Debtor and Robert C. Moore, Inghain County Director of Parks. Both witnesses were credible in all respects.
IV. DISCUSSION
A. Judgment on Partial Findings.
If during a trial without a jury a party has been fully heard on an issue and the court finds against the party on that issue, the court may enter judgment as a matter of law against that party with respect to a claim or defense that cannot under the controlling law be maintained or defeated without a favorable finding on that issue, or the court may decline to render any judgment until the close of all the evidence. Such a judgment shall be supported by findings of fact and conclusions of law as required by subdivision (a) of this rule.
Fed. R. Bankr. P. 7052(c).
This rule permits, but does not require, a court to enter judgment after the conclusion of a Plaintiffs proofs in nonjury trials. If a court decides to enter a judgment, it must make explicit findings of fact and conclusions of law in accordance, with Fed. R. Banks. P. 7052(a) (“the court shall find the facts specially and state separately its conclusions of law thereon”). “A judgment on partial findings under Rule 52(c) is made after the court has heard all the evidence bearing on the issue of fact .... ” Wright & Miller, 9A Fed. Prac. & Proc. Civ.2d § 2573.1.
Use of a Rule '52(c) motion may be valuable in an exception to discharge adversary proceeding, most notably when it appears that a plaintiff has failed to estab*156lish the prima facie evidence necessary to prove the nondischargeable nature of a debt. In this adversary proceeding, Ing-ham County has faded to prove all necessary elements with regard to any of the three theories it has asserted. It is therefore appropriate for this court to render judgment without requiring the Debtor to present countervailing evidence.
B. Amount of Debt.
In a nondischargeable debt adversary proceeding, it is permissible for a bankruptcy court to determine the existence of a debt and, if necessary, the amount of the debt. Longo v. McLaren (In re McLaren), 3 F.3d 958, 965-66 (6th Cir.1993). However, in those instances where a state court judgment has been entered, the bankruptcy court need not determine the amount of the debt. The state court judgment is entitled to res judicata effect regarding the amount of the debt. Matter of Redburn, 193 B.R. 249, 258 (Bankr.W.D.Mich.1996) (“While the ultimate issue of nondisehargeability remains undecided in the related chapter 7 case, the amount of the debt was fixed by the state court judgment and that judgment is binding on this court.”) (emphasis in original) (citing Rally Hill Productions, Inc. v. Bursack (In re Bursack), 65 F.3d 51, 53 (6th Cir.1995); Sparks v. Adams (In re Adams), 147 B.R. 407, 418 n. 27 (Bankr. W.D.Mich.1992); Brown v. Sachs (In re Broum), 56 B.R. 954, 959 (Bankr. E.D.Mich.1986)). The state court entered a judgment against the Debtor in the amount of $48,865.50, plus interest and costs. Exh. 12. That state court judgment conclusively establishes the amount of the debt in this nondisehargeability litigation.
C. Fraud— § 523(a)(2)(A).
Section 523(a)(2)(A) of the Bankruptcy Code3 excepts from discharge any debt “for money, property, [or] services ... to the extent obtained by false pretenses, a false representation, or actual fraud .... ” To prevail, a creditor must prove that:
1) the debtor obtained money through a material misrepresentation that, at the time, the debtor knew was false or made with gross recklessness as to its truth;
2) the debtor intended to deceive the creditor;
3) the creditor justifiably relied upon the false representation; and
4) its reliance was the proximate cause of the loss.
Rembert v. AT & T Universal Card Servs., Inc. (In re Rembert), 141 F.3d 277, 281 (6th Cir.1998). The creditor, Ingham County, must prove each and every element by a preponderance of evidence. Grogan v. Gamer, 498 U.S. 279, 291, 111 S.Ct. 654, 661, 112 L.Ed.2d 755 (1991).
Based upon the findings of fact, the Debtor made a material misrepresentation at the time the third Application for Payment was submitted on May 5, 2001. Exh. 5. Although a mistake was made in the calculation, and although the Debtor was not at his office in Levering, Michigan, and he was unable to review other related documents, the Debtor may have made the representation with “gross recklessness as to its truth.” However, there is absolutely nothing in the record that leads this court to believe that the Debtor intended to deceive Ingham County. Further, Ingham County failed to justifiably rely on the Debtor’s erroneous calculation. The Project Manager could easily see the mistake on the face of the third Application for *157Payment itself. Exh. 5. The Project Manager had a responsibility to review the Applications for Payment. He failed to adequately review the third application, thereby contributing to, if not causing, the loss.
Ingham County has failed to prove all elements to establish a nondischargeable debt based upon fraud. An after-the-fact suspicion about a miscalculation in filling out a form does not a fraud make.
D. Breach of Fiduciary Obligation— § 523(a) (tí.
Section 528(a)(4) excepts from discharge any debt “for fraud or defalcation while acting in, a fiduciary capacity.” Under this subsection, determination of nondischargeability requires a fiduciary relationship, a breach of that fiduciary relationship, and a resulting loss. R.E. America. Inc. v. Garver (In re Garver), 116 F.3d 176, 178 (6th Cir.1997). For purposes of § 523(a)(4), there must exist “an express or technical trust relationship arising from placement of a specific res in the hands of the debtor.” In re Garver, 116 F.3d at 179. Whether an express trust relationship exists must be determined by reference to state law. See, e.g., Capitol Indemnity Corp. v. Interstate Agency, Inc. (In re Interstate Agency, Inc.), 760 F.2d 121, 124 (6th Cir.1985) (the Michigan Insurance Code by statute “clearly establishes an insurance agency relationship as an express trust fiduciary relationship”).
In this adversary proceeding, Ingham County asserts the so-called Michigan Builders’ Trust Fund Act imposes an express trust upon the Debtor’s receipt of the contract funds. If the Michigan Builders’ Trust Fund Act was applicable, Ingham County would have a compelling argument. Carlisle Cashway, Inc. v. Johnson (In re Johnson), 691 F.2d 249, 252 (6th Cir.1982) (“The Michigan Building Contract Fund Act imposes a ‘trust’' upon the building contract fund paid by any person to a contractor or subcontractor for the benefit of the person making the payment, contractors, laborers, subcontractors and materialmen”) (emphasis added).
Ingham County readily concedes that the contract with the Debtor was for a public project. Exh. 1. The Michigan Builders’ Trust Fund Act does not apply to contracts for public projects. Air Products & Chemicals, Inc. v. J.F. Cavanaugh Co. (In re Certified Question from the U.S. District Court), 411 Mich. 727, 311 N.W.2d 731, 733 (1981) (The Michigan Builders’ Trust Fund Act “applies only to private construction contracts. It has no applicability to public construction contracts.”).
The overpayment made, by Ingham County to the Debtor was therefore not subject to the Michigan Builders’ Trust Fund Act. Ingham County’s theory that the debt is nondischargeable under § 523(a)(4) is without merit.
É. Willful and Malicious Injury to Property of Another — § 523(a)(6).
Section 523(a)(6) excepts from discharge any debt based upon “willful and malicious injury by the debtor to ... the property of another entity.” The plain language of the statute requires that the alleged injury be both willful and malicious for a debt to be nondischargeable. Markowitz v. Campbell (In re Markowitz), 190 F.3d 455, 463 (6th Cir.1999).
First, there is no evidence whatsoever that the Debtor caused injury to the property of Ingham County. This court rejects any notion that the mistaken overpayment made by Ingham County to the Debtor constituted property which belonged to Ingham County.
Second, assuming' arguendo that the overpayment somehow remained the prop*158erty of Ingham County, any “willful and malicious” theory is soundly rejected by this court. The Supreme Court has held that the “willful” requirement under § 523(a)(6) is only met from an act “done with the actual intent to cause injury”, which is an act similar to an intentional tort. Kawaauhau v. Geiger, 523 U.S. 57, 61, 118 S.Ct. 974, 977, 140 L.Ed.2d 90 (1998). The factual record lacks any evidence whatsoever that the Debtor intended to cause injury to Ingham County or that something akin to an intentional tort was committed.
Third, § 523(a)(6) requires the act by a debtor to be “malicious.” In this subsection, “malicious means in conscious disregard of one’s duties or without just cause or excuse; it does not require ill-will or specific intent.” Monsanto Co. v. Trantham (In re Trantham), 304 B.R. 298, 308 (6th Cir. BAP 2004) (quoting Wheeler v. Laudani, 783 F.2d 610, 615 (6th Cir. 1986) (internal quotation marks omitted)). In this adversary proceeding, there is no evidence that the Debtor disregarded his duties without a just cause or a reasonable excuse. A mistake in a calculation occurred, nothing more and nothing less. Ingham County’s request for a nondis-chargeable debt under § 523(a)(6) fails.
V. CONCLUSION
Ingham County’s attempt to grasp faulty legal platforms supported by inadequate factual pillars is disfavored by this court. The Debtor’s debt to Ingham County is discharged. Ingham County has not demonstrated, by preponderance of evidence, the requisite proofs to obtain an exception to discharge under § 523(a)(2)(A), (a)(4) and/or (a)(6) of the Bankruptcy Code.
. Both lines state “$61,986.15.” On the third Application for Payment, “less previous payments” should have been $110,851.65.
During this time, Debtor lived and maintained his office at his house in Levering, Michigan, approximately ten miles south of the Mackinac Bridge. During the Hawk Island Project, the Debtor was living in Lansing, Michigan. At this time, he possessed incomplete documents and records because he was supervising and working on the project. The court takes judicial notice that Lansing, Michigan and Levering, Michigan are approximately 230 miles apart. Fed. R. Evid. 201. The Debtor was unable to carefully review all documents, including the Goldleaf Escrow records, Exh. 19, to prepare the Applications for Payment.
. The court finds it was the responsibility of the Project Manager to monitor and approve all progress payments. Indeed, this occurred on the fifth Application for Payment when an adjustment was made by the Project Manager to reduce the amount paid to the Debtor. If the Project Manager had corrected the third Application for Payment, there would have been no overpayment.
. The Bankruptcy Code in existence at the time the case was filed is set forth in 11 U.S.C. §§ 101-1330, and is referred to in this opinion as "§_" | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493804/ | DECISION AND ORDER
RICHARD L. SPEER, Bankruptcy Judge.
This cause comes before the Court upon the Motion by the Plaintiff/Trustee for Summary Judgment on his Complaint for Recovery of Fraudulent Conveyance. No Response was filed by the Defendant. After having had the opportunity to examine the facts of this case in light of the applicable law, the Court finds that at this time it should abstain from ruling on the Trustee’s Motion.
The Trustee’s Complaint for Recovery of a Fraudulent Conveyance is brought pursuant to § 548(a)(1)(A) and § 548(a)(1)(B). In bringing his complaint under these sections, the Trustee avers therein:
On or about June 13, 2002, Defendant Richard F. Tallini took out a loan with Key Bank in the approximate amount of $100,00.00, which was secured by a second mortgage on the real estate located at 3343 Brantford Road, Toledo, Ohio. Debtor Francis K. Tallini did not sign personally for said loan, but signed off on and consented to the mortgage taken to secure said loan, thereby voluntarily relinquishing her equity in the marital real estate to her spouse for which she received no consideration.
Debtor’s signing off on and relinquishment of equity in the marital real estate to support the loan to her husband constitutes a transfer of an interest of the Debtor in property that was made or incurred on or within one year before the date of the filing of the petition herein.
(Doc. No. 1). Based then upon these aver-ments, the Trustee asked, in relevant part:
that this Court make its order avoiding the above-reference transfer, ordering Defendant Richard F. Tallini to turnover to the Trustee the value of the property so transferred as described herein in the amount $50,000.00[.]
Id. The Trustee’s averments, to the extent true, support his claim to recover, as fraudulent, the transfer made by the Debt- or.
However, both sections under which the Trustee brings his action to avoid a fraudulent transfer begin with this proviso: “The Trustee may avoid any transfer of an interest of the debtor in property[.]” (emphasis added). A “transfer,” at the time this case was filed, was defined as:
every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest in property, including retention of title as a security interest and foreclosure of the debtor’s equity of redemption.
11 U.S.C. § 101(54). To this end, the facts averred by the Trustee reveal two transfers: (1) one made from the Debtor to Key Bank, the mortgage; and (2) the transfer of proceeds from Key Bank to the Defendant. But of these, only the first, the one from the Debtor to Key Bank, can be construed as a direct “transfer of an interest of the debtor in property.” Moreover, *160there exists no direct transfer from the Debtor to the Defendant as the Debtor was not a signatory on the loan with Key Bank and thus, having no right to the disbursed funds, could not have legally transferred any funds to the Defendant.
While all this does not relieve the Defendant from liability, it does show that the mortgage held by Key Bank, and which encumbers the residence of the Debtor and the Defendant, is at jeopardy. As such, this makes Key Bank a necessary party under Rule 19 of the Federal Rules of Civil Procedure, made applicable to this case by Bankruptcy Rule 7019.. Accordingly, in the interest of the just resolution of this matter, it is hereby
ORDERED that the Trustee is afforded 21 days, commencing from the entry of this Order, to amend his Complaint. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493805/ | KRESSEL, Chief Judge.
The debtors in this chapter 13 case appeal from an order of the bankruptcy court1 denying their “Combined Motion to Vacate Order Granting Relief From Stay and Prohibiting Debtor (sic) From Filing for 180 days and to Reinstate Case.” For the reasons iterated below, we affirm.
THE RECORD
Pursuant to Fed. R. Bankr.P. 8009(b) and our Local Rule 8009A, the appellants were required, as part of their appeal, to file an appendix including, at a minimum, the documents designated in those two rules. After much prompting from the clerk and an order to show cause threatening dismissal, the appellants filed something called “Index” which falls far short of any minimal compliance with those rules. Other than the required Certification of Interested Parties and Certification of Related Cases, the Index includes only an order granting relief from the automatic stay, the notice of appeal, and a partial docket from the bankruptcy case. Many important, relevant, and helpful documents are omitted; most seriously, the order from which the debtors are appealing and transcripts of the hearings held in the bankruptcy court.
In the absence of a record from which we are able to determine what actually occurred in the bankruptcy court; what evidence, if any, was adduced at the hearings in the bankruptcy court; and what findings were made by the bankruptcy court on the record, it is impossible for us to adequately review the merits of the debtors’ appeal. We would feel justified in affirming solely on that basis. Schmid v. United Bhd. of Carpenters and Joiners of Am., 827 F.2d 384, 386 (8th Cir.1987), cert. denied, 484 U.S. 1071, 108 S.Ct. 1041, 98 L.Ed.2d 1004 (1988). However, in an attempt to be fair to the debtors, we have assembled a minimal record ourselves from the files of the bankruptcy court. We have therefore reviewed the pleadings of the parties that led up to the two bankruptcy court orders of which the debtors complain, as well as a copy of the order from which the debtors appeal. Since no transcripts were ever prepared, we still lack detail of what happened at the hearings in the bankruptcy court.
BACKGROUND
We cobbled together the following background from our review of the bankruptcy court records. The debtors filed their chapter 13 ease on February 9, 2005. It was their fifth chapter 13 case over a 13-month period. The clerk gave a number of notices to the debtor of various deficiencies in their petition and related schedules. While many of these deficiencies were cured, as we will see later, some were not. On February 28, 2005, Household Automotive Finance Corporation, the appellee here, filed a motion to dismiss or, in the alternative, for relief from the automatic stay. Part of the relief sought in that motion was an order prohibiting the debtors from filing a new petition for 180 days after the dismissal of the pending case. A hearing on Household’s motion was set for March 21, 2005, and the deadline for filing objections to the motion was set for March 14, 2005. The debtors did not file any objections to Household’s motion and did *205not appear at the hearing. After the hearing, the bankruptcy court granted Household’s motion for relief from automatic stay but denied its alternative motion to dismiss the case. The court indicated, however, that if the case was dismissed later, it would impose a 180-day bar to filing another case.
On March 31, 2005, pursuant to the court’s earlier notice and because the debtors had failed to fully comply with the notice to cure deficiencies in their filings, the court dismissed the debtors’ case and, as it indicated it would, barred the debtors from filing another case for 180 days from the date of the dismissal.
On April 5, 2005, the debtors filed the motion that ultimately led to this appeal. That motion, in both its title and its prayer for relief, asked the court to vacate the order granting relief from the automatic stay and to “reinstate” their case. The body of the motion makes no mention of the order of dismissal nor does it indicate that the debtors, in fact, complied with the clerk’s deficiency notices or otherwise assert any grounds in support of their request that their case be “reinstated.” The concept of reinstatement has no statutory meaning that we are aware of, but we construe the language to be a request that the court vacate the order dismissing their case.
The debtors’ motion was filed within ten days of the order of dismissal, but more than ten days after the entry of the order granting relief from the automatic stay. The motion also does not cite to or otherwise refer to any rule on which the motion might be based. We are thus left to assign the motion, as best we can, to the appropriate underlying procedural basis. See Sanders v. Clemco Indus., 862 F.2d 161, 168 (8th Cir.1988). As to the order granting relief from the automatic stay, because it was filed more than ten days after entry, we can only construe the motion to be a request for relief under Fed. R.Civ.P. 60, made applicable in bankruptcy cases by Fed. R. Bankr.P. 9024. Because the motion was filed within ten days of the dismissal order, we construe it to be one under either Fed.R.Civ.P. 52, made applicable by Fed. R. Bankr.P. 7052 and 9014(c) or Fed.R.Civ.P. 59, made applicable by Fed. R. Bankr P. 9023.
DISMISSAL ORDER
The debtors did not appeal from the dismissal order, but they did make a motion that would be considered timely under either Rule 52 or 59. However, nothing in the motion alleges any facts or argues any law which would entitle them to relief from the order of dismissal. In the absence of a transcript of the hearing on the debtors’ motion, we have no choice but to assume that no such argument was made at the hearing. Nor does our review of the bankruptcy court’s record indicate that the debtors ever cured the filing deficiencies which led to the court’s dismissal order. Thus, we cannot say that the bankruptcy court abused its discretion in denying the debtors’ motion for relief from the order of dismissal. Cedar Shore Resort, Inc., v. Mueller (In re Cedar Shore Resort, Inc.), 235 F.3d 375, 378 (8th Cir.2000).
To the extent that the debtors complain of the 180-day bar for filing another case, the stated period has expired and the appeal is moot. Tolbert v. Fink (In re Tolbert), 255 B.R. 214, 217 (8th Cir. BAP 2000). In sum, we find no error in the bankruptcy court’s original dismissal order nor in its order denying the debtors’ motion to “reinstate” their case.
RELIEF FROM STAY ORDER
First and foremost, the order granting Household relief from the automatic stay and the appeal from that order *206are rendered moot by the dismissal of the debtors’ case. Olive Street Inv., Inc., v. Howard Savings Bank, 972 F.2d 214, 216 (8th Cir.1992) Dismissal of a case terminates all existing stays. 11 U.S.C. § 362(c). Secondly, since the debtors did not either timely appeal the relief from stay order or file a timely motion under Rule 52 or 59 for relief from that order, the merits or propriety of the order itself are not properly at issue on appeal. Sanders, 862 F.2d at 169. The only inquiry for the bankruptcy court at the hearing and thus ours on appeal, is whether or not the debtors had shown grounds for relief from the relief from stay order under Rule 60. Our review is limited to determining whether the bankruptcy court abused its discretion in denying such a motion. Id.
In light of the fact that the debtors did not file any response to the motion for relief from the automatic stay, appear at the hearing in opposition to the motion, or file a timely motion for relief from that order, and have failed to supply any factual record demonstrating any mistake, inadvertence, or excusable neglect on their part for failure to do all of those things, we cannot say that the bankruptcy court abused its discretion in refusing to grant the debtors relief from the order granting Household relief from the automatic stay.
CONCLUSION
The debtors failed to cure all of the deficiencies in their original filing. They failed to file a response to Household’s motion for relief from the automatic stay. They failed to appear at the hearing on Household’s motion. They failed to seek any timely relief from the order granting relief from the automatic stay. They failed to demonstrate any basis for relief from either the relief from stay order or the dismissal order at the hearing on their motion. They failed to provide us with an adequate record on appeal from which to review the bankruptcy court’s orders. For all of these reasons, we affirm.
. The Honorable Kathy Surratt-States, United States Bankruptcy Judge for the Eastern District of Missouri. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493807/ | OPINION
BRANDT, Bankruptcy Judge.
After David Seror, the trustee in the chapter 71 bankruptcy of Oakmore Ranch Management, obtained a judgment against appellant Michael J. Welther, III, on behalf of the bankruptcy estate, he executed on funds owed to appellant by a third party. Because the promissory note evidencing the obligation was in his children’s names, appellant contended he had no interest in the note, and thus it could not be levied upon; the bankruptcy court apparently found otherwise, and ordered the funds released to the trustee. This appeal ensued.
Appellant expressly waived any procedural error in the bankruptcy court, and did not provide an adequate record on appeal. But we AFFIRM because appellant has not shown that the bankruptcy court clearly erred in making the crucial factual finding which we discern in the incomplete record we do have.
We publish to highlight again — see In re Gertsch, 237 B.R. 160, 169 (9th Cir. BAP 1999) — the difficulties created when necessary findings are contained in tentative rulings which are neither designated for the record on appeal nor included in the excerpts. The problem is here exacerbated by the fact that the tentative ruling is neither docketed nor oral and thus available via transcript. But for the unique simplicity of this appeal, we (and any appellate court) would have no choice but to remand for findings or affirm because error cannot be shown from the record. The former would inflict considerable costs on all concerned, and the latter would be of no benefit to appellant.
I. FACTS
The trustee obtained a $2.1 million judgment on behalf of the Oakmore Ranch Management bankruptcy estate against Welther on 31 March 1997. In 2004, while attempting to execute on the judgment, the trustee discovered Lillian Russell owed a debt to Welther. The debt was evidenced by a promissory note naming Welther’s three minor children as payees, signed by Ms. Russell on 14 May 1999 for $111,000. Exhibit A to Opposition to Release Funds ... (“Note”).
The trustee served a writ of execution on Ms. Russell in June 2004, providing a copy to Welther’s counsel. Thereafter Ms. *225Russell and the trustee reached an agreement whereby Ms. Russell would make payments on the $87,650 balance of the Note directly to the trustee. Previously she had paid by offset against condominium rent owed to her by Welther. Ms. Russell’s attorney sent a letter outlining this agreement to Welther’s counsel on 27 August 2004.
Ms. Russell made payments under the agreement until December 2004, when she informed the trustee that Welther was asserting that the funds were owed to his children. She paid the remaining balance of $47,650 to the trustee in trust, pending a court order authorizing disposition of the funds.
On 11 February 2005 the trustee wrote Welther’s counsel requesting that Welther stipulate to release of the funds; neither Welther nor his counsel responded. Shortly thereafter, the trustee moved for release of the funds. His motion erroneously alleged that the debt was evidenced by a promissory note dated 10 July 1991 for $110,000 in favor of Welther. Welther’s response pointed out the error, which the trustee later conceded, and Welther, as proposed guardian ad litem for his children, opposed the motion, asserting that he had no interest in the Note. Welther asserted that the loan that gave rise to the note was funded with money from his children’s trust fund, which was why the children were the payees. In reply, the trustee argued that, notwithstanding that the children were the named payees, the funds actually came from Welther and the beneficial interest in the Note was his.
The bankruptcy court promulgated a tentative ruling, apparently agreeing with the trustee’s position, and entered an order authorizing release of the funds to the trustee. Welther timely appealed.
II.JURISDICTION
The bankruptcy court had jurisdiction via 28 U.S.C. § 1334 and § 157(b)(1) and (B)(2)(A) and (O), and we do under 28 U.S.C. § 158(c).
III.ISSUES2
A. Whether we should dismiss or affirm for Welther’s failure to provide an adequate record; and
B. Whether the bankruptcy court clearly erred in concluding that Welther owned the beneficial interest in the Note.
IV.STANDARDS OF REVIEW
We review the bankruptcy court’s findings of fact for clear error. Rule 8013. A factual finding is clearly erroneous if the appellate court, after reviewing the record, has a firm and definite conviction that a mistake has been committed. Anderson v. Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985). If two views of the evidence are possible, the trial judge’s choice between them cannot be clearly erroneous. Id. at 574, 105 S.Ct. 1504.
V.DISCUSSION
A. Record on Appeal
Rule 8009(b)(5) requires that an appellant designate and provide a record that includes “the opinion, findings of fact, and conclusions of law filed or delivered orally .... ” See also Rule 8006. Welther included a copy of the hearing transcript in the excerpts of record; that transcript suggests the court’s findings were in its tenta*226tive ruling and counsel so indicated at argument. Welther did not provide that ruling in his excerpts. He bears the burden of presenting a complete record, In re Kritt, 190 B.R. 382, 387 (9th Cir. BAP 1995), and we need not look beyond the excerpts provided. In re Kyle, 317 B.R. 390, 394 (9th Cir. BAP 2004).
If a tentative decision is necessary to understanding the court’s ruling, it must be included in the designation and the excerpts of the record. Gertsch, 237 B.R. at 169. Moreover, this appeal arises from a contested matter, and: “the court shall find the facts specially and state separately its conclusions of law thereon .... ” FRCP 52(a), applicable via Rules 7052 and 9014.
We may remand when the absence of findings of fact and conclusions of law hinder our review. In re Pham, 250 B.R. 93, 99 (9th Cir. BAP 2000) (citing In re Hotel Hollywood, 95 B.R. 130, 133-34 (9th Cir. BAP 1988)). Or we could take judicial notice of the tentative ruling, which presumably explicates the court’s findings, if it were in the docket, In re E.R. Fegert, Inc., 887 F.2d 955, 957-58 (9th Cir.1989), but it is not.
Further, as we said in Kyle, 317 B.R. at 393:
The settled rule on appellate records in general is that failure to provide a sufficient record to support informed review of trial-court determinations may, but need not, lead either to dismissal of the appeal or to affirmance for inability to demonstrate error.
Moreover, the Ninth Circuit applies an abuse of discretion standard of review to bankruptcy appellate panel and district court decisions to affirm bankruptcy court orders summarily for noncompliance with nonjurisdictional procedural requirements. It views such summary dispositions as tantamount to sanctions. This implies not only that we have discretion, but also that we should first consider whether informed review is possible in light of what record has been provided.
(citations omitted).
Where the tentative ruling contains findings on which the court’s decision depends, and the court has neither made that ruling in written and docketed form nor orally on the record, prudent counsel will request that the court do one of those things, and then include the document or transcript in the record on appeal. This is not of concern solely to the disappointed party who may wish to appeal — if remand is necessary, the attendant costs and delay will be visited on all, and judicial economy will suffer.
In this instance, we can glean from the record sufficient indication of the crucial finding to permit review:
[Welther’s counsel]: And I understand the basis of granting the motion is because there’s no competent evidence showing there was an interest in the — or that the children had an interest in the trust or anything like that—
The Court: Right.
Counsel: —or the source of the funds in such a trust.
The Court: Yes.
Transcript, 5 April 2005, at 1-2. We construe this passage to indicate that the bankruptcy court found that the children had no interest in the note and, as the only alternative prospect was Welther, that the beneficial interest was his.
B. Merits
Welther contends that the children hold legal title to the Note as it is in their names, and that the trustee did not meet *227his burden of coming forward with clear and convincing evidence that they do not also hold beneficial title. He cites to Cal. Evid.Code § 662, which provides: “The owner of the legal title to property is presumed to be the owner of the full beneficial title. This presumption may be rebutted only by clear and convincing proof.” Welther further argues, without citation, that the source of the funds for the loan underlying the note is irrelevant.
The trustee points out that the clear and convincing standard applies only where there is no challenge to legal title, citing Murray v. Murray, 26 Cal.App.4th 1062, 1068, 31 Cal.Rptr.2d 855, 858 (1994) (clear and convincing standard “applies when valid legal title is undisputed and the controversy involves only beneficial title”).
We begin with the presumption that the payee and holder of a note is its owner. Dysert v. Weaver, 46 Cal.App. 576, 577-78, 189 P. 492 (1920); Cal.Evid.Code § 637. The trustee argues that he has challenged legal title throughout, and nothing in the record indicates who holds the note. Alternatively, the trustee argues that he met his burden even under the clear and convincing standard.
The trustee never explicitly challenged legal title in the bankruptcy court, but he did submit evidence to rebut the presumption that the beneficial interest in the Note belongs to the children. He asserted in the bankruptcy court that Welther’s denial of an interest in the note was not credible because Welther knew Ms. Russell had been making payments to the trustee for nearly six months before he objected, the children could not have funded the loan to Ms. Russell in 1999, and Welther had established a pattern of fraudulently hiding assets.
In support, the trustee provided the Declaration of Henley L. Saltzburg, attaching:
1. State court complaint in which Welther alleges that funds for the loan represented by the Note were procured “primarily from his Retirement Account and his children’s Social Security monies” (emphasis in original);
2. Interpleader complaint arising out of a “scam” whereby Welther allegedly loaned funds to Ms. Russell’s sister but made Welther’s sister Barbara payee on the note. Barbara interpleaded the funds received as payment on that note, requesting a determination of the ownership and application of the funds. Judgment was entered against Welther in that proceeding; and
3. Excerpts from Welther’s 13 July 2004 deposition wherein he states that his children each receive Social ‘ Security of $800-$900 per month. The trustee argues that, as the children were aged two and five at the time of the 1999 loan, they could not have amassed enough funds to have funded the loan, in addition to another investment of $140,000 about which Welther testified in his deposition.
Salzburg’s declaration also indicates that he asked Welther for documents to substantiate the loan, but no records were ever produced.
Welther filed a .declaration stating that in 1999 Ms. Russell borrowed $110,000 from his children, and that the monies came from the “minor children’s account.” In support, he attached excerpts from Ms. Russell’s deposition testimony in the state court interpleader action, in which she testified that the funds came from Welther’s “kids trust,” and that she agreed to pay back the funds to “the kids.” Welther Declaration, Exhibit B, pages 34-35.
The bankruptcy court concluded that there was insufficient evidence that the children had an interest in the Note, and correctly gave little weight to Ms. Russell’s deposition testimony, because there is no *228indication in her statements regarding the basis of her knowledge about the source of funds for the loan.
Under California law, virtually any admissible evidence that the holder of the note is not the owner is sufficient to rebut the presumption. See Rancho Santa Fe Pharmacy, Inc. v. Seyfert, 219 Cal.App.3d 875, 882, 268 Cal.Rptr. 505, 508-09 (1990) (“[W]hen the party against whom ... a presumption [affecting the burden of production] operates produces some quantum of evidence casting doubt on the truth of the presumed fact, the other party is no longer aided by the presumption.”). With respect to the presumption that the holder of legal title is also the beneficial owner (a presumption affecting the burden of proof), the quantum of proof is higher. Id. The trustee prevails under either standard.
Because of the trustee’s initial error in identifying the correct promissory note, arguably Welther had no chance to rebut the allegation that he held the beneficial interest — the trustee’s arguments appeared for the first time in his reply brief. At the bankruptcy court hearing, counsel asked for additional time to produce more documentation, which the bankruptcy court refused. But Welther never requested an evidentiary hearing and, at oral argument on appeal his counsel, in response to our query, expressly waived any procedural defects which may have occurred in the bankruptcy court. In view of this waiver, we need not and do not address possible procedural issues such as the necessity for an evidentiary hearing, Rule 9014(d), or an adversary proceeding, Rule 7001, or whether the procedural requirements of California law were satisfied.
As there was evidence to support the finding that Welther held the beneficial interest in the note, it was not clearly erroneous, and we will affirm.
VI. CONCLUSION
Welther’s escape from remand for findings or affirmance for failing to provide an adequate record on appeal is to no avail: he has not shown clear error in the bankruptcy court’s finding that he, rather than his children, held the beneficial interest in the Note. Accordingly, we AFFIRM.
. Absent contrary indication, all ''Code,” chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1330 pri- or to its amendment by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub.L. 119-8, 119 Stat. 23, as the case from which the adversary proceeding and these appeals arise was filed before its effective date (generally 17 October 2005).
All "Rule” references are to the Federal Rules of Bankruptcy Procedure, and all "FRCP” references are to the Federal Rules of Civil Procedure.
All "CCP” references are to the California Code of Civil Procedure.
. The order also granted Welther’s request to be appointed as guardian ad litem; that aspect of the order was not appealed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493809/ | MEMORANDUM
MARK B. McFEELEY, Bankruptcy Judge.
THIS MATTER is before the Court on the Alleged Debtor Memorial Medical Center, Inc.’s Answer and Motion to Dismiss Involuntary Petition (“Motion to Dismiss”). Cardinal Health 301, Inc., Cardinal Health 303, Inc. and Toshiba American Medical Systems, Inc. (together, the “Petitioning Creditors”), filed a brief in opposition to the Motion to Dismiss, and Memorial Medical Center, Inc. (“MMCI”) filed a reply. The Court held a final hearing on the Motion to Dismiss and took the matter under advisement. MMCI is represented by Sutin, Thayer & Browne, A Professional Corporation (Gail Gottlieb), and the Petitioning Creditors are represented by Daniel J. Behles and by Shulman, Rogers, Gandal, Pordy & Ecker, P.A. (Ross D. Cooper). MMCI asserts that the involuntary petition should be dismissed because it is an eleemosynary institution not subject to an involuntary petition for bankruptcy under 11 U.S.C.- § 303. Petitioning Creditors contend that because MMCI is winding up its affairs, it is no longer operating as a non-profit organization, and consequently is not immune from involuntary bankruptcy. Having reviewed the briefs submitted by counsel, and having considered the relevant case law and applicable code sections, and being otherwise sufficiently informed, the Court finds that MMCI is not eligible under 11 U.S.C. § 303(a) to have an involuntary bankruptcy filed against it. Consequently, the Court will grant its Motion to Dismiss.
The facts incident to this involuntary proceeding are largely not in dispute. MMCI was organized as a non-profit corporation under the New Mexico Non-Profit Corporation Act to operate the Memorial Medical Center in Las Cruces, New Mexico. See Articles of Incorporation, Exhibit A to Motion to Dismiss. According to its articles of incorporation, MMCI was organized exclusively for charitable purposes on a not-for-profit basis. Id. MMCI operated the Memorial Medical Center on certain real property owned by the County of Dona Ana and the City of Law Cruces. Prior to the filing of the involuntary petition, MMCI undertook to cease its operations, and began the process of winding up its affairs and liquidating its assets. In June 2004, as part of this process, MMCI transferred assets to the City of Las Cruces, New Mexico and the County of Dona Ana County, New Mexico. This transaction is the subject of state court litigation between MMCI and the Petitioning Creditors.1 Also related to that proceeding is a request by MMCI for the *390appointment of a state court receiver.2 Before that request was adjudicated in state court, Petitioning Creditors filed their involuntary petition on May 19, 2005. Section 303 of the Bankruptcy Code sets the parameters for involuntary petitions. It provides, in relevant part:
An involuntary case may be commenced only under chapter 7 or 11 of this title, and only against a person, except a farmer, family farmer, or a corporation that is not a moneyed, business, or commercial corporation, that may be a debt- or under the chapter under which such case is commenced.
11 U.S.C. § 303(a).
Courts interpreting this section consistently conclude that non-profit organizations are not subject to involuntary proceedings. See, e.g., In re Grace Christian Ministries, Inc., 287 B.R. 352, 355 (Bankr.W.D.Pa.2002) (“A corporation ... may not be an involuntary chapter 7 or 11 debtor if it is a not-for-profit corporation.”); In re United Kitchen Associates, Inc., 33 B.R. 214, 216 (Bankr.W.D.La.1983) (“eleemosynary institutions ... are, thus exempt from involuntary bankruptcy”) (citations omitted). The legislative history of this section supports this conclusion as well. See H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 321 (1977); S.Rep. No. 95-989, 95th Cong., 2d Sess. 33 (1978), U.S.Code Cong. & Admin.News 1978, pp. 5963, 6277, 5787, 5819 (“schools, churches, charitable organizations and foundations” are protected from involuntary petitions).
Despite the consensus in the legislative history and the case law that eleemosynary institutions are not subject to involuntary petitions, neither “eleemosynary institution” nor “non-profit organization” appear within the language of 11 U.S.C. § 303. Instead, § 303(a) excepts from involuntary petitions any corporation that is “not a moneyed business.” 11 U.S.C. § 303(a). Thus, the focus of the Court’s inquiry must be on whether the alleged debtor is a “moneyed business” subjecting such entity to an involuntary proceeding. MMCI asserts that because it was organized as a non-profit organization, it is not a moneyed business and is, therefore, not subject to an involuntary proceeding. Petitioning Creditors counter that because MMCI is no longer operating, it can no longer be considered a non-profit organization immune from an involuntary proceeding. Both MMCI and Petitioning Creditors agree that MMCI was in the process of winding down its affairs and was not operating at the time of the filing of the involuntary petition. Thus the critical question is whether by winding down its affairs, MMCI ceased to retain its status as a non-profit organization and became a “moneyed business” within the meaning of 11 U.S.C. § 303(a).
There is ample case law for the proposition that winding up a business’s affairs does not necessarily render a corporation ineligible for an involuntary petition. See, e.g., In re Segno Communications, Inc., 264 B.R. 501 (Bankr.N.D.Ill.2001) (concluding that because applicable state law provides for the continued existence of a corporation for five years following its dissolution so that the corporation can wind up its affairs, a dissolved corporation can be forced to wind up its affairs in bankruptcy through an involuntary proceeding filed within the five year period); In re Quad City Minority Broadcasters, Inc., 252 B.R. 773 (Bankr.S.D.Iowa 2000) (corporation administratively dissolved under applicable Iowa law was nevertheless eligible for bankruptcy and consequently *391subject to involuntary proceeding); In re McCullough and Co., 199 B.R. 179 (Bankr. W.D.Mo.1996) (corporation in process of liquidating after filing voluntary dissolution proceedings under applicable Missouri law was subject to involuntary chapter 7 proceeding); In re Anderson, 94 B.R. 153, 157 (Bankr.W.D.Mo.1988) (noting that “Courts have uniformly held ... that a voluntary or involuntary Chapter 7 petition may only be filed against a dissolved corporation that is still in existence.”) (citations omitted). But in this case, the entity winding up its affairs was organized and operated as a non-profit. The alleged debtor bears the burden of showing that it is an eleemosynary institution. Cf In re Caucus Distributors, Inc., 83 B.R. 921, 930 (Bankr.E.D.Va.1988) (noting that “the alleged debtors must plead and prove the issue of whether they are eleemosynary organizations”). In evaluating whether an alleged debtor is a non-profit entity that is not a moneyed business within the meaning of 11 U.S.C. § 303(a), the entity’s corporate charter and status under state law is probative, but not determinative. See In re Capitol Hill Healthcare Group, 242 B.R. 199, 202 (Bankr.D.Dist.Col.1999) (“State law organization or registration as a non-profit corporation is not decisive.”); In re Roumanian Workers Educ. Ass’n, 108 F.2d 782, 783 (6th Cir.1940) (“The susceptibility of appellant [the alleged debtor] to bankruptcy does not depend altogether upon its charter.”) (citation omitted). In determining whether an alleged debtor is a non-profit organization not subject to an involuntary proceeding, the court should “examine both the corporation’s charter and its activities to determine whether the alleged debtors are ineligible to be debtors in an involuntary case.” Caucus Distributors, 83 B.R. at 930 (citing In re United Kitchen Associates, 33 B.R. at 216). See also, In re Allen University, 497 F.2d 346, 348 (4th Cir.1974) (determining that the court must look beyond the corporate charter to determine whether the business activities indicate that the alleged debtor is a moneyed business). Thus the alleged debtor’s organizational documents and consequent powers and limitations imposed upon such entity under applicable state law serve as a starting point, but it is also appropriate and necessary for the court to consider the nature and extent of the activities in which the entity has actually engaged. See Grace Christian Ministries, Inc., 287 B.R. 352, 355 (Bankr. W.D.Pa.2002) (noting that “[t]he character and the extent of activities in which it [the alleged debtor] has actually engaged ... may also be considered.”) (citations omitted).
In Grace Christian Ministries, the petitioning creditors asserted that because the alleged debtor, an entity incorporated as a non-profit corporation for the purpose of “the worship of God”, no longer conducted any religious services on its premises and only used its facility to operate a day care center that charged for its services, it was a “moneyed, business, or commercial corporation” subject to an involuntary proceeding. 287 B.R. at 356. The court rejected this argument, finding that the fact that the entity no longer operated as a church indicated that the entity was inactive, and that “[a] corporation may be inactive and still not be a ‘moneyed, business, or commercial corporation.’ ” Id. The court found further that the fact that the day care center charged for its services did not necessitate the conclusion that the entity is a “moneyed business.” Id. at 357 (“it is a non sequitur to conclude that a corporation is a ‘moneyed, business, or commercial corporation’ merely because it charges and is paid a fee for its services.”).
Here, it is undisputed that MMCI was incorporated as a non-profit organization under the laws of the State of New *392Mexico. See Exhibit A to Motion to Dismiss. Petitioning Creditors urge that because the sole remaining purpose of MMCI is to liquidate its business, it is no longer engaged in the non-profit activity for which it was incorporated, and therefore loses its immunity from an involuntary proceeding. This Court disagrees. The fact that a non-profit is in the process of winding up its affairs does not automatically change the character of its business from non-profit to profit. By seeking to wind up its affairs, MMCI is neither a de facto for-profit entity, nor an active nonprofit entity. Simply by virtue of winding up its affairs and ceasing its operations, it has not lost its character as an eleemosynary organization and consequently is “not a moneyed, business, or commercial corporation” subject to an involuntary petition under 11 U.S.C. § 303(a).
Petitioning Creditors also allege that MMCI acted contrary to its charter when it transferred its assets to the City of Las Cruces and Dona Ana County, and that it should, therefore, not be allowed to evade the supervision of the bankruptcy court by contending that it is a non-profit organization immune from an involuntary proceeding. Petitioning Creditors’ allegations that MMCI acted improperly in connection with certain transactions MMCI entered into as part of its process of winding down its affairs are presently the subject of state court litigation, and Petitioning Creditors can pursue their remedies against MMCI in that forum. Cf In re Petro Fill, Inc., 144 B.R. 26, 30 (Bankr.W.D.Pa.1992) (“An involuntary petition should be dismissed where petitioning creditors have adequate remedies under state law.”) (citing In re Kass, 114 B.R. 308, 309 (Bankr. S.D.Fla.1990)).
Based on the foregoing, the Court concludes that MMCI is not a moneyed business subject to an involuntary proceeding under 11 U.S.C. § 303(a). An appropriate order dismissing this involuntary proceeding will be entered. MMCI and Petitioning Creditors each included a request for attorneys’ fees; however, the Court finds that fees need not be awarded to either party under the circumstances presented.
. Cardinal Health 301, Inc. filed suit against MMCI, the County of Dona Ana, the City of Las Cruces, and PHC-Las Cruces, Inc. on March 15, 2005 in the Third Judicial District Court, State of New Mexico, County of Dona Ana as Case No. CV-05-456.
. The Application for Emergency Receivership and Preliminary Appointment of Receiver filed by MMCI in state court was assigned Case No. CV-05-733. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493810/ | MEMORANDUM OF DECISION ON MOTION OF PLAINTIFF CRAIG R. JALBERT, LIQUIDATING SUPERVISOR, FOR JUDGMENT ON THE PLEADINGS ON COUNTS I AND III OF THE COUNTERCLAIM OF DEFENDANTS C. DAVID CHASE AND ALAN R. STONE AND TO STRIKE THEIR THIRD AFFIRMATIVE DEFENSE
WILLIAM C. HILLMAN, Bankruptcy Judge.
I. INTRODUCTION
Craig R. Jalbert, the Liquidating Supervisor of Servicesense.com (the “Liquidating Supervisor”) moves to dismiss the counterclaims that C. David Chase (“Chase”) and Alan R. Stone (“Stone”) asserted against him on the grounds that they have failed to state a claim upon which relief can be granted (the “Motion”). The counterclaims assert violations of state and federal securities law. Chase and Stone objected to the Motion and after a hearing, I took the matter under advisement. For the reasons set forth below, I will enter an order granting the Motion.
II. BACKGROUND
The facts necessary to decide the Motion are not in dispute and I accept all of Chase and Stone’s well-pleaded facts as true.1 The Liquidating Supervisor became the liquidating supervisof under the Joint Liquidating Plan of Reorganization which I confirmed on April 10, 2002. Servi-sense.com, Inc. (the “Debtor”) had filed for rélief under Chapter 11.
Prior to the filing, on October 31, 2000, the Debtor entered into an agreement with various investors entitled Series A Convertible Preferred Stock Warrant Purchase Agreement. ( the “Agreement”). Pursuant to the Agreement, C. David Chase (“Chase”) issued to the Debtor a promissory note in the amount of $2,050,000 and Alan R. Stone (“Stone”) issued to the Debtor a promissory note in the amount of $850,000. With respect to the topic of brokers, the Agreement provided as follows:
Brokers. Except as set forth on Exhibit D hereto, the Company and each Purchaser (i) represents and warrants to the other parties hereto that he, she or it has retained no finder or broker in connection with the transaction contem*436plated by this Agreement, and (ii) will indemnify and save the other party harmless from and against any and all claims, liabilities or obligations with respect to brokerage or finder’s fees or commissions, or similar fees in connection with the transactions contemplated by this Agreement asserted by any person on the basis of any statement or representation alleged to have been made by such indemnifying party.
Agreement, Section 9.5.2
Over the next six months, Chase paid the Debtor $1,200,000 and the Debtor issued 846,153 shares of Series A Preferred Stock to Chase, with warrants to purchase additional shares. Over that same period of time, Stone paid the Debtor $900,000 and the Debtor issued to Stone 384,164 of the same shares along with warrants to purchase more.
On May 18, 2001, the Debtor cancelled the promissory notes of Chase and Stone and Chase and Stone surrendered 527,125 and 119,028 shares respectively of Series A Preferred Stock. Chase and Stone then loaned the Debtor $100,000 and $25,000, respectively and received in return warrants for securities and security interests in the Debtor’s assets, the financing statements for which were filed the following month. Chase and Stone also signed on that date a Mutual Release and Settlement Agreement pursuant to which the Debtor released Chase and Stone from any liabilities arising from any investments they made with the Debtor.
During the two transactions, Chappell White LLP represented the Debtor. The primary attorneys with whom they dealt were David E. Dryer and Gregory L. White. Chase and Stone had enjoyed a long standing relationship with the attorneys and the firm. Chappell White LLP, Dryer and White were not registered as broker-dealers in Massachusetts.
The Liquidating Supervisor filed a lawsuit against, inter alia, Chase and Stone. In his complaint, he asserts that the creation of the security interests, which were perfected by the filing of the financing statement within 90 days of the filing of the petition, constitute avoidable preferences pursuant to 11 U.S.C. § 547(b). The Liquidating Supervisor also seeks to re-characterize Chase and Stone’s obligations to the Debtor as equity investments and to have their claims subordinated to the Debtor’s secured, priority and general unsecured creditors. The Liquidating Supervisor claims that the settlement agreements between the Debtor and Chase and the Debtor and Stone are fraudulent conveyances under 11 U.S.C. §§ 548(a) and 544(b). Lastly, the Liquidating Supervisor seeks to recover the balance of the promissory notes from Chase and Stone.
In addition to their general denial of the complaint, Chase and Stone also filed counterclaims and affirmative defenses. In Count I, Chase and Stone allege that Dryer, White and Chappell White convinced Chase and Stone to purchase securities while they were unregistered broker dealers in violation Mass. Gen. Laws ch. 110A § 410(a). Under the statute, they contend, the Liquidating Supervisor is liable for any amounts they may be required to pay. In Count III, Chase and Stone contend that the securities were offered and sold to them in violation of 15 U.S.C. § 78cc(b). In their third affirmative defense, Chase and Stone contend that the Liquidating Supervisor’s claims are barred under the forgoing statutes.3
*437The Liquidating Supervisor moved for judgment on Counts I and III of the counterclaims and to strike the third affirmative defense of Chase and Stone. I will consider the matters in turn.
III. ANALYSIS
A. Motion for Judgment on Counterclaims I and III
i.The Standard&emdash;Fed. R. Civ. P. 12(c)
The Liquidating Supervisor has moved to for judgment on counterclaim Counts I and III pursuant to Fed.R.Civ.P. 12(c) as adopted by Fed. R. Bankr.P. 7012 which allows a party to move for judgment on the pleadings. In considering the Motion, I must give to Chase and Stone the benefit of all reasonable inferences and I must deny the Motion unless it appears that Chase and Stone can prove no set of facts in support of their claims that would entitle them to the relief they seek. See Pasdon v. City of Peabody, 417 F.3d 225, 226 (1st Cir.2005) (“The standard for evaluating a Rule 12(c) motion for judgment on the pleadings is essentially the same as that for deciding a Rule 12(b)(6) motion ... The motion should not be granted ‘unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.’ ”) (citations omitted). See also Hishon v. King & Spalding, 467 U.S. 69, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984); Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). Great specificity is ordinarily not required to survive a Rule 12(b)(6) motion. It is enough for Chase and Stone to sketch an actionable claim by means of a generalized statement of facts from which the Liquidating Supervisor will be able to frame a responsive pleading. Garita Hotel Limited Partnership v. Ponce Federal Bank, 958 F.2d 15, 17 (1st Cir.1992).
ii. Whether the Language of the Stock Purchase Agreement Prevents Chase and Stone from Asserting that Dryer and White Were Unlicensed Broker-Dealers
The Liquidating Supervisor first asserts that Chase and Stone are estopped from arguing that Dryer and White were unlicensed broker-dealers based upon the language in the Agreement regarding the lack of brokers representing the parties. Chase and Stone contend that the provisions of the Agreement are not dispositive. The language, they claim, was designed solely to prevent an unknown third party from subsequently claiming fees as a broker. As evidence, they point to the language that contains mutual indemnity obligations. The parties did not argue the issue at the hearing.
The language of the subsection refers in one sentence to retaining a broker and indemnification for broker fees. The natural reading of the clause is as Chase and Stone describe. The subsection is there to address any claims for fees that might arise. I will not dismiss the counterclaims based upon the language in this subsection.
iii. Whether Count I of the Counterclaim Fails to State a Claim Under Section 410(a) of Mass. Gen. Laws ch 110A.
Pursuant to Mass. Gen. Laws ch 110A, § 410(a), “[a]ny person who (1) offers or sells a security in violation of section 201(a) ... (2) ... is liable to the person buying the security from him, who may sue either at law or in equity to recover the consideration paid for the security, together with interest at six per cent per year from the date of payment, costs, and reasonable attorneys’ fees ... ”.4 *438Mass. Gen. Laws ch. 110A, § 201(a) provides that “[i]t is unlawful for any person to transact business in this commonwealth as a broker-dealer or agent unless he is registered under this chapter.” “Broker-dealer”, in turn, is defined as “any person engaged in the business of effecting transactions in securities for the account of others or for his own account.” Mass. Gen. Laws ch. 110A, § 402(c). “Broker-dealer”, however, “shall not include: (1) an agent; (2) an issuer ...” M5
Based upon the forgoing, the Liquidating Supervisor contends that the Debtor cannot be liable under § 410 because the Debtor (i) is not broker-dealer or agent as those terms are defined in the statute and (ii) is excepted from the definition of broker-dealer as an issuer. Accordingly, he seeks dismissal of this counterclaim because the counterclaim fails to state a claim for relief.
Chase and Stone counter that the Liquidating Supervisor is attempting to construe the statute too narrowly. They contend that because this is largely un-chartered water, I must look at the purpose behind the statute and broadly interpret it in order to achieve its intent. In support, they cite to Adams v. Hyannis Harborview. Inc., 838 F.Supp. 676 (D.Mass.1993) and Giordano v. Auditore, 355 Mass. 254, 244 N.E.2d 555 (1969). They placed great emphasis on the fact they had no contract with the attorneys rather their contract is with the Debtor.
As part of their argument, Chase and Stone assert that I must follow the plain meaning of the statute which should be ascertained from all of its words. Notwithstanding this argument, Chase and Stone then ask that I extract the words “recover the consideration” from the statute and interpret the phrase to mean that whoever receives the consideration can be subject to civil liabilities. Any other interpretation, they contend, would be narrow-minded and fail to give effect to all of the words of the statute.
Chase and Stone would be correct if the statute read “recover the consideration from whomever was the recipient”. I must, however, give full effect to the applicable statutes and all of the language contained therein.6 Accordingly, I must look at the prefatory language which requires that I examine not just the recipient but underlying violation. In this case, the underlying violation had to involve an unlicensed broker-dealer. The plain language of the statute excepts the issuer from the definition of broker-dealer. If there is no broker-dealer, there is no violation of § 201 and therefore no liabilities under § 410. Despite Chase and Stone’s representations about the purpose of the statute, the plain meaning does not permit me to follow their interpretation.
Chase and Stone also claim that the language “any person who offers or sells” must include the Debtor because a pérson is defined under the statute to include a corporation. They disregard, however, the modifying language that the person selling must be doing so in violation of, inter alia, subsection 201. It is not just the act of *439selling that would hold one liable under the statute.
The cases upon which Chase and Stone rely are not helpful. In Adams v. Hyannis Harborview, Inc. 838 F.Supp. 676 (D.Mass.1993), owners of newly purchased condominium units sued on the grounds that the units should have been registered as securities. The court ruled that the units were investment contracts subject to applicable securities laws. 838 F.Supp. at 686. In determining who was a seller under Mass. Gen. Laws ch. 110A § 410(a)(2), the court cast a wide net over the players involved in the marketing and sales. The subsection of the statute, however, refers to any person who “offers or sells by means of any untrue statement of a material fact ... ”. The subsection upon which Chase and Stone seek relief in the counterclaim is (a)(1) which refers to a person who sells but one who sells “in violation of section 201(a)”. That subsection does not simply rest on an analysis of one who offers or sells. Accordingly, how the court interpreted who the seller was in Adams is not relevant.
In Giordano v. Auditore, 355 Mass. 254, 244 N.E.2d 555 (1969), the court considered whether the defendant could be considered a seller when he acted as a salesman for purposes of a precursor statute. The court held he could because the statute must be broadly read. In that case, however, there were no specific statutes excluding the defendant. Moreover, the court spoke of applying a definition broadly unless expressly exempted. 355 Mass, at 256, 244 N.E.2d 555.
Because no action can lie against the Debtor under the plain language of Mass. Gen. Laws 110A, § 410(a)(1), I will enter an order granting the Liquidating Supervisor’s request to dismiss Count I of the Counterclaims.
iv. Whether Count III Fails to State a Claim Under Section 78cc(b) of the Exchange Act.
Chase and Stone contend that by using instruments of interstate commerce while acting as unregistered broker dealers, Dryer, White and Chappell White violated 15 U.S.C. § 78o(a)(l).7 They therefore contend that the purchase of the securities can be avoided and they can receive a return of the money they paid to the Debtor under the promissory notes and reimbursement of the costs they incurred for defending this lawsuit pursuant to 15 U.S.C. § 78cc(b).8
*440The Liquidating Supervisor seeks to dismiss this counterclaim contending that Chase and Stone cannot meet their burden under this statute. According to the Liquidating Supervisor, to prevail in an action under this statute, Chase and Stone must show that (1) they were in privity with the Debtor; (2) they are in the kind of class the statute was designed to help; and (3) the contract involved prohibited transaction.9 The Liquidating Supervisor contends that notwithstanding the merits of the first two requirements,10 Chase and Stone cannot establish the third as the transaction was not a prohibited transaction. That is, although the actions of Dryer, White and Chappell White might have violated state and federal securities law, there is no nexus between that action and the Agreement which does not violate the applicable securities laws in any way.
Chase and Stone disagree. They contend that I must look beyond the four corners of the Agreement in order to enforce the broad remedial purpose of the applicable securities laws. In support, they cite to Regional Properties in which the court explained that “[plaintiffs] sought to avoid certain contracts, perfectly lawful on their face the performance of which by [defendant] Financial resulted in a violation of the Act. That these contracts, under different circumstances, could have been performed without violating the Act is immaterial.” 678 F.2d at 561.
I am, however, persuaded by the reasoning more recently offered by the Third Circuit. See GFL Advantage Fund, Ltd. v. Colkitt, 272 F.3d 189 (3rd Cir.2001), cert. denied, 536 U.S. 923, 122 S.Ct. 2588, 153 L.Ed.2d 778 (2002). In it, the court summed up many of the small number of cases which have addressed this issue and reconciled them as follows:
Although the court of appeals in Regional Properties rescinded the contracts therein and explicitly rejected Drasner’s [v. Thomson McKinnon Securities, Inc.], 433 F.Supp. 485, 488-89 (S.D.N.Y. 1977), narrow reading of Section 29(b), its opinion is nevertheless consistent with the outcomes in Drasner, Slomiak [v. Bear Steams & Co., 597 F.Supp. 676, *441677 (S.D.N.Y.1984)! and Zerman [v. Jacobs, 510 F.Supp. 132, 135 (S.D.N.Y. 1981)], . In particular, the violations of the Exchange Act alleged in Drasner, Slomiak, and Zerman were “collateral or tangential to the contract between the parties,” whereas the violation alleged in Regional Properties was “inseparable from the performance of the contract: that plaintiffs were attempting to avoid.” ... The parties could — and did perform the contracts at issue in Drasner, Slom-iak and Zerman without committing any violations of the Exchange Act, but the broker in Regional Properties could not carry out his obligations under the agreements without violating the Exchange Act, for performance of the agreements entailed selling partnership interests, which the broker lawfully could not do due to his failure to register as a broker-dealer....
272 F.3d at 202.
With respect to the case before it, the Third Circuit ruled
In the end, GFL’s alleged unlawful activity (i.e. its short sales) is too attenuated from the parties’ valid, lawful contracts (i.e. the National Medical and EquiMed notes) or GFL’s performance thereunder. Therefore, we conclude that the notes were neither made nor performed in violation of any federal securities laws as is required for recision under Section 29(b).
Id.
In this case, there is no allegation that the Agreement itself was unlawful. Having adopted the Third Circuit’s reasoning, I must conclude that in Count III of the counterclaims, Chase and Stone do not state a cause of action for which relief can be granted.
B. Motion to Strike Affirmative Defense
Fed.R.Civ.P. 12(f), as adopted by Fed. R. Bankr.P. 7012, provides that “a court may order stricken from any pleading any insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.” In the Motion, the Liquidating Supervisor seeks to strike Chase and Stone’s third affirmative defense as it is predicated on their right to rescind. Because I have ruled that those statutes cannot bring them the relief they seek, I will enter an order granting the request to strike.
IV. CONCLUSION
For the forgoing reasons, I will enter an order granting the Motion.
. See Pasdon v. City of Peabody, 417 F.3d 225, 226 (1st Cir.2005).
. Exhibit D to the Agreement does not contain any exception relevant to this passage.
. The Liquidating Supervisor has amended the complaint but the amendments are not relevant to the matter before the Court.
. In Counterclaim I, Stone and Chase seek relief under subsection (a)(2). The allegations in the complaint and, indeed, the discussion in the Objection demonstrate that they are *438seeking liabilities based upon a violation of (a)(1). The Liquidating Supervisor addressed this in footnote 4 of his memorandum in support of the Motion. The confusion appears to stem from the fact that the violation is described in subsection (a)(1) but the liability for the infractions of subsections (1) and (2) are set forth solely in subsection (2). Taking the documents together, I find that Chase and Stone are seeking to hold the Liquidating Supervisor liable for a violation of subsection (a)(1) of § 410.
. Chase and Stone do not allege that the Debtor was an agent.
. See e.g. Costos v. Coconut Island, 137 F.3d 46, 49 (1st Cir.1998).
. Subsection (a)(1) of the statute provides:
(a) Registration of all persons utilizing exchange facilities to effect transactions; exemptions
(1) It shall be unlawful for any broker or dealer which is either a person other than a natural person or a natural person not associated with a broker or dealer which is a person other than a natural person (other than such a broker or dealer whose business is exclusively intrastate and who does not make use of any facility of a national securities exchange) to make use of the mails or any means or instrumentality of interstate commerce to effect any transactions in, or to induce or attempt to induce the purchase or sale of, any security (other than an exempted security or commercial paper, bankers’ acceptances, or commercial bills) unless such broker or dealer is registered in accordance with subsection (b) of this section.
. Subsection (b) of the statute provides:
(b) Contract provisions in violation of chapter Every contract made in violation of any provision of this chapter or of any rule or regulation thereunder, and every contract (including any contract for listing a security on an exchange) heretofore or hereafter made, the performance of which involves the violation of, or the continuance of any relationship or practice in violation of, any provision of this chapter or any rule or regulation thereunder, shall be void (1) as regards the rights of any person who, in violation of any such provision, rule, or regulation, shall have made or engaged in the performance of any such con*440tract, and (2) as regards the rights of any person who, not being a party to such contract, shall have acquired any right thereunder with actual knowledge of the facts by reason of which the making or performance of such contract was in violation of any such provision, rule, or regulation: Provided, (A) That no contract shall be void by reason of this subsection because of any violation of any rule or regulation prescribed pursuant to paragraph (3) of subsection (c) of section 78o of this title, and (B) that no contract shall be deemed to be void by reason of this subsection in any action maintained in reliance upon this subsection, by any person to or for whom any broker or dealer sells, or from or for whom any broker or dealer purchases, a security in violation of any rule or regulation prescribed pursuant to paragraph (1) or (2) of subsection (c) of section 78o of this title, unless such action is brought within one year after the discovery that such sale or purchase involves such violation and within three years after such violation. The Commission may, in a rule or regulation prescribed pursuant to such paragraph (2) of such section 78o(c) of this title, designate such rule or regulation, or portion thereof, as a rule or regulation, or portion thereof, a contract in violation of which shall not be void by reason of this subsection.
. The parties do not dispute this standard. See e.g. Regional Prop., Inc. v. Finan, and Real Estate Consulting Co. 678 F.2d 552, 559 (5th Cir.1982).
. In a footnote, the Liquidating Supervisor suggests that Chase and Stone may not be able to prevail against the argument that Dryer, White and Chappell White cannot have violated § 78o(a)(l) because they are exempt based upon their exclusively intrastate business. He does not urge such a finding upon the Court, however, as it involves findings based upon evidence outside of the pleadings. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493811/ | DECISION & ORDER
CARL L. BUCKI, Bankruptcy Judge.
The only open issue in this adversary proceeding is whether collection costs are properly treated as a non-dischargeable component of a student loan, even when the lender chose not to claim these collection costs for purposes of a distribution in chapter 13.
Teresa L. Belton, the debtor herein, filed a petition for relief under chapter 13 of the Bankruptcy Code on October 13, 1999. Pursuant to her confirmed plan of reorganization, unsecured creditors were to receive a distribution of five percent of their allowed claims. These unsecured creditors included the New York State Higher Education Services Corporation (“NYSHESC”), which filed a timely claim in the amount of $8,454, for monies owed on account of seven educational loans. As filed, however, the claim did not include any costs of collection. In due course, Teresa Belton completed her chapter 13 plan, NYSHESC received its authorized distribution, and this court issued an order *473of- discharge pursuant to 11 U.S.C. § 1328(a).
Section 1328(a) of the Bankruptcy Code states that an order of discharge granted under that section will not discharge a debt of the kind specified in 11 U.S.C. § 523(a)(8). Pursuant to section 523(a)(8), Belton’s discharge will not extend to an educational loan, unless excepting such debt from discharge would “impose an undue hardship on the debtor and the debtor’s dependents.” Contending that hardship would arise from payment of the balance due on her student loans, Teresa Belton commenced the present adversary proceeding to determine the. discharge-ability of her obligation to NYSHESC.
Shortly after being served with Belton’s complaint, NYSHESC assigned the debt- or’s student loan accounts to Educational Credit Management Corporation (“ECMC”), which was substituted as the defendant. The matter was then tried before this court on July 29, 2005. After considering all of the evidence, I ruled from the bench that the debtor had failed to prove that repayment of the student loans would impose an undue hardship under the standard that the Court of Appeals had established in Brunner v. New York State Higher Education Services, 831 F.2d 395 (2nd Cir.1987). Accordingly, I instructed the parties that I would issue an order declaring that the unpaid balance of the student loans is non-dischargeable. What the parties continue to dispute is the amount of that unpaid balance. As to this question, I granted leave for submission of post-trial memoranda. The parties have now submitted these memoranda, and the matter is ready for decision.
ECMC contends that the non-discharge-able obligation includes not only the unpaid balance of its claim as filed and with interest, but also collection costs as allowed by applicable regulations. By its calculations, as of June 20, 2005, the non-dischargeable obligation totaled $13,744.85, which included a principal balance of $8,063.09, unpaid interest of $3,042.11, and collection costs of $2,639.65. Ms. Belton now objects to her continuing liability for collection costs. She argues that the collection costs are excessive, and that NYSHESC waived their imposition when it neglected to include that item into its proof of claim.
The present dispute involves student loans that were guaranteed under the Federal Family Education Loan Program. Pursuant to 20 U.S.C. § 1091 — (b)(1), a borrower who defaults on these obligations “shall be required to pay ... reasonable collection costs.” Regulations further define these reasonable collection costs. Specifically, 34 C.F.R. § 682.410(b)(2) establishes the applicable standard:
Whether or not provided for in the borrower’s promissory note and subject to any limitation on the amount of those costs in that note, the guaranty agency shall charge a borrower an amount equal to reasonable costs incurred by the agency in collecting a loan on which the agency has paid a default or bankruptcy claim. These costs may include, but are not limited to, all attorney’s fees, collection agency charges, and court costs. Except as provided in §§ 682.401(b)(27) and 682.405(b)(1)(iv), the - amount charged a borrower must equal the lesser of — (i) The amount the same borrower would be charged for the cost of collection under the formula in 34 CFR 20.60; or (ii) The amount the same borrower would be charged for the cost of collection if the loan was held by the U.S. Department of Education.
Essentially, this regulation establishes a formula for the calculation of liquidated damages arising from a default in payment. Although she does not question the *474accuracy of ECMC’s application of the formula, Ms. Belton challenges the reasonableness of the resulting charge. The District Court for the Southern District of Indiana carefully considered this issue in its decision in Educational Credit Management Corp. v. Barnes, 318 B.R. 482 (2004). It found that the regulation established a reasonable and constitutional method for the calculation of collection costs. Furthermore, the court concluded that “the regulation requiring all borrowers to pay collection costs associated with their loans is consistent with the theory that underlies a non-dischargeable education loan.” 318 B.R. at 489.
I fully agree with the reasoning of the decision in Barnes. Rather than to repeat its analysis, I adopt that opinion to the current dispute. Accordingly, I will focus my present discussion on the debtor’s assertion of a waiver of collection costs, by reason of the failure to include those costs into a proof of claim.
In relevant part, section 1328(a) of the Bankruptcy Code states that in a proceeding under chapter 13, “the court shall grant the debtor a discharge of all debts provided for by the plan or disallowed under section 502 of this title, except any debt ... of the kind specified in ... paragraph ... (8) ... of section 523(a)” (emphasis added). Paragraph 8 of section 523(a) establishes the exception of student loans from discharge. Most notably, the exception clause in section 1328(a) modifies “all debts provided for by the plan or disallowed under section 502.” For example, the court may disallow an unmatured claim pursuant to section 502(b)(2), as well as certain tardily filed claims pursuant to section 502(b)(9). Even if disallowed under section 502, an educational loan claim is excepted from discharge under 11 U.S.C. § 1328(a). Essentially, therefore, the allowance of a student loan claim will impart no impact upon its dischargeability. Although collection costs may not have been part of the allowed claim in the present instance, those collection costs are appropriately part of the educational loan that is excepted from the debtor’s discharge.
Bankruptcy courts have consistently held that without a demonstration of hardship, an educational loan obligation is fully non-dischargeable, even as to that portion of the obligation which was not allowed for purposes of a chapter 13 plan. For example, in In re Pardee, 218 B.R. 916 (9th Cir. BAP 1998), the court recognized the non-dischargeability of interest that an educational loan creditor had neglected to include in its proof of claim. Similarly, in In re Amos, 283 B.R. 864 (Bankr.W.D.Ky. 2002), an educational loan creditor had forfeited its right to receive full payment through the chapter 13 plan, as a consequence of its failure to file any proof of claim. Nonetheless, the court held that the educational loan was not discharged. Also, in two separate cases where an educational loan creditor had defaulted in responding to an objection to the amount stated in its proof of claim, the bankruptcy court sustained the objection and reduced the claim to a sum less than what was actually due. Even though the reduced claim was paid in full through the chapter 13 plan, the court later held that the discharge order did not discharge any remainder of the actual liability. In re Klassen, 227 B.R. 187 (Bankr.D.Kan.1998), In re Bell, 236 B.R. 426 (N.D.Ala.1999).
This court was never previously asked to resolve any dispute regarding the allowed amount of any claim for educational loans to Teresa Belton. Had that issue been fully controverted, then perhaps we might now consider application of the doctrine of law of the case. Instead, the present dispute involves a claim that was sim*475ply understated for purposes of chapter 13 distribution. Irrespective of any claim allowance, 11 U.S.C. § 1328(a) will not discharge any portion of an educational loan indebtedness of the kind that 11 U.S.C. § 523(a)(8) excepts from discharge.
ECMC has established that as of June 20, 2005, Teresa Belton owed an outstanding balance of $13,744.85, on account of her educational loans with interest and the costs of collection. For all of the reasons stated herein and in the oral rulings rendered at the conclusion of the trial of this adversary proceeding, the court will deem the entire obligation to be non-dischargea-ble.
So ordered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493812/ | MEMORANDUM DECISION ON MOTION FOR DIRECTIONS TO IMPLEMENT CONSENT ORDER
BURTON R. LIFLAND, Bankruptcy Judge.
Raymond A. Levites (the “Administrator”), the Administrator of the Securities Holder Channeling Fund (the “Fund”), moves for this Court’s directions in respect of the implementation of the “Consent Order (1) Appointing Channeling Fund Administrator and (2) Approving Securities Holder Channeling Fund Distribution Procedures” entered on November 3, 2003 (the “Fund Order”). The affected distrib-utee parties-in-interest have filed position papers in response to the motion. None have challenged this Court’s jurisdiction to determine the Administrator’s motion. Background
On September 20, 2003, this Court entered an order confirming the Second Amended Joint Chapter 11 Plan (the “Plan”), of Williams Communications Group, Inc. and its direct and indirect subsidiaries (together, “Williams”). The Plan, which was proposed by the Debtors, together with the creditors’ committee appointed in the Chapter 11 cases (the “Creditors’ Committee”), and Leucadia National Corporation (“Leucadia”), provides, among other things, that certain claims of securities holders (the “Securities Plaintiffs”) asserted in a consolidated secu*492rities fraud class action case1 (the “Securities Action”), pending in the United States District Court for the Northern District of Oklahoma (the “Securities Court”), shall be channeled to and satisfied from a Securities Holder Channeling Fund (the “Fund”).2 The Plan contemplated that the Court would enter an order establishing procedures for the Securities Plaintiffs to make claims against the Fund to the extent the claims were liquidated in the Securities Action. In return, the Securities Plaintiffs would be enjoined from pursuing a number of parties, including the officers and directors of Williams.
Under the Plan and the Fund Order, the Fund assets consist of (1) any recovery that could be obtained under Williams’ directors and officers liability insurance policies (the “D & 0 Insurance”) and (2) 2% (1 million shares) of the WilTel Communications Group, Inc. (WilTel) common stock (the “Stock”), which shares have since been converted to stock of Leucadia. Pursuant to the Fund Distribution Procedures, the assets of the Fund are to be distributed after receipt of an order of the Securities Court, or other court of competent jurisdiction, approving a Plan of Allocation among the Securities Plaintiffs. Assets in the Fund remaining after distribution, if any, pursuant to the Plan of Allocation, are to be distributed 50% to Williams’ unsecured creditors and 50% to Leucadia.
The parties to the Securities Action are currently involved in mediation. In connection with' that mediation, an issue arose with respect to the assets of the Fund and whether the Stock in the Fund may be fungibly used to satisfy the claims of the Securities Plaintiffs before the D & O Insurance is exhausted. Lead Plaintiff and the insurance carriers3 contend that the claims (the “Claims”), established in the Plan of Allocation should be satisfied equally, i.e., pro rata, out of the D & O Insurance and the Stock. However, the parties who negotiated the Plan — Leuca-*493dia, counsel for the Debtor and counsel for the Creditors’ Committee — assert that the Claims are to be first satisfied by the D & 0 Insurance and, if such insurance is insufficient to satisfy the Claims, the Securities Plaintiffs can avail themselves of the Stock thereafter. 'All parties agree that this dispute is ripe for resolution by this Court. Based upon a plain reading of the documents and the representations of the parties who negotiated the Plan, I find that the Stock is simply a backstop against a potential judgment or settlement in excess of the D & 0 Insurance. As explained below, I find that this is the allocation that best comports with and is supported by the language of the Fund Order and the intention of the parties.
Discussion
Pursuant to section 7.1(g) of the Plan, this Court retained jurisdiction to resolve any disputes with respect to the Fund Distribution Procedures. See Luan Investment S.E. v. Franklin U5 Corp. (In re Petrie Retail, Inc.), 304 F.3d 223, 230 (2d Cir.2002).
During the Plan negotiation process, the Debtor, the Creditors’ Committee and Leucadia had initially agreed to resolve the Securities Claims by making the D & O Insurance, approximately $135 million, exclusively available in a “channeling fund” for the Securities Plaintiffs.4 When the Securities Plaintiffs wanted additional consideration for the Claims, Leucadia agreed to contribute from its shares under the Plan, one percent of the reorganized debt- or’s shares to the Channeling Fund if the Creditors Committee’s constituency (who had negotiated to receive 55% of the reorganized debtor’s shares) made the same contribution.5 Leucadia and the Creditors Committee apparently believed that the D & O Insurance was adequate to satisfy the Securities Claims but agreed to backstop the insurance with the Stock so long as the Stock would revert to the creditors and Leucadia if not needed to satisfy the Securities Claims. Because of a lender-imposed deadline for confirmation of the Plan, the Channeling Fund was described generally in the relevant Plan documents with the details to be worked out after confirmation.
The Securities Holder Channeling Fund Distribution Procedures were filed with the Court on September 6, 2002 and subsequently amended on September 29, 2002 (the “Initial Procedures”). The Initial Procedures provided, in relevant part, that on or before the tenth business day following the Effective Date of the Plan, “the [Plan] Proponents shall propose” a person to serve as administrator of the Securities Holder Channeling Fund (the “Channeling Fund Administrator”) established by the Plan, and that such proposal shall be made by filing a notice identifying the proposed administrator with the Court and serving such notice upon certain parties. On October 29, 2002, Leucadia filed with the Court a “Notice of Proposed Administrator for the Securities Holder Channeling Fund” (the “Appointment Notice”). On November 22, 2002, the Lead Plaintiff filed an objection to the Appointment Notice and *494his own Proposed Securities Holder Channeling Fund Distribution Procedures. After negotiations among the parties, the Lead Plaintiffs objection was resolved and on November 3, 2003, this Court entered the Fund Order. Attached to the Fund Order as Exhibit A were the Fund Distribution Procedures.
The Fund Distribution Procedures provide in relevant part that:
(the “D & 0 policies”) shall first be utilized to satisfy the obligations of the director and officer defendants in the [Securities Action] pending in the Securities Court, either pursuant to a judgment entered by the Securities Court or another court of competent jurisdiction or a final order approving a settlement by the Securities Court or another court of competent jurisdiction. To the extent there are any D & 0 Policy proceeds remaining after the satisfaction of such obligations and these remaining proceeds are available to the Fund, such proceeds shall become assets of the Fund to be distributed in accordance with the procedures set forth herein.
See Section 11(c) of the Fund Distribution Procedures. The plain language of that section demonstrates that the D & 0 Insurance was to be used to satisfy the Claims first. In addition, when read in conjunction with Section III(c), which provides that any residual stock and or cash remaining after all claims and expenses have been paid shall be distributed to the unsecured creditors and Leucadia, it is clear that the parties intended that the D & 0 Insurance be exhausted before the Stock contributions from Leucadia and the unsecured creditors be used to pay the claims of the Securities Plaintiffs.6
Lead Plaintiff also argues that the D & 0 Insurance alone was no consideration for the Channeling Injunction because he had a right to sue for it anyway. However, the Creditors’ Committee contends that without the Plan, the Committee would be entitled to the $135 million in D & 0 Insurance and that it could get to the proceeds faster than the Lead Plaintiff. Instead, through the Plan and the Channeling Injunction, the Securities Plaintiffs received the right to pursue the D & 0 Insurance without competition from the Committee. (See Memorandum of Official Committee of Unsecured Creditors in Support of Confirmation of the Second Amended Joint Plan of Reorganization dated September 27, 2002; ECF doc. # 373).
Lastly, the result here is consistent with the equitable dictates of the marshaling of assets doctrine historically recognized in bankruptcy. Thus, where one creditor can reach two funds of the debtor and another creditor can only reach one of those two funds, a court will require the first creditor initially to attempt to satisfy his claim out of the asset unavailable to the second creditor. See In re Eastern Freight Ways, Inc, 577 F.2d 175 (2d Cir. 1978).
Conclusion
The plain language of the Fund Order provides that the D & 0 Insurance proceeds “shall be first utilized” to pay the Claims of the Securities Plaintiffs. This *495“first utilized” language is clear and unambiguous. Conversely, there is no supportive language for the proposition that the D & 0 Insurance and the Stock be paid out “pro rata.” The documents were negotiated by sophisticated, experienced counsel who were well aware of the existence and availability of simple expressive language, i.e., pro rata. Accordingly, the order settled by the Administrator shall be entered.
. On and after January 29, 2002, multiple securities fraud class actions against Williams were filed in the Securities Court and subsequently consolidated. (In re: Williams Securities Litigation, Case No. 02-CV-72-H (M)). Those complaints 'alleged that Williams, its former corporate parent, The Williams Companies ("TWC”), and certain of their respective officers and directors made false and/or misleading statements and engaged in a scheme to defraud purchasers of the Debtor's securities during the period. July 24, 2000 through and including April 22, 2000. Subsequently, Alex Meruelo was appointed Lead Plaintiff by the Securities Court.
. The Plan defines the Securities Holder Channeling Fund as "(a) the right to receive 2% of the New WCG Common Stock (on a fully-diluted basis); to the extent that holders of Securities Holder Channeled Actions become entitled to receive such stock pursuant to the Securities Holder Channeling Fund Distribution Procedures; and (b) any recoveries that can be obtained from officer/director liability insurance policies of the Company or insurance carriers that cover officers and directors of the Company or the Company’s obligation to indemnify its officers and directors.” (Plan, Attachment I, Section 1.1(102)).
.Opportunistically, Federal Insurance Company ("Federal”), one of the issuers of the D & O insurance policies, filed a pleading with this Court arguing that the Stock "shall first be utilized to pay and [sic] settlement or judgment in the [Securities Action]” before any insurance proceeds are used. Of course, Federal concedes that "neither Federal nor the other insurance companies were parties to these proceedings, and thus did not participate in the creation of the Channeling Fund and in negotiation of the terms under which it was established.” See Memorandum of Third-Party Federal Insurance Company in Response to Channeling Fund Administrator's Motion for Instructions as to Implementation of Consent Order Dated November 3, 2003 Approving Securities Holder Channeling Fund Distribution Procedures, dated October 6, 2005 (ECF # 606).
. The definition of the Fund set forth in the Plan states that the Fund shall consist of: “(a) the right to receive 2% of the New WCG Common Stock (on a fully diluted basis), to the extent that the holders of Securities Holder Channeled Actions become entitled to receive such stock pursuant to the [Fund Distribution Procedures]; and, (b) any recoveries that can be obtained from officer/director liability insurance policies of the Company or insurance carriers that cover officers and directors of the Company or the Company's obligation to indemnify its officers and directors.” Section 1.1(102) of the Plan (emphasis added).
. Unsecured creditors asserted over $4.8 billion of unsecured claims against Williams.
. In at least one of his pleadings filed with in this case, the Lead Plaintiff appears to have understood that the D & O Insurance was the primary source of recovery on the Claims: "[T]o the extent that the Channeling Injunction seeks to relegate Plaintiff primarily to the directors' and officers' liability insurance policies, such consideration is inadequate and even illusory to the extent that these insurers disclaim coverage for any reason.” See Lead Plaintiffs Supplemental Objection to Confirmation of Amended Plan dated September 24, 2002 (ECF doc. # 366) (emphasis added). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493814/ | MEMORANDUM-OPINION
JOAN L. COOPER, Bankruptcy Judge.
This matter came before the Court for an evidentiary hearing on January 17, 2006 on the Objection of the Debtor Robert L. Schmitt Company (“Debtor”) to the claim of Creditor Weber & Rose, P.S.C. (“Weber & Rose”). The Court considered the written submissions of the parties, the testimony of the witnesses at the hearing and the arguments of counsel. For the following reasons, the Court OVERRULES the Debtor’s Objection. An Order accompanies this Memorandum-Opinion.
FACTS
In May of 2003, Debtor’s President, Cristi Carson, met with counsel at Weber & Rose regarding the possibility of filing a Voluntary Chapter 11 Petition on behalf of the Debtor. Debtor was under substantial pressure from the IRS due to unpaid taxes. Weber & Rose’ bankruptcy counsel recommended that Carson meet with Weber & Rose attorney, Michael Lannon, regarding the Debtor’s tax issues.
*596Lannon recommended several courses of action including attempting to negotiate with the appropriate taxing authorities on the unpaid taxes. Faced with the threat of closure of the business by the taxing authorities, Lannon recommended Debtor file suit against the IRS. Lannon explained that the procedure was new and that it had not been tested in this jurisdiction at that time. Lannon also informed Carson that by instituting suit, the company could buy time in order to find new financing. The suit was ultimately dismissed, but did afford the Debtor an opportunity to investigate possible funding sources and alternatives and prevent closure of the Debtor’s business. Ultimately, these efforts were unsuccessful and Debtor sought the protection of this Court by filing a Voluntary Petition under Chapter 11 of the United States Bankruptcy Code on January 13, 2004.
Weber & Rose billed Debtor monthly for its services from June 2003 through November of 2003. The services were reasonable and necessary. At the time that Debtor’s Petition was filed, the unpaid bill for services totaled $7,688.14.
On Schedule F to the Petition, Debtor listed Weber & Rose as an unsecured creditor with an undisputed claim of $7,688.14.
On January 13, 2004, Weber & Rose filed its Proof of Claim in the amount of $7,688.14.
On May 31, 2004, the Court entered an Order confirming Debtor’s Chapter 11 Plan of Reorganization. The Plan states that Weber & Rose is a Class 5 creditor having an allowed unsecured claim in the amount of $7,688.14.
On November 3, 2005, Debtor filed an Omnibus Objection to Claim of Several Unsecured Creditors which included an Objection to Weber & Rose’s claim, stating “Debtor challenges and disputes the validity of the claim in its entirety.”
On November 16, 2005, Weber & Rose filed its Response to Omnibus Objection to Claim of Several Unsecured Creditors stating that Debtor had never previously contested its claim and that the claim was valid.
LEGAL ANALYSIS
Pursuant to Rule 3003 of the Federal Rules of Bankruptcy Procedure, the schedule of liabilities filed pursuant to 11 U.S.C. § 521(1) constitutes “prima facie evidence of the validity and amount” of a claim, unless it is scheduled as disputed, contingent or unliquidated. In the case at bar, Debtor scheduled Weber & Rose’s claim in the amount of $7,688.14 and did not list the claim as disputed, contingent or unliquidated. Debtor also referenced the claim in its confirmed Plan. At the hearing held January 17, 2006, Debtor failed to set forth any evidence to rebut the presumption of the validity of the claim.
Debtor contends that it received no benefit or assistance in resolving its tax issues in the imminent threat of closure of the business by the taxing authorities. The evidence put forth at the hearing established the lack of merit of these claims. The evidence clearly established that the efforts of Weber & Rose in negotiating with the taxing authorities and by filing suit served to give the Debtor valuable time to find new sources of funding or financing for the business. Debtor’s efforts in this regard were unsuccessful. However, the business was not closed by the taxing authorities and Debtor ultimately sought the protection of this Court. The evidence established that Debtor did indeed receive value for the services provided by Weber & Rose. The amounts billed were reasonable and the services *597were necessary. Weber & Rose’s claim must be allowed.
Even if the evidence at the hearing had raised a question regarding validity of the billing by Weber & Rose, the Court would still have grounds to overrule the Debtor’s Objection. Weber & Rose correctly notes that the Order of Confirmation is binding on the Debtor. The res judicata effect of a confirmation order is well settled law. Sanders Confectionery Products, Inc. v. Heller Financial, Inc., 973 F.2d 474, 480 (6th Cir.1992) (an order confirming a plan of reorganization constitutes a final judgment in bankruptcy proceedings); In re Chattanooga Wholesale Antiques, Inc., 930 F.2d 458, 463 (6th Cir. 1991) (“Confirmation of plan of reorganization by the bankruptcy court has the effect of a judgment by the district court and res judicata principles bar litigation of any issues raised or that could have been raised in the confirmation proceedings.”) The Weber & Rose claim shall be treated in accordance with the Order of Confirmation.
CONCLUSION
For all of the above reasons, the Objection of Debtor Robert L. Schmitt Company to the claim of creditor Weber & Rose, P.S.C. is OVERRULED. An Order incorporating the findings herein accompanies this Memorandum-Opinion.
ORDER
Pursuant to the Memorandum-Opinion entered this date and incorporated herein by reference,
IT IS HEREBY ORDERED, ADJUDGED AND DECREED that the Objection of Debtor Robert L. Schmitt Company to the claim of Creditor Weber & Rose, P.S.C., be and hereby is, OVERRULED. The unsecured claim of Weber & Rose in the amount of $7,688.14 is allowed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484628/ | Matter of Loew (2022 NY Slip Op 06436)
Matter of Loew
2022 NY Slip Op 06436
Decided on November 15, 2022
Appellate Division, First Department
GISCHE J.,
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 15, 2022
SUPREME COURT, APPELLATE DIVISION
First Judicial Department
Judith Gische
Cynthia S. Kern Ellen Gesmer Saliann Scarpulla Julio Rodriguez III
Index No. 500294/18 Appeal No. 16497-16498-16499 Case No. 2022-00247, 2022-00958, 2022-01285, 2022-02741
[*1]In the Matter of Edgar V. Loew, an Incapacitated Person.
Alison Loew, Petitioner-Respondent,
Rachida Naciri, Respondent-Appellant, Judy S. Mock, Esq., Guardian-Appellant, Gary Elias, Esq., Court Appointed Counsel-Appellant.
Rachida Naciri, Judy S. Mock and Gary Elias appeal from the orders of the Supreme Court, New York County (Carol Sharpe, J.), entered on or about August 24, 2021, on or about February 24, 2022, and Naciri appeals from the order entered on or about March 8, 2022, which appointed a Special Guardian to Incapacitated Person Edgar Valentine Loew, removed Judy S. Mock, Esq. as court-appointed guardian and discharged Gary Elias, Esq. as court-appointed counsel, and appointed Donald Duboulay, Esq. as successor counsel and Katherine B. Huang, Esq. as successor guardian. Mock and Elias appeal from the order of the same court justice entered on or about June 21, 2022, which, to the extent appealed from as limited by the briefs, directed the parties to appear for a hearing on the Special Guardian's motion to remove Mock as guardian and discharge Elias as counsel.
Akerman LLP, New York (Donald N. David and Paul J. Collins of counsel), for Rachida Naciri, appellant.
Abrams, Fensterman, LLP, Brooklyn (Robert Abrams and Jeffrey R. Neuman of counsel), for Judy C. Mock, appellant.
Lewis Brisbois Bisgaard & Smith LLP, New York (Mark K. Anesh of counsel), for Gary Elias, appellant.
Farrell Fritz, P.C., Uniondale (Frank T. Santoro of counsel), for Alison Loew, respondent.
Meenan & Associates, LLC, New York (Coleen M. Meenan and Lissett C. Ferreira of counsel), for Special Guardian Lissett C. Ferreira, respondent.
GISCHE J.,
On October 2, 2018, Alison Loew, the sister and only sibling of Edgar Valentine Loew, brought a petition for the appointment of an article 81 guardian for her then 74-year-old brother. The petition alleged that Edgar, who is wealthy, but suffers from mental health issues and has some physical limitations, was the victim of systematic financial exploitation by Rachida Naciri. Naciri filed a cross petition to dismiss Alison's petition, or in the alternative to have herself appointed as Edgar's guardian.
A court evaluator (Britt Burner) was appointed on October 2, 2018, appellant Gary Elias was appointed as Edgar's attorney, and appellant Judy S. Mock was appointed as Edgar's temporary guardian of the person and property.
Burner prepared both an initial and supplemental report after meeting with Edgar on four separate occasions. Burner interviewed Edgar, Naciri, Edgar's home health aides, including his full-time home health aide (Robert Hicks), the managing agent of the building where Edgar lives (Rebecca Farley), and others. She also obtained a list of his medications, financial information, and spoke to Mock.
During Burner's first interview with Edgar, on October 16, 2018, she learned that on October 11th, three days after the petition was filed and after a temporary guardian was appointed, Naciri and Edgar entered into a prenuptial agreement. Naciri assured Burner that she and Edgar had no intention of getting married. The prenuptial agreement provides that Naciri will receive $10 million if they divorce, no matter how long the duration [*2]of the marriage, and $20 million if they are still married when Edgar dies. Edgar recalled no details about the prenuptial agreement, nor could he remember who prepared it.
Notwithstanding Naciri's assurances to Burner on October 16th, that she and Edgar had no plans to marry, a wedding took place just two days later, on October 18th, at City Hall. Naciri later explained that she did not tell Burner about the wedding because she did not know they would be getting married. According to Naciri, Edgar "surprised" her by proposing.
Hicks, the only other wedding attendant, provided a very different account of the wedding day events. He said that Naciri told Edgar that day that she had a "surprise" for him, but refused to tell him what it was. The three of them went to Tavern on the Green, and afterwards proceeded to City Hall. Once there, Naciri reminded Edgar that he had always wanted her to marry him. She then told him the surprise was that "I want to marry you." When Burner asked Edgar about the wedding day, he denied being married. When Burner pointed to his wedding band, he said he had gotten married in Paris.
Burner learned from Hicks that Naciri frequently quizzed Edgar on certain pieces of information, such as when they were married, his medication, and the year and day of the week before his meetings with Burner. Hicks also said that Naciri attends Edgar's therapeutic sessions with his psychiatrist, Dr. Bryan J. Bruno. Hicks told Burner that Naciri never stays at the apartment overnight and that she did not spend the wedding night with Edgar. On holidays, Naciri typically stops by for an hour or so, but then she leaves.
Burner also learned that Edgar gave Naciri a $90,000 wedding gift which, according to Naciri, was Edgar's idea. In that same month, October 2018, there was an attempt to transfer $600,000 from one of Edgar's investment accounts to a checking account. The transfer was flagged by the bank and failed. Edgar had no recollection of the transfer, had no idea why he would have tried to transfer that much money, or what it would have been for.
A registered nurse (Heather Sullivan) who provided care to Edgar told Burner that Naciri sometimes riled Edgar up, causing him to become verbally and physically abusive to his home health care workers. Other home health aides said Naciri was prone to screaming when she was angry and that this behavior, described by one aide as "toxic," upsets Edgar and triggers violent episodes in him.
Farley, the building's managing agent said that Edgar had been urinating in the hallways of his building and had been walking around in just his bathrobe. Farley also recounted that on one occasion Edgar had wandered out to the street alone and had been found sitting at the cross walk.
Edgar's long-time friends told Burner they were concerned about Edgar's rapid deterioration, describing him as looking drugged. One friend (Melinda Pillon) said that Edgar told her he was afraid of Naciri. Edgar once asked [*3]her to go with him to consult an attorney about getting a restraining order against Naciri, but Edgar did not pursue the matter. Pillon also said that when she last visited him, some eight months earlier, the apartment was in shambles and his bed was filled with crumbs.
Jackie Swiskey, a long-time friend of 40 years, said that Edgar had "back and forth" feelings about Naciri; sometimes she was his big love, but at other times he was afraid of her. Swiskey said Edgar wanted to cancel an agreement he had signed giving Naciri monthly financial "compensation," but when he went to his bank to stop the direct deposits, he was told he would need a lawyer.[FN1]
Burner learned from Alison that she and Edgar were not close, but that Edgar unexpectedly contacted her in April 2018, asking her to be his power of attorney. She agreed, but later learned that Naciri had been appointed his power of attorney instead. Alison said Pillon called her on Labor Day 2018 informing her that Edgar was in "crisis mode" but that Naciri would not let her into the apartment when Pillon went to check on him. Alison told Burner that Edgar's doorman called her on a different occasion, saying that one time Edgar's home health aide had run out of Edgar's apartment screaming for someone to call the police. When the police arrived, they took Edgar to the hospital where he was involuntarily admitted to the psychiatric ward. Edgar's doctor told Alison that Edgar might be suffering from dementia.
In contrast to the information provided to Burner by others, Naciri said that she cares for Edgar 12 hours a day, every day, she cooks and cleans for him and also organizes his bills so he can pay them. Naciri said Edgar chose her to be his power of attorney because Alison never signed necessary paperwork. Naciri's attorney told Burner that Naciri and Edgar had been contemplating marriage for some time and that it was Edgar who chose the attorney that drafted their prenuptial agreement. Naciri denied attending Edgar's psychiatric sessions with him, and she said that the "friends" who Burner had interviewed were only after Edgar's money.
Burner reported that even after her first interview with Edgar on October 16th, she believed that he did not have capacity to handle his financial or medical affairs. She reported that Edgar could not "adequately understand and appreciate the nature and consequences of his inability to provide for his personal needs and finances" and that he was "likely to suffer physical and financial harm" if a guardian was not appointed for him. Burner described how she had been unable to engage Edgar during their meetings or have any kind of meaningful conversation with him about his circumstances. Oftentimes Edgar sat mute and did not answer her questions. Burner expressed doubts that Edgar would be able to meaningfully participate in any hearing the court would hold. In her supplemental February 2019 report, Burner observed that although Edgar seemed improved and the apartment [*4]was in better shape, he was still largely unresponsive and profoundly confused. Burner observed that Edgar was susceptible to coaching.
Burner ultimately recommended that a guardian be appointed for Edgar and that the appointment be for an unlimited duration. She also recommended that the "[g]uardian should investigate the circumstances surrounding whether Edgar had the capacity to enter into a prenuptial agreementtial agreement and marriage with [Naciri], and . . . the payments being made from Edgar's accounts . . . ." Burner recommended that a geriatric care manager be appointed for Edgar and that the guardian file a bond.
On February 14, 2019, the Hon. Tanya R. Kennedy began a testimonial hearing as to whether Edgar needed a guardian and if so, whether he had the capacity to consent to one. The court told the parties these initial proceedings were of a "narrow scope," solely to determine whether Edgar needed a guardian, but not to address the alarming issues surrounding the recent prenuptial agreement and marriage. Judge Kennedy also stated that there were "collateral matters that the guardian would address," adding that it was for the guardian to "make certain determinations regarding certain agreements."
Judge Kennedy initially found that Edgar lacked capacity to consent to a guardian. In doing so, the court described Edgar's failure to recognize Mock, although he had met her several times before, and his inability to provide a cogent answer to the court's inquiry about whether he thought he needed a guardian. Rather than answering, he simply referred to his attorney and said he (Edgar) had done nothing wrong. Edgar was confused as to time and place. When the court asked him where he was, he said a "tall building," in lower Manhattan, but failed to realize he was in a courthouse. When asked about his marriage to Naciri, he answered that he had gotten married five weeks ago although it was four months earlier. Edgar also provided certain nonresponsive answers to the court's inquiries, for instance volunteering that he was not allowed outside anymore because he had wandered about in his robe, been naked and had gone to a restaurant.
At the continued hearing, held on May 6, 2019, to determine whether a guardian should actually be appointed, Edgar appeared just as confused about where he was, why he was there, and the identity of the other people present. Edgar mistook Mock, who was sitting next to him, for his wife. He could not cogently explain what he thought a guardianship is. Edgar was uncertain of his age and could not provide any details about how he cares for his person and property, although he did know the location of one of his bank accounts. Samantha Fox, a geriatric care manager, testified that Edgar had once mistaken her for Mock and he suffers from short term memory loss. She opined that Edgar cannot care for himself nor handle money.
When the hearing concluded, the court granted Alison's petition for a guardian of the person [*5]and the property. The attorneys agreed at the time, on the record, that the guardian should be Mock and, pursuant to an order and judgment dated September 23, 2019, Mock was so appointed. The same order continued Elias's appointment as Edgar's attorney. The order of appointment expressly authorized Mock to provide Edgar with a $2,000 monthly stipend so he can pay for tips and personal items, but no other specific payments were authorized by the order, including payments to Naciri for spousal support (see Mental Hygiene Law § 81.21[a][1], [2]).
Despite Edgar's functional limitations, and adjudication as an incapacitated person (IP), necessitating the appointment of a guardian, Naciri, Mock and Elias (collectively, appellants) contend that Judge Kennedy intended that Edgar would have as much self-determination as possible concerning his finances and how he spends his money, whereas Alison contends Edgar is being victimized and the guardian must protect him from predatory acts and persons, including Naciri.
Mock filed a final account as temporary guardian on October 28, 2019, and a 2018-2019 annual account on May 30, 2020. The 2018-2019 accounting showed large credit card charges by Naciri for "personal expenses" including jewelry, clothing, and travel. That year, Naciri also received payments from Edgar's assets totaling $179,000. In December 2020, Alison filed objections to the accounting, resolution of which remains sub judice in Supreme Court.[FN2]
Alison then filed a petition and an order to show cause for visitation with her brother. Alison also asked that the court reappoint a court evaluator so that the circumstances of Edgar's marriage and the agreements he had ostensibly signed, including the prenuptial agreement, could be investigated. Alison claimed the marriage, entered into only after the guardianship proceeding was commenced, was a sham and that Mock and Elias, in dereliction of their fiduciary duties, had failed in the ensuing years to take any action to investigate these matters or protect him. The motion was separately opposed by Naciri and Mock. They each denied that Mock had any obligation to investigate the circumstances of the prenuptial agreement or marriage because there was no express directive in Mock's order of appointment to do so. Mock has held firm to this position throughout these proceedings. She admitted in court that, in accordance with her understanding of her order of appointment, she never took any steps to investigate the prenuptial agreement or marriage. In fact, at a July 21, 2021, appearance, Mock represented that "my directives were crystal clear. My directives were not to vacate the marriage, not to do a full investigation."
By order to show cause returnable June 30, 2021, Alison again sought the reappointment of the court evaluator to investigate the circumstances of Edgar's marriage to Naciri, and any agreements made within one year of the guardian's appointment. Naciri interposed written opposition to [*6]the motion, but neither Mock nor Elias opposed this motion in writing.[FN3]
These motions were heard by Hon. Carol Sharpe, the judge newly assigned to this matter.[FN4] Judge Sharpe observed that although Judge Kennedy had ordered that the issues raised in Burner's report would not be addressed at the capacity hearings, Judge Kennedy had further ordered that those issues would be dealt with by the guardian once appointed. Judge Sharpe summed up her findings as follows:
"The looming issue is what led up to that marriage, what led up to the prenuptial agreementtial agreement, and the fact that Judge Kennedy left it open for a further investigation, the spending of the amount of money that is being spent, the fact that Edgar is now in a home . . . I think that we need an investigation, and it is and whatever the result of the investigation by a special guardian will be what it is."
The court determined that a special guardian was needed and issued its order appointing the special guardian (Lissett C. Ferreira), on August 24, 2021, resolving that part of Alison's petition seeking an investigation. This is one of the orders challenged in this appeal.
The order provides Ferreira with limited powers, authorizing her to, among other things: 1) investigate the possibility of a safe discharge of Edgar to his residence in the community and engage a geriatric care manager to assist in the assessment; 2) investigate the circumstances of Edgar's marriage, as well as the prenuptial agreement; 3) investigate the financial circumstances of transactions during the guardianship and in the preceding years; and 4) review Edgar's financial records for a period of five years preceding the date of Mock's order of appointment.
Beginning in November 2021 and continuing through February 2022, the parties engaged in a rapidly escalating tumbleweed of highly contentious litigation, filing a series of overlapping motions and cross motions. As relevant to this appeal, Ferreira brought a motion on January 13, 2022, to have Mock removed as Edgar's guardian and to discharge Elias on the basis that they had a conflict of interest and had breached their fiduciary duties to Edgar by supporting Naciri's arguments, rather than acting independently to protect Edgar and his assets. Alison filed papers in support of Ferreira's motion. On January 21st, Naciri brought a separate motion to have the special guardian removed.
In opposition to the motion to remove Mock and Elias, Naciri argued that Edgar wanted to keep Mock and Elias as his fiduciaries. She argued that Ferreira and Alison were "meddling" in Edgar's life and causing him distress. Elias and Mock each separately opposed the motion for their respective discharge and removal. Mock averred that she was protecting Edgar's interests and honoring his wishes.
On the February 1, 2022, the return date of Ferreira's motion to remove Mock and discharge Elias, the court learned that Edgar had been hospitalized and there was an emergent [*7]issue of Edgar's safe discharge. The issue was whether he could be safely released to his apartment or whether he should be returned to the assisted living facility (ALF) where he apparently had been living for over two years. The court ordered that Fox, Edgar's geriatric care manager, provide a written report with her professional assessment and recommendations. The court made it clear that it wanted the guardian to investigate Edgar's living situation, stating that it was the "guardian's job to investigate whether or not he should be discharged home and make whatever arrangements [were necessary]." The court observed that prior to being placed in the ALF, had round the clock health care at home that had been privately paid for with his own funds. Fox's attorney represented that her client and the guardian would work together. The court also set a briefing schedule that day for all of the extant motions. Naciri's, Mock's and Elias's papers were due by February 22nd, Ferreria's reply, if any by March 15th, with a court appearance scheduled for March 24th.
A flurry of correspondence ensued after that court appearance. Fox's attorneys updated the court on Edgar's status, reporting it was "technically feasible" for him to be discharged to his apartment, provided all necessary medical equipment was available and other safety measures were in place. On February 14th, however, Mock's attorney advised the court that Edgar would be released to the ALF where he had previously resided. Mock made this decision without any explanation why a discharge home was inadvisable, despite Fox's recommendation. In further correspondence dated February 23rd, Mock's attorney, without elaboration, advised the court that it was Edgar's "wish" that he return to the ALF.
Mock's attorney again wrote to the court, citing ongoing confusion among the health care professionals about who was in charge of making the ultimate decision of where Edgar would be discharged to, warning that Edgar's discharge was in limbo. On February 24th, Mock's attorney urged the court to sign an order authorizing Mock to effectuate Edgar's discharge from the hospital to the ALF. Mock still had not considered any option other than returning Edgar to the ALF and she provided no fully reasoned explanation to the court for why that was in Edgar's best interest. Alison's attorney sent a letter, dated February 24th, stating that Alison had been deprived of any meaningful information about Edgar's care and was surprised to learn he was receiving end-of-life care.
By order dated February 24, 2022, Supreme Court removed Mock and discharged Elias. This order is also the subject of this appeal.[FN5] In relevant part, the February 24th order states Mock was removed, and Elias discharged for the following reasons:
"It is evident from the filings, and now the attorney's letters by Mr. Abrams, that the court appointees, both the Guardian and counsel to Mr. Loew, joined by Ms. Naciri who has a direct interest in the [*8]investigation into her marriage, oppose this Court's appointment of the Special Guardian and her recommendations that they be removed."
The court added that it had appointed Ferreira as special guardian because an investigation was required into the marriage, as well as the financial expenditures authorized by Mock and the circumstances of why Edgar was in an ALF, given that he had the financial means to pay for quality home care and owned a two-bedroom apartment. The court stated that although it was Edgar's personal needs and property management that were the focus of this proceeding, Mock and Elias had lost focus of that, instead litigating matters tangential to his well-being, including Ferreira's involvement in these proceedings. The court cited Mock's failure to fulfill her duties, including the court's directive that an investigation was needed into whether Edgar could be safely discharged home. Having been apprised that a "dangerous situation . . . has arisen," the court ordered Mock's immediate removal and discharged Elias. A new attorney was appointed for Edgar and on March 8, 2002, the court appointed a successor guardian for him. This order appointing a new guardian is also the subject of this appeal.
While the appeal was being perfected, this Court granted a limited stay of the hearing on Ferreira's motion, pending determination of the appeal. During the pending stay, Supreme Court issued an order on June 21, 2022, scheduling a hearing on Ferreira's motion. Appellants also challenge this scheduling order on appeal.
Alison's standing has been an overarching issue raised in connection with each order appealed from. We hold that Alison had standing to commence this article 81 proceeding as a "person . . . concerned with the welfare of the person alleged to be incapacitated" (Mental Hygiene Law § 81.06 [a] [6]; see Matter of de Menil (de Menil), 195 AD3d 410, 410 [1st Dept 2021]). This is a broad category of persons and standing does not rest on whether the alleged incapacitated person and the petitioner are friendly or not. Consequently, we reject any argument that Alison's and Edgar's estrangement affects standing. Not only did Alison have standing to commence the underlying article 81 proceeding, she also has standing to participate in these further proceedings to have the guardian discharged or her powers modified. Alison also has standing to pursue collateral relief as pertains to such issues (see Mental Hygiene Law §§ 81.35, 81.36 [b]), including seeking to compel an investigation into the claimed sham marriage here.
Naciri's further argument, that Alison lacks standing to seek annulment of her marriage to Edgar rests on the mistaken application of Domestic Relations Law §140 (c). The issue before this Court is not whether Alison has standing to annul the marriage. Indeed, Alison's petition did not seek authority to annul Edgar's marriage. Rather, in light of Burner's recommendations, and the record developed before Judge Kennedy[*9], Alison was seeking relief against the guardian, based upon Mock's failure to independently investigate and determine whether the marriage should be annulled. Marriage is a civil contract between two wedded individuals, and among the powers of an article 81 guardian is the power to manage the IP's property, including contracts. Where an article 81 guardian has been appointed for an IP and the individual is found to have been incapable of understanding the nature, effect, and consequences of the marriage, annulment of the marriage is an available remedy for the guardian to pursue (Mental Hygiene Law § 81.29 [d]; Matter of Kaminester v Foldes, 51 AD3d 528, 529 [1st Dept 2008], lv dismissed and denied 11 NY3d 781 [2008]).
Appellants' argument, that Supreme Court's order appointing a special guardian was issued sua sponte and in violation of Edgar's right to due process, is rejected. The appointment was a consequence of Alison's motion for an independent investigation. Appellants were on notice of that motion and Naciri opposed it in writing. Mock and Elias did not file written opposition, but they orally addressed the merits in court.
Although appellants also contend it was statutorily impermissible for Supreme Court to appoint a "special guardian" because Edgar already had a guardian and the statute does not allow for an IP to have both, this argument hinges on the semantics of Ferreira's title. Despite her title of "special guardian," Ferreira was actually an independent investigator with limited powers, as outlined in her order of appointment. She was authorized to gather information about disputed issues in this case, some of which arose after Burner completed her report and after Mock was appointed. Unlike Mock or a special guardian, as that term is used in Mental Hygiene Law § 81.16(b), Ferreira was not charged with marshalling Edgar's assets or making ultimate decisions. Those duties remained with Mock. Besides investigating the circumstances of Edgar's marriage, the court tasked Ferreira with gathering information about why Edgar was placed in an ALF despite having sizeable assets that would have allowed him to have high quality care at home. There were other disturbing matters brought to Mock's attention that Mock refused or neglected to investigate, including why Naciri was using Edgar's credit cards to travel and making large expenditures for clothing and expensive jewelry, none of which benefited Edgar. Appellants cite no statutory or legal authority that would have prevented the court from ordering an investigation to aid the court, prepare a report and protect Edgar's interests.
Appellants' further argument, that Ferreira's appointment was detrimental to Edgar's health and well-being, engendering a great deal of confusion among health care providers as to who would decide Edgar's discharge from the hospital, is also rejected. The order directing an investigation does not, on its face, conflict with the order appointing a guardian [*10]of the person and property.
Appellants ask this Court to vacate the February 24th order removing Mock as Edgar's guardian and discharging Elias, and the subsequent appointment of a successor guardian, raising procedural as well as substantive arguments. Procedurally, appellants contend that the motion was decided prematurely, before it was fully briefed and argued, and without there being a testimonial hearing. These arguments fail. By February 22nd, the appellants had fully briefed Ferreira's motion for Mock's and Elias's removal; the only papers outstanding were Ferreira's reply, which was due March 15th. The absence of a reply did not prejudice appellants, who had no right to a surreply (see CPLR 2214[b], [c]; Coleman v Korn, 92 AD3d 595 [1st Dept 2012]). The motion for Mock's removal and Elias's discharge was fully papered by appellants when it was decided by the court.
The Mental Hygiene Law does not support appellants' contention that they were entitled to a testimonial hearing in this case before being removed. Mental Hygiene Law § 81.35 provides that a guardian may be removed when she or he "fails to comply with an order, is guilty of misconduct, or for any other cause which to the court shall appear just" (see Matter of Mary Alice C., 56 AD3d 467, 468 [2d Dept 2008]). A motion on notice, served on the persons specified in Mental Hygiene Law § 81.16 (c), is required but there is no statutory right to a hearing (see Mental Hygiene Law §§ 81.16[c]; 81.35). This relaxed requirement stands in distinction to Mental Hygiene Law § 81.11 (a), which provides that the petition for the appointment of a guardian for an alleged IP, whose liberty interests are at stake, "shall be made only after a hearing" (Matter of Eggleston [Muhammed], 303 AD2d 263, 266 [1st Dept 2003]; Matter of Ruth TT, 267 AD2d 553, 554-55 [3d Dept 1999]). The reason a guardian has "no due process right to a full hearing," nor is a "full blown" hearing necessary for their removal, is that a guardian has no "property interest" to protect (Matter of Bauer, 216 AD2d 25, 26 [1st Dept 1995], appeal dismissed 86 NY2d 867 [1995], lv dismissed and denied 87 NY2d 952 [1996]).
Although a guardian cannot be summarily removed in the absence of a fully developed record or without any findings, and a hearing may be required where material facts are disputed (see Matter of Roberts, 205 AD3d 562, 563 [1st Dept 2022]), here the parties had not only fully briefed Ferreira's motion, but the salient facts were also known to the court and largely undisputed. A decision to remove a guardian of the person and property of an IP is within the sound discretion of the trial court (Matter of Agam S. B.-L. [Janna W. - Richard P.] 198 AD3d 962, 963 [2d Dept 2021]). Contrary to appellants' contention, a testimonial hearing was not necessary in this case because the court already possessed enough information for it to make findings justifying Mock's and Elias's removal, and they had an opportunity to be heard [*11](cf. Matter of Roberts, 205 AD3d 562).
On the merits, the court properly exercised its discretion in removing Mock and discharging Elias. Undisputed before the court was the fact that Mock did not investigate and make a reasoned determination about the bona fides of the marriage and the prenuptial agreement. The circumstances presented throughout this case were alarming, raising red flags that at the time of the marriage and the prenuptial agreement Edgar was not competent. Mock's defense, that it was what Edgar wanted, misses the point. While it is important to solicit the views of an IP, those views cannot be the sole basis for action (or inaction). Were that the case, there would be no reason to appoint a guardian in the first place. Moreover, Mock is incorrect in adopting the position that she had no duty to investigate. The order did not have to expressly direct her to investigate these troubling circumstances, which implicated possible serious financial abuse. A guardian's duties under the Mental Hygiene Law require that such action be taken. While such an investigation need not be undertaken in every case, here the issue was squarely raised in the court evaluator's report, identified by the court as an issue for Mock to address as guardian, and warranted given that the prenuptial agreement and marriage occurred so close in time to the filing and granting of the article 81 petition, further buttressed by the evidence demonstrating how severely compromised Edgar was. Mock's failure to investigate was in dereliction of her duties.
Moreover, also undisputed in this record is the fact that Mock did not comply with the court's order that she report back on the feasibility of Edgar's safe discharge from the hospital to his apartment, rather than the ALF. Once again, Mock's reliance on Edgar's preference, without further elaboration as to why he preferred the ALF or an independent inquiry to determine whether it was the best option for him, was a dereliction of duties, undermining the very reason she was appointed. The court was direct in requesting that some evaluation be made as to why, given Edgar's considerable financial worth, he could not be cared for in his home.
These undisputed facts provide a sufficient basis for Mock's removal and Elias's discharge because it was in Edgar's best interest (see Matter of Bauer, 216 AD2d at 26; Mental Hygiene Law § 81.35). The March 8, 2022, appointment of a successor guardian was unavoidable and necessary given that once Mock was removed, Edgar still needed a guardian of the person and property.
Mock's separate argument that her removal was motivated by Judge Sharpe's personal feelings towards her has no basis in this record.
Concerning this Court's stays and the trial court's June 21, 2022, order, the appeal from that order is dismissed as moot because no hearing was held on the issues implicated by that order, and none was necessary.
We have considered appellants' remaining arguments and find them [*12]unavailing.
Accordingly, the orders of the Supreme Court, New York County (Carol Sharpe, J.), entered on or about August 24, 2021, on or about February 24, 2022, and on or about March 8, 2022, which appointed a Special Guardian to Incapacitated Person Edgar Valentine Loew, removed Judy S. Mock, Esq. as court-appointed guardian and discharged Gary Elias, Esq. as court-appointed counsel, and appointed Donald Duboulay, Esq. as successor counsel and Katherine B. Huang, Esq. as successor guardian, should be affirmed, without costs. The appeals from the order of the same court and Justice entered on or about June 21, 2022, which, to the extent appealed from as limited by the briefs, directed the parties to appear for a hearing on the Special Guardian's motion to remove Mock as guardian and discharge Elias as counsel, should be dismissed, without costs, as moot.
All Concur.
Orders, Supreme Court, New York County (Carol Sharpe, J.), entered on or about August 24, 2021, on or about February 24, 2022, and on or about March 8, 2022, affirmed, without costs. order of the same court justice entered on or about June 21, 2022, dismissed, without costs, as moot.
Gische, J.P., Kern, Gesmer, Scarpulla, Rodriguez, JJ.
THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 15, 2022
Footnotes
Footnote 1: This was an apparent reference to an agreement signed by Edgar in February 2018, which was not disclosed by Naciri until later in these proceedings. The validity of this agreement, as well as Mock's payments thereon, are the subject of as yet unadjudicated disputes in this guardianship proceeding.
Footnote 2: The financial disputes, like other matters in these proceedings, are highly charged. However, because these matters are unresolved and they were not the basis for the orders challenged on this appeal, we do not address them in this decision.
Footnote 3: Mock belatedly filed opposition papers on February 22, 2022, well after the court had appointed Lissett C. Ferreira to conduct an investigation.
Footnote 4: By this time, Judge Kennedy had been elevated to sit on the Appellate Division, First Department.
Footnote 5: Naciri's motion for the special guardian's removal, however, remains undecided. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484588/ | People v Dilligard (2022 NY Slip Op 06564)
People v Dilligard
2022 NY Slip Op 06564
Decided on November 17, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 17, 2022
Before: Kapnick, J.P., Webber, Friedman, Gesmer, Singh, JJ.
Ind No. 3755/16 Appeal No. 16702 Case No. 2019-2566
[*1]The People of the State of New York, Respondent,
vShamon Dilligard, Defendant-Appellant.
Justine M. Luongo, The Legal Aid Society, New York (Susan Epstein of counsel), for appellant.
Darcel D. Clark, District Attorney, Bronx (T. Charles Won of counsel), for respondent.
Judgment, Supreme Court, Bronx County (Miriam R. Best, J. at motions; Robert E. Torres, J. at plea; Marsha Michael, J., at sentencing), rendered February 6, 2019, convicting defendant of manslaughter in the first degree, and sentencing him to a term of 19 years, unanimously affirmed.
Assuming without deciding that the waiver of the right to appeal was invalid, defendant forfeited review of his request for a Wade hearing by pleading guilty prior to any final suppression ruling (see People v Fernandez, 67 NY2d 686, 688 [1986]). In determining defendant's motion, the court granted a Rodriguez hearing regarding the extent of a witness's familiarity with defendant, to be followed by a Wade hearing in the event the People failed to establish the requisite familiarity. By its express terms, this order did not constitute "[a]n order finally denying a motion to suppress evidence" (CPL 710.70[2]; see People v Wilson, 167 AD3d 478, 478-479 [1st Dept 2018], lv denied 33 NY3d 955 [2019]). Defendant then chose to plead guilty rather than proceeding to any hearing.
We perceive no basis for reducing the sentence.THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484593/ | Matter of Rachmanov v Board of Stds. & Appeals of the City of N.Y. (2022 NY Slip Op 06565)
Matter of Rachmanov v Board of Stds. & Appeals of the City of N.Y.
2022 NY Slip Op 06565
Decided on November 17, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 17, 2022
Before: Kern, J.P., Scarpulla, Rodriguez, Pitt, Higgitt, JJ.
Index No. 150615/20 Appeal No. 16678 Case No. 2021-01826
[*1]In the Matter of Beni Rachmanov, Petitioner-Appellant,
vThe Board of Standards and Appeals of the City of New York et al. Respondents-Respondents, Sholom Daycare, Inc., Respondent.
Law Firm of Edward Vitale, Forest Hills (Edward Vitale of counsel), for appellant.
Sylvia O. Hinds-Radix, Corporation Counsel, New York (Antonella Karlin of counsel), for respondents.
Order, Supreme Court, New York County (Eileen A. Rakower, J.), entered on or about November 17, 2020, which denied the petition to annul a determination of respondent Board of Standards and Appeals of the City of New York (BSA), dated September 17, 2019, affirming the issuance of a building permit, and dismissed the proceeding brought pursuant to CPLR article 78, unanimously vacated, on the law, the proceeding treated as one transferred to this Court for de novo review, and, upon such review, the petition granted to the extent of annulling the determination in part and remanding the matter to BSA for further proceedings consistent herewith, and the determination otherwise confirmed, and the proceeding dismissed, without costs.
Because the petition raises an issue of substantial evidence, the proceeding should have been transferred to this Court pursuant to CPLR 7804(g) (see Matter of 101 Park Ave. Assoc. II, LLC v City of New York, 200 AD3d 401, 401 [1st Dept 2021]).
Petitioner claims that the side yard on the northern side of the lot at issue was below curb level, in violation of New York City Zoning Resolution (ZR) § 33-293, which requires "an open area at curb level" to be provided in a commercial district abutting a rear lot line in a residential district. BSA's rejection of this argument was arbitrary and capricious and is not supported by substantial evidence (see Matter of Pecoraro v Board of Appeals of Town of Hempstead, 2 NY3d 608, 613 [2004]). BSA found that this side yard complied with ZR § 33-22, which provides that "the level of a yard . . . shall not be higher than curb level," but that "this Section shall not be construed to require that natural grade level be disturbed in order to comply with this requirement." The phrase "this requirement" limits the latter clause to the requirement for the yard level to be no higher than curb level. In contrast, ZR § 33-293 imposes a stricter requirement as to the curb level and does not include any language regarding whether compliance may require the natural grade level be disturbed. On remand, BSA should adequately address the issue of compliance with ZR § 33-293, consistent with this decision.
Petitioner failed to preserve his arguments as to a rooftop fence, a rooftop playground, and the means of egress from a drug store. In a CPLR article 78 proceeding challenging an administrative determination, this Court does not have discretionary authority to "reach[] an unpreserved issue in the interest of justice" (Matter of Khan v New York State Dept. of Health, 96 NY2d 879, 880 [2001] [internal quotation marks omitted]).
BSA's determination, otherwise, had a rational basis and is supported by substantial evidence, i.e., "such relevant proof as a reasonable mind may accept as adequate to support a conclusion or ultimate fact" (300 Gramatan Ave. Assoc. v State Div. of Human Rights, 45 NY2d 176, 180 [1978]). Among other things, BSA rationally found that the parapet and bulkhead should be excluded [*2]from the calculation of the height of the front wall under ZR § 33-431.
We have considered petitioner's remaining arguments and find them unavailing.THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484609/ | Black Diamond Capital Mgt., LLC v Oppenheimer Master Loan Fund, LLC (2022 NY Slip Op 06544)
Black Diamond Capital Mgt., LLC v Oppenheimer Master Loan Fund, LLC
2022 NY Slip Op 06544
Decided on November 17, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 17, 2022
Before: Kapnick, J.P., Webber, Friedman, Gesmer, Singh, JJ.
Index No. 652519/15 Appeal No. 16696-16696A Case No. 2021-03181, 2021-03530
[*1]Black Diamond Capital Management, LLC, et al., Plaintiffs-Appellants,
vOppenheimer Master Loan Fund, LLC, et al., Defendants-Respondents, IAP Global Services, LLC., Defendant.
Perkins Coie LLP, New York (David W.T. Daniels of counsel), for appellants.
Kramer Levin Naftalis & Frankel LLP, New York (Jonathan M. Wagner of counsel), for Oppenheimer Master Loan Fund, LLC and Oppenheimer Senior Floating Rate Fund, respondents.
Brown Rudnick LLP, New York (Sigmund S. Wissner-Gross of counsel), for Eaton Vance Corp., and Eaton Vance Floating Rate Portfolio, respondents.
Judgment, Supreme Court, New York County (Andrea Masley, J.), entered August 18, 2021, to the extent appealed from, dismissing plaintiffs' claim for specific performance, unanimously affirmed, with costs. Appeal from order, same court and Justice, entered on or about July 15, 2021, after a nonjury trial, unanimously dismissed, without costs, as subsumed in the appeal from the judgment.
After a 2014 restructuring of the debt of IAP Global Services, LLC and the issuance of new equity to senior lenders, defendants Oppenheimer Master Loan Fund, LLC and Oppenheimer Senior Floating Rate Fund (collectively, Oppenheimer) owned a 16% stake in IAP, defendants Eaton Vance Corp. and Eaton Vance Floating Rate Portfolio (collectively, Eaton) held a 19% stake, and plaintiffs Black Diamond Capital Management, LLC, Black Diamond IAP Holdings LLC, and GSC Partners CDO Fund IV, Ltd. (collectively, Black Diamond) held a 26% stake. In addition, nonparties Invesco Senior Secured Management owned 9% and Credit Suisse Securities (USA) LLC owned 17%. Toward the end of the restructuring negotiations, which culminated in the execution of a July 18, 2014 restructuring agreement, representatives from Eaton, Oppenheimer, and Invesco entered into an oral agreement for a right of first refusal (ROFR), which, in the event that any of the three institutions were considering selling their IAP equity, would give the other two a first look option to purchase the shares so as to enable the three entities to retain their collective interest in IAP.
In 2015, Oppenheimer decided to liquidate a portfolio of loans, including its 16% stake in IAP (the Security), in an auction process known as a "bids wanted in competition" (BWIC). On April 22, 2015, Credit Suisse (on behalf of Black Diamond) submitted the only bid, at a price of $750.58 per unit for the 16% stake, or 1,627.38 shares. In a phone call that day, James Erven, a senior trader at Oppenheimer, informed Matthew Tuck, a Credit Suisse managing director, of the ROFR, but provided no details; Tuck responded "Okay." Robert Franz, the head of Credit Suisse's loan trading desk, apparently was told by a Credit Suisse analyst that there was no ROFR in the IAP restructuring documents; later in the afternoon of April 22, 2015, Franz told Erven, "There is no ROFR here" and Erven replied "Okay, then we're good."
On April 24, 2015, Eaton and Invesco informed Oppenheimer that they each wanted to exercise the ROFR. On April 27, 2015, Oppenheimer sent Credit Suisse, which considered the purchase completed and believed that it had resulted in an enforceable auction agreement, an instant Bloomberg message informing it that the ROFR was being exercised, and that there was "NO trade on IAP equity." On July 6, 2015, Eaton purchased the entire Security for the same price as the Credit Suisse bid. After Credit Suisse assigned its rights under the purported auction agreement to Black Diamond, Black Diamond commenced this action against Oppenheimer and [*2]Eaton, challenging the sale to Eaton.
The trial court correctly dismissed the claim seeking to specifically enforce Black Diamond's purportedly completed and binding oral agreement to purchase the Security at auction. As the court found in a comprehensive and detailed decision, the evidence at trial established that Credit Suisse and Oppenheimer, who were the parties to the auction purchase, did not have a meeting of the minds with respect to an essential term — namely, whether the completion of the auction agreement based on Credit Suisse's bid was conditioned upon Eaton and Invesco refraining from making a post-auction bid matching the Credit Suisse bid. The evidence of the pre-trade conversation between Oppenheimer (Erven) and Credit Suisse (Tuck) in which Erven "commented" on the ROFR without providing any details, and Tuck acknowledged that comment by saying "okay," did not, alone and conclusively, establish a meeting of the minds as to the conditional nature of any auction agreement that would result from the bid and acceptance. Moreover, the trial record contains ample evidence of the subsequent confusion and disconnect between the parties as to the existence of an applicable ROFR, and as to whether the agreement was subject to a condition that it would become binding only if other parties declined to match the bid.
As there was no auction agreement established between Credit Suisse and Oppenheimer, there is no agreement to be specifically enforced. Accordingly, the claim was correctly dismissed on this basis alone (see Gessin Elec. Contrs., Inc. v 95 Wall Assoc., LLC, 74 AD3d 516, 518 [1st Dept 2010]), and we decline to address the additional trial rulings and arguments raised on appeal.
THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484660/ | [Cite as DJD Invest. Co., Ltd. v. Holsopple, 2022-Ohio-4089.]
COURT OF APPEALS OF OHIO
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
DJD INVESTMENT COMPANY, LTD., :
Plaintiff-Appellee, :
Nos. 111549 and 111696
v. :
RALPH HOLSOPPLE, ET AL., :
Defendants-Appellants. :
JOURNAL ENTRY AND OPINION
JUDGMENT: AFFIRMED
RELEASED AND JOURNALIZED: November 17, 2022
Civil Appeal from the Cuyahoga County Court of Common Pleas
Case No. CV-20-933542
Appearances:
Russo & Rieke LLC, Michael K. Rieke, and Dawn E.
Snyder, for appellee.
The Law Office of Leonard F. Lybarger and Leonard F.
Lybarger, for appellants.
MARY EILEEN KILBANE, P.J.:
These appeals are before the court on the accelerated docket pursuant
to App.R. 11.1 and Loc.App.R. 11.1. The purpose of an accelerated appeal is to allow
an appellate court to render a brief and conclusory decision. State v. Trone, 8th
Dist. Cuyahoga Nos. 108952 and 108966, 2020-Ohio-384, ¶ 1, citing State v. Priest,
8th Dist. Cuyahoga No. 100614, 2014-Ohio-1735, ¶ 1.
Defendants-appellants Ralph and Marilyn Holsopple (“Ralph,”
“Marilyn,” and collectively, “the Holsopples”) appeal from the trial court’s judgment
granting plaintiff-appellee DJD Investment Company, Ltd.’s (“DJD”) motion for
summary judgment, denying the Holsopples’ motion to vacate judgment, and
finding that DJD had properly exercised its option pursuant to the parties’ option
agreement. For the reasons that follow, we affirm.
Factual and Procedural History
These consolidated appeals arose out of an option contract between
DJD and the Holsopples. On January 13, 2020, the parties executed an option
agreement by which the Holsopples granted DJD 120 days — until May 12, 2020 —
in which to exercise its option, in writing, to purchase the Holsopples’ condominium
located at 10532 Clifton Boulevard, Unit 108, in Cleveland, Ohio for $42,500. The
option agreement provided, in relevant part:
FOR AND IN CONSIDERATION of Five Hundred Dollars ($500) and
other good and valuable considerations, the receipt and sufficiency of
which is hereby acknowledged, it is agreed as follows:
1) AGREEMENT: The Seller does hereby grant unto the Purchaser the
exclusive and irrevocable right to purchase, upon the terms and
conditions hereinafter set forth, the property located at: 10532 Clifton
Blvd; Unit 108, Cleveland, OH 44102, County of Cuyahoga, State of
Ohio. PPN: 001-17-801C (PREMISES).
2) EXERCISE OF OPTION: Purchaser may exercise this Option by
sending written notice, certified mail NOT required, to Owner at the
property address on or before the automatic TERMINATION DATE,
which is one hundred twenty (120) days after signing of this agreement.
Upon such exercise of this option, the parties shall execute escrow
instructions in the standard form at escrow and title company of
Optionees sole choosing.
On April 2, 2020, DJD requested a 60-day extension of the option
deadline, citing pandemic-related closures of various government offices. Marilyn
verbally agreed to this extension.
On May 1, 2020, approximately two weeks before the expiration of
the initial option period, the Holsopples received escrow documents from DJD. On
May 8, 2020, the Holsopples received closing documents. DJD maintains that these
documents constituted the exercise of its option in accordance with the option
agreement. Upon receipt of these documents, Marilyn called a representative from
the title agency on May 12, 2020, to address various errors in the names, addresses,
and dates listed in the documents. According to the Holsopples’ answer, during this
phone call, Marilyn confirmed that the purchase would be a cash transaction.
On June 18, 2020, DJD filed a complaint against the Holsopples
alleging that the Holsopples breached their contract with DJD and requesting
specific performance. On July 18, 2020, Ralph filed an answer and counterclaims.
On July 21, 2020, Marilyn filed an identical answer and counterclaims.
On September 16, 2020, DJD filed a motion to dismiss the
Holsopples’ counterclaims. On November 11, 2020, DJD filed a motion for
judgment on the pleadings. On December 10, 2020, Marilyn filed an opposition to
DJD’s motion for judgment on the pleadings.
On March 19, 2021, DJD filed a motion for summary judgment.
On March 26, 2021, the court granted DJD’s motion to dismiss the
counterclaims and denied their motion for judgment on the pleadings.
On April 16, 2021, Marilyn filed an opposition to DJD’s motion for
summary judgment. On April 26, 2021, DJD filed a reply brief in support of its
motion for summary judgment.
On June 17, 2021, the trial court denied DJD’s motion for summary
judgment. The court scheduled a pretrial conference to reset a trial date. Trial was
subsequently scheduled and continued numerous times.
On April 26, 2022, the trial court reconsidered its June 17, 2021
denial of DJD’s motion for summary judgment, issuing the following journal entry:
On June 17, 2021, this court denied plaintiff’s motion for summary
judgment. However, upon a second review of the motion and the brief
in opposition, the court hereby vacates this order. This court has the
authority to reconsider previous rulings that are not final appealable
orders. See Chubb Group of Ins. Cos. V. Guyuron, 8th Dist. Cuyahoga
No. 68468, 1995 Ohio App. LEXIS 5512 (Dec. 14, 1995). The court,
having reconsidered all the evidence and having construed the
evidence most strongly in favor of the non-moving party as is required
under Civ.R. 56, determines that reasonable minds can come to but one
conclusion, that there are no genuine issues of material fact, and that
plaintiff is entitled to judgment as a matter of law. Plaintiff has
properly executed the option according to the option agreement and
therefore the parties are contractually bound to complete the planned
sale of the property. There being no genuine issue of material fact, this
court finds that defendants are in breach of the contract for the sale of
the property. Plaintiff may exercise their option to purchase the
property in accordance with the contract within 90 days of this order.
If [plaintiff elects] to do so, defendants are bound to complete the sale
upon plaintiff’s exercise of their option to purchase. There is no just
cause for delay. Court cost assessed to the defendant(s).
On May 17, 2022, the Holsopples filed a motion to vacate judgment
pursuant to Civ.R. 60(B).
On May 25, 2022, the Holsopples filed a notice of appeal from the
trial court’s April 26, 2022 journal entry granting summary judgment in favor of
DJD — 8th Dist. Cuyahoga No. 111549. On June 1, 2022, the trial court issued a
journal entry noting that the case was automatically stayed pending the Holsopples’
appeal.
On June 16, 2022, this court remanded the case to the trial court for
the sole purpose of allowing the trial court to rule on the Holsopples’ Civ.R. 60(B)
motion. On June 22, 2022, the trial court denied the Holsopples’ Civ.R. 60(B)
motion. On July 5, 2022, the Holsopples filed a second notice of appeal from the
trial court’s denial of their Civ.R. 60(B) motion — 8th Dist. Cuyahoga No. 111696.
On July 6, 2022, this court consolidated both appeals.1
Assignments of Error
The Holsopples raise the following assignments of error for our
review:
I. The trial court erred in granting summary judgment for plaintiff on
the issue that plaintiff had sufficiently accepted defendants’ option to
purchase their condominium unit by sending escrow documents to
defendants in lieu of sending them a written notice of acceptance as set
forth in the option/purchase agreement before establishing the escrow.
II. The trial court erred in granting summary judgment for plaintiff on
the issue that plaintiff’s failure to deposit the purchase price money in
1 While the Holsopples’ second notice of appeal was from the trial court’s denial of
their Civ.R. 60(B) motion, they raise no assignments of error in this consolidated appeal
related to that judgment.
escrow, coupled with the escrow agent’s employee instructing
defendants not to return any signed escrow documents and the failure
of the plaintiff to pay the agreed $100 to extend the termination date
by 60 days from May 13, 2022 [sic], meant that the contract was also
terminated by plaintiff’s failure to comply with the terms of the
agreement before the original May 13, 2022 [sic] agreed deadline.
Legal Analysis
I. Standard of Review
The Holsopples’ assignments of error both challenge the trial court’s
summary judgment decision. We review a trial court’s summary judgment decision
de novo, applying the same standard that the trial court applies under Civ.R. 56(C).
Grafton v. Ohio Edison Co., 77 Ohio St.3d 102, 105, 671 N.E.2d 241 (1996). Under
Civ.R. 56(C), summary judgment is appropriate when (1) there is no genuine issue
of material fact, (2) the moving party is entitled to judgment as a matter of law, and
(3) after construing the evidence most favorably for the party against whom the
motion is made, reasonable minds can reach only a conclusion that is adverse to the
nonmoving party. Civ.R. 56(C).
On a motion for summary judgment, the moving party carries an
initial burden of identifying specific facts in the record that demonstrate the absence
of a genuine issue of material fact and entitlement to summary judgment as a matter
of law. Dresher v. Burt, 75 Ohio St.3d 280, 292-293, 662 N.E.2d 264 (1996). If the
moving party fails to meet this burden, summary judgment is not appropriate; if the
moving party meets this burden, the nonmoving party must then point to evidence
of specific facts in the record demonstrating the existence of a genuine issue of
material fact for trial. Id. at 293. If the nonmoving party fails to meet this burden,
summary judgment is appropriate. Id.
An option contract for the purchase of real property is defined as “an
agreement wherein the legal titleholder of the property grants another person the
privilege, without the obligation, to purchase the real property at a set price within
a set time.” A & J Homes, Inc. v. Green, 8th Dist. Cuyahoga No. 101416, 2015-Ohio-
1290, ¶ 14, quoting Am. Servicing Corp. v. Wannemacher, 2014-Ohio-3984, 19
N.E.3d 566, ¶ 14-15 (3d Dist.). An option contract consists of the following two
elements:
(1) an offer to buy, sell, or perform some act, which becomes a contract
if properly accepted; and
(2) the binding agreement to leave the offer open for the specified time.
Id., quoting Central Funding, Inc. v. CompuServe Interactive Servs., Inc., 10th Dist.
Franklin No. 02AP-972, 2003-Ohio-5037, ¶ 38.
II. Law and Analysis
In the Holsopples’ first assignment of error, they assert that the trial
court erred in granting summary judgment for DJD by finding that DJD’s delivery
of escrow documents to the Holsopples constituted proper written notice under the
option agreement. Specifically, the Holsopples state that “an acceptance must
comply with the requirements of the offer as to the promise to be made or the
performance to be rendered.” Restatement of the Law 2d, Contracts, Section 58,
(1981). DJD’s decision to send escrow documents, according to the Holsopples, was
insufficient to constitute written notice under the option agreement.
The Holsopples are correct that a party’s means of accepting an offer,
or exercising an option, must comply with terms set forth in the option agreement.
What their argument fails to include, however, is any explanation of why the escrow
documents, timely receipt of which they acknowledged in their answer, do not
constitute written notice.
The option agreement here specifies that the written notice be timely
and delivered to the Holsopples, not by certified mail. The option agreement does
not specify the form or content of the written notice. The documents received by the
Holsopples, prior to the expiration of the 120-day option period, were escrow and
closing documents related to the option agreement. The Holsopples have not
provided any explanation or support for their assertion that these documents
somehow failed to communicate DJD’s intent to exercise its option, and our review
of the record does not reveal any information that might support this assertion. On
the contrary, the record — including the Holsopples’ own answers — reveals that
upon receiving these documents, Marilyn communicated with a representative of
the title company about the prospective sale, going so far as to confirm with the
representative that DJD’s purchase of the property was to be a cash transaction.
Therefore, we find no genuine issues of material fact with respect to whether DJD
properly exercised its option to purchase the Holsopples’ condominium. The
Holsopples’ first assignment of error is overruled.
In the Holsopples’ second assignment of error, they argue that the
trial court erred in granting summary judgment for DJD because DJD’s failure to
deposit the purchase price money in escrow and their failure to pay the agreed $100
to extend the option period by an additional 60 days effectively terminated the
option agreement.
As an initial matter, we note that nothing in the option agreement, or
in contract law generally, supports the Holsopples’ ultimate assertion that the failure
to deposit $100 in escrow would somehow invalidate the underlying option
agreement. Moreover, based on our review of the record, and in accordance with
our conclusion in the foregoing assignment of error, DJD properly exercised its
option under the option agreement prior to the May 12, 2020 expiration of the
option term. While both parties agree that DJD wrote to the Holsopples requesting
an extension of the term for $100, this request — and any subsequent failure to pay
$100 — has no bearing on the summary judgment determination in this case.
Therefore, the Holsopples’ second assignment of error is overruled.
Judgment affirmed.
It is ordered that appellee recover from appellants costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate issue out of this court directing the
common pleas court to carry this judgment into execution.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27
of the Rules of Appellate Procedure.
MARY EILEEN KILBANE, PRESIDING JUDGE
LISA B. FORBES, J., and
MARY J. BOYLE, J., CONCUR | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484587/ | People v Fajardo (2022 NY Slip Op 06562)
People v Fajardo
2022 NY Slip Op 06562
Decided on November 17, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 17, 2022
Before: Kern, J.P., Scarpulla, Rodriguez, Pitt, Higgitt, JJ.
Ind No. 3162/19 Appeal No. 16667 Case No. 2021-02644
[*1]The People of the State of New York, Respondent,
vJessenia Fajardo, Defendant-Appellant.
Caprice R. Jenerson, Office of the Appellate Defender, New York (Morgan Reed of counsel), for appellant.
Alvin L. Bragg, Jr., District Attorney, New York (Karl Z. Deuble of counsel), for respondent.
An appeal having been taken to this Court by the above-named appellant from a judgment of the Supreme Court, New York County (April Newbauer, J.), rendered April 02, 2021,
Said appeal having been argued by counsel for the respective parties, due deliberation having been had thereon, and finding the sentence not excessive,
It is unanimously ordered that the judgment so appealed from be and the same is hereby affirmed.
THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022
Counsel for appellant is referred to
§ 606.5, Rules of the Appellate Division,
First Department. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484662/ | [Cite as State v. Stansell, 2022-Ohio-4079.]
COURT OF APPEALS OF OHIO
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
STATE OF OHIO, :
Plaintiff-Appellee, :
v. : No. 101555
MICHAEL STANSELL, :
Defendant-Appellant. :
JOURNAL ENTRY AND OPINION
JUDGMENT: APPLICATION DENIED
RELEASED AND JOURNALIZED: November 15, 2022
Cuyahoga County Court of Common Pleas
Case No. CR-07-356129-A
Application for Reopening
Motion No. 558612
Appearances:
Michael C. O’Malley, Cuyahoga County Prosecuting
Attorney, and Katherine E. Mullin, Assistant Prosecuting
Attorney, for appellee.
Michael Stansell, pro se.
SEAN C. GALLAGHER, A.J.:
Applicant, Michael Stansell, seeks to reopen his appeal in State v.
Stansell, 8th Dist. Cuyahoga No. 101555, 2015-Ohio-1822. However, this is an
appeal from an order of the trial court imposing postrelease control from a limited
remand from this court, not a direct appeal from his conviction and sentence. As a
result, App.R. 26(B) is inapplicable to this appeal. For this and other reasons
outlined below, the application is denied.
Stansell was convicted of various sexual offenses in 1998, for which
he received an aggregate sentence of imprisonment of 20 years to life. He appealed
his convictions to this court, which were affirmed. State v. Stansell, 8th Dist.
Cuyahoga No. 75889, 2000 Ohio App. LEXIS 1726 (Apr. 20, 2000) (“Stansell I”).
In 2013, Stansell filed a motion to vacate the 1998 sexually violent predator
specification of which he was convicted. The trial court denied the motion, and
Stansell appealed. We upheld the trial court’s denial of the motion but remanded
for the limited purpose of advising Stansell of and to properly impose postrelease
control. State v. Stansell, 2014-Ohio-1633, 10 N.E.3d 795, ¶ 21, 23 (8th Dist.)
(“Stansell II”).
On remand, the trial court held a limited sentencing hearing where
Stansell was informed of postrelease control and the court imposed court costs and
entered judgment against Stansell in an amount equal to the costs of his
prosecution. Stansell appealed from this order, claiming the court erred when it
imposed court costs and entered a judgment against him in the amount of those
costs. Stansell, 8th Dist. Cuyahoga No. 101555, 2015-Ohio-1822 (“Stansell III”). On
May 14, 2015, this court journalized an opinion affirming the judgment of the trial
court. We found that Stansell was ordered to pay court costs in the original 1998
sentencing entry and a claim to the contrary was barred by res judicata. Id. at ¶ 6.
In 2019, Stansell filed a motion to vacate his sexually violent predator
specification and sentence with the trial court. The court denied the motion, and
Stansell appealed that decision. State v. Stansell, 2021-Ohio-203, 166 N.E.3d 1287
(8th Dist.) (“Stansell IV”). The panel hearing this appeal initially agreed with him
and vacated his sentence relative to the sexually violent predator specification.1 Id.
However, in a decision en banc, this court affirmed the trial court’s denial of
Stansell’s motion. State v. Stansell, 2021-Ohio-2036, 173 N.E.3d 1273 (8th Dist.)
(“En banc Stansell”). A majority of judges sitting en banc, based on the Ohio
Supreme Court’s decisions in State v. Harper, 160 Ohio St.3d 480, 2020-Ohio-2913,
159 N.E.3d 248, and State v. Henderson, 161 Ohio St.3d 285, 2020-Ohio-4784, 162
N.E.3d 776, found that the error Stansell raised involved a sentence that was
voidable, not void. En banc Stansell at ¶ 11. As a result, the three-judge merit panel
determined that collateral review of the sentence for the sexually violent predator
specification was precluded because it was not raised in the direct appeal. Id. at ¶ 6.
In a concurring opinion, it was noted that “offenders seeking to challenge an
allegedly erroneous sentence must do so in a timely direct appeal. If the error is not
timely challenged, it could only be raised in a motion to reopen the appeal under
1This decision was on reconsideration and replaced the originally issued opinion, State
v. Stansell, 2020-Ohio-3674, 154 N.E.3d 1179 (8th Dist.).
App.R. 26(B) or, if no appeal has been filed, as a delayed appeal under App.R. 5(A).”
Id. at ¶ 23, fn. 2 (S. Gallagher, J., concurring).
On October 3, 2022, Stansell filed an application to reopen Stansell
III, rather than Stansell I. The state filed a timely brief in opposition on November 1,
2022. There, it argued that the application was untimely without good cause shown
and the application failed on the merits.
App.R. 26(B) provides for a limited means of reopening a direct
appeal from the “judgment of conviction and sentence” based on a claim of
ineffective assistance of appellate counsel. Appeals from other collateral attacks on
the conviction and sentence are not subject to reopening. State v. Melendez, 8th
Dist. Cuyahoga No. 109199, 2021-Ohio-840; State v. Lawrence, 8th Dist. Cuyahoga
No. 109951, 2021-Ohio-3357, citing State v. Perotti, 8th Dist. Cuyahoga No. 73743,
2005-Ohio-2175, ¶ 3, citing State v. Loomer, 76 Ohio St.3d 398, 667 N.E.2d 1209
(1996).
Here, Stansell is not attempting to reopen his direct appeal from the
judgment of conviction and sentence. He is attempting to reopen an appeal from a
limited sentencing hearing, the sole purpose of which was to inform him of the
applicability and consequences of postrelease control. If this application is granted
and the appeal is reopened, the issues would be limited to those that could properly
be raised in that appeal. Those issues are confined to the purpose of the sentencing
hearing: to properly inform applicant of postrelease control. See Stansell III at ¶ 6,
citing State v. Ketterer, 140 Ohio St.3d 400, 2014-Ohio-3973, 18 N.E.3d 1199, ¶ 25-
27. The trial court had no jurisdiction to address issues beyond the scope of the
limited remand, and therefore appellate counsel could not be ineffective for failing
to raise any such issue. The holding of En banc Stansell, that res judicata bars
collateral sentencing review when not raised in a direct appeal, would equally apply
to a claim that appellate counsel was ineffective for not challenging the sexually
violent predator specification and related sentence. Therefore, the application must
be denied.
App.R. 26(B) is inapplicable to the present appeal. Therefore, we
decline to address whether the significant delay between the journalization of the
appellate decision in Stansell III (May 14, 2015) and the filing date of the application
(October 3, 2022) should be excused for good cause shown.
Application denied.
____________________________________
SEAN C. GALLAGHER, ADMINISTRATIVE JUDGE
MICHELLE J. SHEEHAN, J., and
LISA B. FORBES, J., CONCUR | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484622/ | People v Chevannes (2022 NY Slip Op 06441)
People v Chevannes
2022 NY Slip Op 06441
Decided on November 15, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 15, 2022
Before: Manzanet-Daniels, J.P., Webber, Mazzarelli, Friedman, Shulman, JJ.
Ind. No. 971/17 Appeal No. 16656 Case No. 2019-1862
[*1]The People of the State of New York, Respondent,
vGary Chevannes, Defendant-Appellant.
Janet E. Sabel, The Legal Aid Society, New York (Heidi Bota of counsel), for appellant.
Darcel D. Clark, District Attorney, Bronx (Rafael Curbelo of counsel), for respondent.
An appeal having been taken to this Court by the above-named appellant from a judgment of the Supreme Court, Bronx County (April A. Newbauer, J.), rendered November 27, 2018,
Said appeal having been argued by counsel for the respective parties, due deliberation having been had thereon, and finding the sentence not excessive,
It is unanimously ordered that the judgment so appealed from be and the same is hereby affirmed.
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 15, 2022
Counsel for appellant is referred to § 606.5, Rules of the Appellate Division, First Department. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484661/ | [Cite as Capital One Bank v. McCladdie, 2022-Ohio-4082.]
COURT OF APPEALS OF OHIO
EIGHTH APPELLATE DISTRICT
COUNTY OF CUYAHOGA
CAPITAL ONE BANK (U.S.A.), N.A., :
Plaintiff-Appellee, :
No. 111289
v. :
ANTONIO M. MCCLADDIE, :
Defendant-Appellant. :
JOURNAL ENTRY AND OPINION
JUDGMENT: AFFIRMED
RELEASED AND JOURNALIZED: November 17, 2022
Civil Appeal from the Cuyahoga County Court of Common Pleas
Case No. CV-21-943806
Appearances:
Weltman, Weinberg & Reis, Co., L.P.A., and Daniel A.
Friedlander, for appellee.
Antonio M. McCladdie-El, pro se.
ANITA LASTER MAYS, P.J.:
Defendant-appellant Antonio M. McCladdie, who also refers to
himself in his appellate filing as “Antonio M. McCladdie-El,” (“McCladdie”) appeals
the trial court’s grant of summary judgment in favor of plaintiff-appellee Capital One
Bank (U.S.A.), N.A. (“Capital One”). We affirm the trial court’s judgment.
On February 8, 2021, Capital One filed an action on account against
McCladdie seeking a judgment for an outstanding Mastercard Platinum credit card
balance in the sum of $5,024.02. Capital One claimed McCladdie applied for a credit
card account and by use of the account, became bound by the printed terms and
conditions attached as an exhibit to the complaint. Capital One did not seek and
fully disclaimed the right to any attorney fees, or contractual or statutory interest
after the date of charge off including post-judgment interest.
On June 23, 2021, McCladdie filed a motion for leave to file answer
instanter pursuant to “Civ.R. 6(B).” The motion was accompanied by a purported
“answer” in the form of an affidavit of fact and included an averment that McCladdie
is an “Aboriginal Moorish American Natural Person, in Propia persona Sui Juris and
not an artificial corporate person, nor any other fraudulent misrepresentation.”
McCladdie also denied liability.
On July 6, 2021, the trial court denied McCladdie’s motion.
Defendant filed a motion (in Propia persona, Sui Juris) for leave to file
answer instanter (answer attached) on 06/23/2021. The complaint
was served in accordance with the civil rules and defendant failed to file
a timely answer. Defendant’s claim that he did not file a timely answer
“because proper service was never received via certified mail” is not
well taken. Defendant has not shown his failure to file a timely answer
was due to excusable neglect and, therefore, defendant’s motion is
denied.
Journal entry No. 117721819 (July 6, 2021).
On August 11, 2021, McCladdie filed a motion to vacate the default
judgment that was opposed by Capital One. On September 9, 2021, the trial court
ruled, “for good cause shown, this court finds defendant’s motion to vacate default
judgment is meritorious and grants said motion. * * * The case is reinstated to the
court’s active docket.” Journal entry No. 118597265 (Sept. 9, 2021).
On November 15, 2021, McCladdie filed an answer similar in content
to his prior filing. McCladdie explained that on August 15, 2018, he joined the
Moorish Science Temple of America and on May 9, 2019, the Cuyahoga County
Probate Court issued a judgment entry authorizing his name change from “Antonio
Martel McCladdie” to “Antonio Martel McCladdie-El.” A copy of the entry was
attached to the filing. As a result of his conversion, McCladdie averred that he is an
“Aboriginal Moorish American Natural Person, in Propia persona Sui Juris and not
an artificial corporate person, nor any other fraudulent misrepresentation.”
McCladdie denied that a contract existed with Capital One and argued
that Capital One has failed to prove an action on account with agreed terms and
conditions. Also, McCladdie claimed that Capital One has failed to produce a
contract, corporate charter, and foreign registration with the Ohio Attorney General
to confirm standing and good faith. McCladdie demanded that Capital One submit
receipts of every transaction made during the entire period the alleged credit card
was used. In addition, McCladdie stated that Capital One violated 15 U.S.C.
1692(e)(3) of the Fair Debt Collections Practice Act “for attempting to conduct
business with an entity no longer doing business.”1
Capital One moved for summary judgment on December 14, 2021. In
addition to the printed terms and conditions, Capital One submitted copies of
account statements, terms and conditions, and a supporting affidavit.
McCladdie’s brief in opposition expounded on the prior affidavit.
I AM, Antonio Martel McCladdie EL, identified by the Union States
Society of North America-U.S.A, under the colorable, artificial person,
ANTONIO MARTEL MCCLADDIE EL, a Moorish American based on
the fact(s) that I am a descendant of Moroccans born in America (Jus
Soli and Jus Sanguinis), Domicile in the Ohio Territory, and am a
member of the Moorish Science Temple of America theocratic
government (body politic). My religion is “Islamism” and “Old Time”
religion.
I, being Moorish-American have through “United Nations Declaration
on the Rights of Indigenous Peoples,” rights secured in the United
States Constitution and Ohio Constitution. A few of my rights are right
of self-identification, right to a nationality, a right to belong to an
indigenous community or nation, in accordance with the traditions and
customs of the community or nation concerned, a right to practice and
revitalize Moorish-American cultural traditions and customs etc.
I affirm that these rights are secured in the first, fourth, fifth, ninth and
tenth amendments of the United States of America Constitution and
Article 1 Section 1, Article 1 Section 7, Article 1 Section 14, and Article 1
Section 20 of the Ohio Constitution. I affirm that it is a Moorish-
American custom(s) and tradition(s) to use EL, Bey and Ali as titles,
1 15 U.S.C. 1692(e)(3) provides:
A debt collector may not use any false, deceptive, or misleading
representation or means in connection with the collection of any debt.
Without limiting the general application of the foregoing, the following
conduct is a violation of this section: * * * (3) The false representation
or implication that any individual is an attorney or that any
communication is from an attorney.
names, or both. House Resolution Number Seventy-Five (75): dated
April 17,1933 (Moorish-American Society of Philadelphia and the use
of their names.) Furthermore, religious belief need not be acceptable,
logical, consistent or comprehensible to others to merit first
amendment protection. Thomas v. Review Board of the Indiana
Employment Security Division Et Al, 450 U.S. 707 (1981).
Appellant’s brief, p.1-2.
Thus, McCladdie stated that he is a “sovereign citizen.” Generally,
sovereign citizens, whether tied to an organization or not, adhere to a
view that the existing American governmental structure, including the
courts and law enforcement, is illegitimate and that they, the sovereign
citizens, retain an individual common law identity exempting them
from the authority of those fraudulent government institutions [i.e., the
federal citizens].
University of North Carolina at Chapel Hill School of Government, A Quick Guide
to Sovereign Citizens, p.1 (Rev. Nov. 2013).
Another tenet reportedly adopted by sovereign citizens is that “the
federal government substituted its citizens as collateral for the country’s debts by
pledging each citizen’s future earnings to foreign investors” “when the federal
government abandoned the gold standard in the 1930s.” Id. at p. 2. As a result, “two
separate identities are created. The corporate shell account, the one pledged as
security, is the ‘strawman’ to which sovereign citizens refer and, in their view, is
separate and distinct from their true flesh and blood identity.” Id. Use of the suffix
such as “Bey” or “El Bey” distinguishes the sovereign individual. Another example
is for “John Doe * * *, Authorized Representative * * * of JOHN DOE.” Id.
“[S]overeign citizens reject the current federal, state and local governments and
consider themselves outside their authority.” Id. at p. 3.
McCladdie denied that a contract existed between the parties, claimed
that counsel for Capital One lacks authority to pursue the action, and stated the
claims are fraudulent. McCladdie also restated that Capital One failed to respond to
the answer affidavit that requested copies of documents including the “international
contract” between the parties, and that the failure to submit those documents means
that McCladdie’s affidavit is true.
On January 20, 2022, the trial court granted summary judgment.
McCladdie appeals and offers a single assignment of error:
The trial court abused its discretion by allowing a summary judgment
when sufficient evidence was not produced that an international
contract between the two parties existed. The defendant was denied
due process of law under the Fifth Amendment of the Constitution of
the United States of America by the court reaching a decision in favor
of the plaintiff without a trial and without an international contract.
Defendant was also denied the right to face an accuser which violates
rights protected under the Sixth Amendment of the Constitution of the
United States of America. The Defendant was also denied evidence per
the Ohio Rules of Discovery Title V Rule 26.
We first state that “‘[p]ro se civil litigants are bound by the same rules
and procedures as those litigants who retain counsel.’” Heller v. Ohio Dept. of
Jobs & Family Servs., 8th Dist. Cuyahoga No. 92965, 2010-Ohio-517, ¶ 18, quoting
Meyers v. First Natl. Bank of Cincinnati, 3 Ohio App.3d 209, 210, 444 N.E.2d 412,
(1st Dist.1981). “They are not to be accorded greater rights and must accept the
results of their own mistakes and errors.” Id.
We also add that Ohio courts have rejected arguments that the courts
lack subject-matter and personal jurisdiction over natural or sovereign persons.
Village of St. Paris v. Galluzzo, 2d Dist. Champaign No. 2014-CA-29, 2015-Ohio-
3385, ¶ 36, citing Village of St. Paris v. Galluzzo, 2d Dist. Champaign No. 2014-CA-
4, 2014-Ohio-3260, ¶ 9-10, and Dayton v. Galluzzo, 2d Dist. Montgomery
No. 25913, 2014-Ohio-4854, ¶ 5-6. “Regardless of an individual’s claimed status of
descent, be it as a ‘sovereign citizen,’ a ‘secured-party creditor,’ or a ‘flesh-and-blood
human being,’ that person is not beyond the jurisdiction of the courts. These
theories should be rejected summarily; however, they are presented.” United
States v. Benabe, 654 F.3d 753, 767 (7th Cir.2011).
An appellate court’s review of a trial court’s summary-judgment
decision is de novo, meaning we use the same standard as the trial court without
deference to the trial court’s decision. Lillie & Holderman v. Dimora, 8th Dist.
Cuyahoga No. 100989, 2015-Ohio-301, ¶ 9, citing Grafton v. Ohio Edison Co., 77
Ohio St.3d 102, 105, 671 N.E.2d 241 (1996), and Lorain Natl. Bank v. Saratoga
Apts., 61 Ohio App.3d 127, 129, 572 N.E.2d 198 (9th Dist.1989).
The moving party must demonstrate, based on pertinent portions of
the record, the absence of a genuine issue of material fact on “an essential element
of the nonmoving party’s claim.” Id., citing Dresher v. Burt, 75 Ohio St.3d 280, 293,
662 N.E.2d 264 (1996). The moving party must show “(1) there is no genuine issue
of material fact, (2) the moving party is entitled to judgment as a matter of law, and
(3) viewing the evidence most strongly in favor of the nonmoving party, reasonable
minds can come to but one conclusion and that conclusion is adverse to the
nonmoving party.” Marusa v. Erie Ins. Co., 136 Ohio St.3d 118, 2013-Ohio-1957,
991 N.E.2d 232, ¶ 7, Civ.R. 56.
Once the nonmoving party has met its burden, the burden shifts to
the nonmoving party to set forth specific facts and submit evidentiary materials that
demonstrate that a genuine issue of material fact exists. Dimora, 8th Dist.
Cuyahoga No. 100989, 2015-Ohio-301, ¶ 9, citing PNC Bank, N.A. v. Bhandari, 6th
Dist. Lucas No. L-12-1335, 2013-Ohio-2477, ¶ 9.
A credit card action on account does not require a signed written
agreement. As this court has explained, “the credit card relationship is an offer by
the issuer for a series of unilateral contracts that are actually formed when the holder
uses the credit card to buy goods or services or to obtain cash.” Unifund CCR,
L.L.C. v. Johnson, 8th Dist. Cuyahoga No. 100600, 2014-Ohio-4376, ¶ 11, citing
Cavalry SPV I, L.L.C. v. Krantz, 8th Dist. Cuyahoga No. 97422, 2012-Ohio-2202, In
re Ward, 857 F.2d 1082, 1086-1087 (6th Cir.1988). “Thus, rather than needing a
signed written agreement, the use of a credit card results in the person using the
card being bound by the card member agreement.” Id., citing Citibank v. Ebbing,
12th Dist. Butler No. CA2012-12-252, 2013-Ohio-4761, Ohio Receivables, L.L.C. v.
Dallariva, 10th Dist. Franklin No. 11AP-951, 2012-Ohio-3165, ¶ 33.
An action on account is “a pleading device ‘used to consolidate several
claims which one party has against another.’” Garfield Estates, L.L.C. v.
Whittington, 2021-Ohio-211, 167 N.E.3d 113, ¶ 19 (8th Dist.) quoting AMF, Inc. v.
Mravec, 2 Ohio App.3d 29, 440 N.E.2d 600 (8th Dist.1981), paragraph one of the
syllabus. It “‘simplifies pleadings by allowing a party to advance, as one claim,
claims for separate breaches of contract based on a series of transactions by
providing a summary of accounting for the transactions.’” Id., quoting Kwikcolor
Sand v. Fairmount Minerals Ltd., 8th Dist. Cuyahoga No. 96717, 2011-Ohio-
6646,¶ 13.
A party must show “(1) the existence of a contract; (2) performance
by the plaintiff; (3) breach by the defendant and (4) resulting damages to the
plaintiff.” Whittington at ¶ 20. To prevail on the sum due on an account, Capital
One must prove:
(1) a beginning balance (zero, or a sum that can qualify as an account
stated, or some other provable sum); (2) listed items, or an item, dated
and identifiable by number or otherwise, representing charges, or
debits, and credits; and (3) a summarization by means of a running or
developing balance, or an arrangement of beginning balance and items
which permits the calculation of the amount claimed to be due.
Id., quoting Discover Bank v. Pierce, 2d Dist. Montgomery No. 25755, 2014-Ohio-
625, ¶ 17.
Capital One’s motion for summary judgment is supported by a copy
of the customer agreement of account terms and conditions and copies of account
statements addressed to McCladdie covering the October 25, 2018, to November 24,
2018, through November 25, 2019, to December 24, 2019 final billing cycle. The
statements list the account balance, minimum payment due, purchases, credits,
adjustments, payments, fees, and interest.
The statements reflect payments by McCladdie through May 16, 2019,
the subsequent failures to pay, and final account notification of default and demand
for $5,024.02 as of the final billing period.2 The exhibits are accompanied by a
supporting affidavit by an employee of Capital One Services, L.L.C., the agent,
affiliate, and servicer of the Capital One credit-card activities that attests to the truth
and accuracy of the exhibits.
Thus, the burden shifted to McCladdie to establish with the requisite
support that there is indeed a genuine issue of material fact. McCladdie responded
by reiterating the arguments posed in his prior filings. McCladdie failed to provide
evidence in support of his position that creates a genuine issue of material fact when
viewed in a light most favorable to McCladdie. Dresher, 75 Ohio St.3d 280, 293,
662 N.E.2d 264.
McCladdie also argues that the trial court’s grant of summary
judgment without a hearing usurped McCladdie’s Fifth Amendment right to
procedural due process and Sixth Amendment right to confront his accuser. A trial
court is not required to hold a hearing on motions for summary judgment.
Greenberg v. Markowitz, 8th Dist. Cuyahoga No. 93838, 2010-Ohio-2228, ¶ 5,
citing Doe v. Beach House Dev. Co., 136 Ohio App.3d 573, 737 N.E.2d 141 (8th
Dist.2000). Even if a hearing is requested, holding a hearing is wholly within the
2 Notably, McCladdie's name change was granted by the probate court on May 9,
2019, and no payments were submitted thereafter.
trial court’s discretion. Id., citing Hooten v. Safe Auto Ins. Co., 100 Ohio St.3d 8,
2003-Ohio-4829, 795 N.E.2d 648.
“As applied to summary judgment, procedural due process requires
that a non-moving party have an opportunity to respond before the adjudication of
a motion for summary judgment.” Village of Harbor View v. Jones, 10th Dist.
Franklin Nos. 10AP-356 and 10AP-357, 2010-Ohio-6533, at ¶ 37; State ex rel.
Thernes v. United Local School Bd. Dist. of Edn., 7th Dist. Columbiana No. 07 CO
45, 2008-Ohio-6922, at ¶ 45. The procedural fairness requirements of Civ.R. 56
“place significant responsibilities on all parties and judges to ensure that summary
judgment should be granted only after all parties have had a fair opportunity to be
heard.” Hooten at ¶ 34. “A ‘nonoral hearing’ may include ‘as little as the submission
of memoranda and evidentiary materials for the court’s consideration.’” Id. at ¶ 34,
fn. 1, quoting Brown v. Akron Beacon Journal Publishing Co., 81 Ohio App.3d 135,
139, 610 N.E.2d 507 (1991). Consequently, McCladdie’s argument that his Fifth
Amendment rights were violated is not well taken.
McCladdie’s Sixth Amendment claim also fails as it does not apply to
civil matters. “The right to confront one’s accusers is a fundamental right embodied
in the Sixth Amendment to the U.S. Constitution and applies to state criminal trials
under the Fourteenth Amendment Due Process Clause.” S.H. v. S.P. (In re J.H.),
10th Dist. Franklin No. 13AP-70, 2013-Ohio-3833, ¶ 23, citing State v. Good, 12th
Dist. No. CA86-11-168, 1987 Ohio App. LEXIS 10255 (Dec. 28, 1987), citing
Pointer v. Texas, 380 U.S. 400, 85 S.Ct. 1065, 13 L.Ed.2d 923 (1965). “Thus, the
Confrontation Clauses of the U.S. and Ohio Constitutions apply only to criminal
matters.” Id., citing State v. Hayden, 96 Ohio St.3d 211, 2002-Ohio-4169, 773
N.E.2d 502, ¶ 4.
McCladdie also argues that Capital One failed to produce documents
requested by McCladdie and laces throughout the brief that he is entitled to recovery
on a counterclaim. McCladdie has failed to: separately argue the errors, cite to
portions of the record where the alleged errors are reflected and to offer case law in
support of his assertions pursuant to App.R. 16(A)(7) and (A)(3) respectively.
“App.R. 12(A)(2) authorizes us to disregard any assignment of error that an
appellant fails to separately argue.” Univ. Hts. v. Johanan, 8th Dist. Cuyahoga
No. 110887, 2022-Ohio-2578, ¶ 10.
“[A]n appellate court may indulge a pro se litigant when there is ‘some
semblance of compliance with the appellate rules.’” Allen-Story v. Story, 8th Dist.
Cuyahoga No. 107750, 2019-Ohio-3888, ¶ 18, quoting Modesty v. Michael H.
Peterson & Assoc., 8th Dist. Cuyahoga No. 85653, 2005-Ohio-6022, ¶ 4. However,
The principles of [indulgence or] reasonable leeway for appellant’s pro
se brief do not extend to this court conjuring up questions never
squarely asked or constructing full-blown claims from convoluted
reasoning. Kenwood Gardens Assn., LLC v. Shorter, 6th Dist. Lucas
No. L-10-1315, 2011-Ohio-4135, ¶ 8. Nor does reasonable leeway
extend to crafting well-articulated claims from poorly drafted
arguments. HSBC Bank United States NA v. Beins, 6th Dist. Lucas
No. L-13-1067, 2014-Ohio-56, ¶ 6. Ultimately, a pro se litigant may not
be given any greater rights than a party represented by counsel and
bears the consequences of any litigation mistakes. Id. at ¶ 7.
Walker v. Metro. Environmental Servs., 6th Dist. Lucas No. L-17-1131, 2018-Ohio-
530, ¶ 4. In light of the foregoing, we reject McCladdie’s assertion that he was
somehow improperly denied discovery.
The trial court’s judgment is affirmed.
It is ordered that appellee recover from appellant costs herein taxed.
The court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate issue out of this court directing the
common pleas court to carry this judgment into execution.
A certified copy of this entry shall constitute the mandate pursuant to
Rule 27 of the Rules of Appellate Procedure.
ANITA LASTER MAYS, PRESIDING JUDGE
LISA B. FORBES, J., and
EMANUELLA D. GROVES, J., CONCUR | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484586/ | People v Vega (2022 NY Slip Op 06563)
People v Vega
2022 NY Slip Op 06563
Decided on November 17, 2022
Appellate Division, First Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 17, 2022
Before: Kern, J.P., Scarpulla, Rodriguez, Pitt, Higgitt, JJ.
Ind No. 2988/17 Appeal No. 16682 Case No. 2018-4485
[*1]The People of the State of New York, Respondent,
vRyan Vega, Defendant-Appellant.
Justine M. Luongo, The Legal Aid Society, New York (Harold V. Ferguson, Jr. of counsel), for appellant.
Judgment, Supreme Court, New York County (Felicia A. Mennin, J.), rendered April 10, 2018, unanimously affirmed.
Application by defendant's counsel to withdraw as counsel is granted (see Anders v California , 386 US 738 [1967]; People v Saunders , 52 AD2d 833 [1st Dept 1976]). We have reviewed this record and agree with defendant's assigned counsel that there are no non-frivolous points which could be raised on this appeal.
Pursuant to Criminal Procedure Law § 460.20, defendant may apply for leave to appeal to the Court of Appeals by making application to the Chief Judge of that Court and by submitting such application to the Clerk of that Court or to a Justice of the Appellate Division of the Supreme Court of this Department on reasonable notice to the respondent within thirty (30) days after service of a copy of this order.
Denial of the application for permission to appeal by the judge or justice first
applied to is final and no new application may thereafter be made to any other judge or justice.
THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484666/ | Filed 11/17/22 Taft v. County of Ventura CA2/6
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion
has not been certified for publication or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SIX
FOSTER TAFT, 2d Civ. No. B319644
(Super. Ct. No. 56-2021-
Plaintiff and Appellant, 00551080-CU-CR-VTA)
(Ventura County)
v.
COUNTY OF VENTURA et al.,
Defendants and
Respondents.
Foster Taft appeals a judgment of dismissal following the
sustaining of a demurrer without leave to amend on his lawsuit
against defendants County of Ventura (County), Ventura County
Medical Center (VCMC), and County employee “Karen”
(collectively the County).
Taft alleges the County improperly released his medical
information after receiving a subpoena that he alleges was
invalid. (Civ. Code,1 § 56.10, subd. (a).) We conclude, among
other things, that Taft did not have a valid cause of action under
1) section 56.10; 2) the litigation privilege; 3) the Civil Rights Act
(42 U.S.C. § 1983); 4) the Health Insurance Portability and
Accountability Act of 1996 (HIPAA) (42 U.S.C. § 1320d; 45 C.F.R.
164.502); and 5) the federal Privacy Act (5 U.S.C. § 552a). The
trial court sustained demurrers to these causes of action and
imposed sanctions on Taft. We affirm.
FACTS
In 2020, Taft sued David West in the Los Angeles Superior
Court (No. 2OSTCV02326) (the West case), alleging personal
injuries he sustained in a traffic accident caused by West. The
law firm Veatch Carlson, LLP and Leslie Burnet represented
West and issued subpoenas to VCMC to obtain Taft’s medical
records. Taft filed a motion to quash the subpoenas. He claimed
the subpoena issued to medical provider Elisabeth Bertoline for
his medical records on June 15, 2020, was invalid because he did
not receive notice of the subpoena until August 23, 2020,
“eighteen days after the subpoenaed documents were produced.”
The trial court denied his motion and found Taft had “not
met his burden” and had not produced “any evidence supporting
[his] motion.” Taft voluntarily dismissed that action on
December 9, 2020.
Taft then sued VCMC in the federal district court for the
Central District of California (No. CV 20-7856-MWF) (Taft v.
VCMC). He alleged VCMC violated HIPAA by releasing his
medical records that did not comply with his authorization for a
“limited release” of information. The federal district court
All statutory references are to the Civil Code unless
1
otherwise stated.
2
dismissed this case on January 6, 2021, finding Taft had no
private right of action under HIPAA. Taft sought to amend the
complaint to allege a claim against the County under the federal
Privacy Act (5 U.S.C. § 552a). The court denied the request to
amend and ruled the Privacy Act “does not provide a private
right of action for disclosure of medical records.” It also ruled
that it “declines to exercise supplemental jurisdiction over the
remaining state law claims.”
The Current Case
On February 24, 2021, Taft sued Veatch Carlson, LLP,
Leslie Burnet, VCMC, and County employee “Karen” in the trial
court alleging “illegal acquisition and unauthorized disclosure of
medical information.” (Boldface and capitalization omitted.) He
claimed the June 15, 2020, subpoena Veatch Carlson and Burnet
issued to medical provider Bertoline was invalid because he did
not receive notice of that subpoena until “after [August 23].” He
alleged that by releasing his medical records in response to the
invalid subpoena, the County violated, among other things,
section 56.10, HIPAA (45 C.F.R. 164.502), and the federal Privacy
Act (5 U.S.C. § 552a). He sought “monetary damages.”
The County demurred claiming Taft failed to state facts
sufficient to state a cause of action because: 1) the subpoena was
proper under section 56.10, subdivision (b)(3); 2) the section 56.10
cause of action was “barred by the litigation privilege set forth in
[section] 47”; 3) Taft’s claim that the June 15th subpoena was
invalid was resolved against him when the Los Angeles Superior
Court in the West case denied his motion to quash service of that
subpoena on December 9, 2020; 4) Taft attached a copy of the
June 15th subpoena to his complaint and it contains a
declaration of service showing service by mail on him at his
3
address; and 5) Taft had no private right of action under HIPAA
or the federal Privacy Act.
The trial court sustained the demurrer without leave to
amend. It found: 1) Taft’s medical records “were obtained
pursuant to a valid subpoena which affords them the protection
of the litigation privilege,” 2) Taft has no private right of action
under HIPAA and the federal Privacy Act, and 3) the court
granted the County’s motion for sanctions against Taft.
DISCUSSION
Section 56.10
Section 56.10, subdivision (a) prohibits a provider of health
care from “disclosing medical information regarding a patient”
without “first obtaining an authorization.” But that section also
provides that a provider of health care “shall disclose medical
information if the disclosure is compelled” pursuant “to a
subpoena, subpoena duces tecum.” (§ 56.10, subd. (b)(3), italics
added.)
The word “shall” shows a mandatory duty to release the
information subpoenaed. (Doe v. Albany Unified School Dist.
(2010) 190 Cal.App.4th 668, 676.) Here the County produced the
records in response to the subpoena. There is normally immunity
from liability for releasing records to comply with a subpoena.
(Heller v. Norcal Mutual Ins. Co. (1994) 8 Cal.4th 30, 45; Nelson
v. Tucker Ellis, LLP (2020) 48 Cal.App.5th 827, 848.)
The statute protects the privacy of Taft’s medical records,
but this protection is not absolute. Section 56.10 “enumerates
numerous instances where disclosure of confidential information
is either mandatory or permissive.” (McNair v. City and County
of San Francisco (2016) 5 Cal.App.5th 1154, 1165.) Taft sued
West for injuries suffered and those injuries were at issue in that
4
lawsuit. The Veatch Carlson law firm represented West and
conducted discovery. “A plaintiff seeking to recover damages
arising out of a particular injury cannot claim the physician-
patient privilege with respect to that injury because plaintiff’s
action tenders the issue.” (Manela v. Superior Court (2009) 177
Cal.App.4th 1139, 1149.)
Taft claims the June 15th subpoena was not valid because
he was not served notice of that subpoena. He is correct that
notice is required to be given to the patient when his medical
records are subpoenaed. But he has not shown how the County is
liable under section 56.10 because it was the Veatch Carlson law
firm that allegedly did not comply with proper notice of service.
Nor has Taft shown that the Legislature intended to
impose liability on medical providers who comply with their
statutory duty to release records in response to a facially valid
subpoena. (California School Employees Assn. v. Governing Bd.
of South Orange County Community College Dist. (2004) 124
Cal.App.4th 574, 587-588.) Taft attached a copy of the June 15th
subpoena as an exhibit to his complaint. It contains a declaration
of service showing service of a copy of that subpoena on Taft at
his address. “[F]acts appearing in exhibits attached to the
complaint will also be accepted as true and, if contrary to the
allegations in the pleading, will be given precedence.” (Dodd v.
Citizens Bank of Costa Mesa (1990) 222 Cal.App.3d 1624, 1627.)
We also previously rejected Taft’s claim that the subpoena
was defective for non-service in his prior appeal. (Taft v. Veatch
Carlson, LLP (Oct. 12, 2022, B315479) [nonpub. opn.].) As the
County notes, Taft’s claim that he was not served with the June
15th subpoena was also barred by collateral estoppel because
“this issue had been adjudicated adversely to Taft by the Los
5
Angeles Superior Court in connection with Taft’s motion to
quash” in the prior West case. (Ayala v. Dawson (2017) 13
Cal.App.5th 1319, 1326.)
The Litigation Privilege (§ 47)
The trial court did not err by ruling the County also fell
within the protection of the litigation privilege. (§ 47.)
“The ‘principal purpose’ of the litigation privilege is ‘to
afford litigants and witnesses . . . the utmost freedom of access to
the courts without fear of being harassed subsequently by
derivative tort actions.’ ” (Foothill Federal Credit Union v.
Superior Court (2007) 155 Cal.App.4th 632, 636-637.) The
privilege is absolute. (Id. at pp. 635-636, 638.) It “bars all tort
causes of action except malicious prosecution.” (Jacob B. v.
County of Shasta (2007) 40 Cal.4th 948, 960.) It bars “a privacy
cause of action whether labeled as based on common law, statute,
or Constitution.” (Id. at p. 962.) The litigation privilege “is
applied broadly, and doubts are resolved in favor of the privilege.”
(McNair v. City and County of San Francisco, supra, 5
Cal.App.5th at p. 1162.) It applies to lawsuits claiming deficient
service or noncompliance with subpoena rules. (Jacob B., at pp.
960, 962; Foothill Federal Credit Union, at pp. 634, 638.)
“ ‘[A]pplication of the litigation privilege gives the recipient
of a subpoena duces tecum freedom to respond to that subpoena
without fear of being harassed subsequently by derivative tort
actions.’ ” (Nelson v. Tucker Ellis, LLP, supra, 48 Cal.App.5th at
p. 848, italics added.) This is true even where the subpoena “was
deficient because of insufficient notice to the affected consumers.”
(Foothill Federal Credit Union v. Superior Court, supra, 155
Cal.App.4th at p. 642, italics added.)
6
Taft contends the “general litigation privilege cannot shield
defendants from violations of [Code of Civil Procedure section]
1985.3 [the subpoena notice provisions]. If it did, it would render
[Code of Civil Procedure section] 1985.3 useless and inoperable.”
But in rejecting this claim the Foothill court said, “We fail to see
this as a likely result in light of the continued existence of
opportunities for consumers to quash or modify subpoenas
seeking their personal records.” (Foothill Federal Credit Union v.
Superior Court, supra, 155 Cal.App.4th at p. 642, fn. 2.)
A HIPAA Cause of Action
Congress enacted HIPAA to “address concerns about the
confidentiality of health information.” (Johnson v. Quander (D.C.
2005) 370 F.Supp.2d 79, 100.) But “HIPAA itself provides no
private right of action.” (Webb v. Smart Document Solutions,
LLC (9th Cir. 2007) 499 F.3d 1078, 1081; see also Dodd v. Jones
(8th Cir. 2010) 623 F.3d 563, 569; United States v. Streich (9th
Cir. 2009) 560 F.3d 926, 935 (conc. opn. of Kleinfeld, J.); Acara v.
Banks (5th Cir. 2006) 470 F.3d 569, 571-572 [no private right of
action for a patient for a doctor’s alleged violation of the
confidentiality provisions of HIPAA].) HIPAA authorizes the
Secretary of the Department of Health and Human Services to
pursue offenders, but “not a private individual.” (Johnson, at
p. 100; see also Y.C. v. Superior Court (2021) 72 Cal.App.5th 241,
257; McNair v. City and County of San Francisco, supra, 5
Cal.App.5th at p. 1166, fn. 5.)
The Federal Privacy Act (5 U.S.C. § 552a)
The Privacy Act prevents the unauthorized disclosure of
information involving individuals by federal agencies. (St.
Michael’s Convalescent Hospital v. State of California (9th Cir.
1981) 643 F.2d 1369, 1373.) The County is not a federal agency.
7
This federal “statute applies only to the federal government, not
to state or local government agencies.” (Huling v. City of Los
Banos (E.D.Cal. 2012) 869 F. Supp.2d 1139, 1154; see also United
States v. Streich, supra, 560 F.3d at p. 935.) This act does not
authorize a private cause of action against the County. (Ibid; see
also Sutton v. Providence St. Joseph Medical Center (9th Cir.
1999) 192 F.3d 826, 844.)
VCMC and the Exception to the Federal Agency Requirement
Taft notes there is an exception to the federal agency
requirement for entities that are not federal agencies but fall
within the Privacy Act because they are controlled by the federal
government. (Lengerich v. Columbia College (N.D.Ill. 2009) 633
F.Supp.2d 599, 605-606.) To fall within this exception the “courts
will analyze the connections between the entity and the federal
government, considering specifically: (1) the federal
government’s control over the entity; and (2) the entity’s
independent authority to make decisions.” (Id. at p. 606.)
Taft claims VCMC “receives federal funding through Medi-
Cal and Medicare,” its receipt of federal money is highly
regulated by the federal government, and VCMC should be
deemed to fall under the federal Privacy Act.
But there must be a showing that the federal government
has control over the entity’s day-to-day operations, “ ‘and not just
the exercise of regulatory authority necessary to assure
compliance with the goals of the federal grant.’ ” (Lengerich v.
Columbia College, supra, 633 F.Supp.2d at p. 606.)
VCMC is a county hospital supervised and controlled by
County officials and the County’s board of supervisors. (Guzman
v. County of Los Angeles (1991) 234 Cal.App.3d 1343, 1350.)
Hospitals like VCMC do not fall within the Privacy Act because of
8
their receipt of federal funds. (St. Michael’s Convalescent
Hospital v. State of California, supra, 643 F.2d at pp. 1373-1374.)
The act “unambiguously defines the term ‘agency’ as an agency of
the federal government” (Schmitt v. City of Detroit (6th Cir. 2005)
395 F.3d 327, 329), and Congress rejected a bill that would have
included “state authorities” within the act (ibid.) “ ‘to foreclose
private enforcement’ ” against entities such as VCMC.
(Polchowski v. Gorris (7th Cir. 1983) 714 F.2d 749, 752.)
The Federal Civil Rights Act (42 U.S.C. § 1983)
Taft contends the trial court “did not address [his] claim
that 42 U.S.C. 1983 provides a private cause of action for the
HIPAA violations.”
Taft claims he should be given leave to amend to plead a
title 42 United States Code section 1983 (section 1983) cause of
action. “Although section 1983 does on its face apply to both
federal constitutional and federal statutory rights, if there is no
basis for a private right of action under the particular federal
statute, that statute does not create a federal right for purposes
of section 1983.” (Huling v. City of Los Banos, supra, 869
F.Supp.2d at p. 1154; see also Gonzaga University v. Doe (2002)
536 U.S. 273, 286 [153 L.Ed.2d 309, 322-323].) Taft wishes to file
a section 1983 violation based on “HIPAA violations,” but
“HIPAA provides no private right of action.” (Huling, at p. 1154;
Dodd v. Jones, supra, 623 F.3d at p. 1154.) A HIPAA violation
therefore cannot provide the basis for a section 1983 claim.
(Ibid.)
Leave to Amend
Taft claims he “should be granted leave to amend.” “ ‘If the
plaintiff cannot show an abuse of discretion, the trial court’s
order sustaining the demurrer without leave to amend must be
9
affirmed.’ ” (Balikov v. Southern Cal. Gas Co. (2001) 94
Cal.App.4th 816, 820.)
Taft filed a motion for reconsideration but did not show he
could amend to plead a valid cause of action.
Taft also claims the trial court erred by awarding sanctions
against him. But he has not made a showing of abuse of
discretion.
DISPOSITION
The judgment is affirmed. Costs are awarded to
respondent.
NOT TO BE PUBLISHED.
GILBERT, P. J.
We concur:
YEGAN, J.
BALTODANO, J.
10
Jeffrey G. Bennett, Henry J. Walsh, Judges
Superior Court County of Ventura
______________________________
Foster Taft, in pro. per., for Plaintiff and Appellant.
Clinkenbeard, Ramsey, Spackman & Clark, Hugh S.
Spackman and Cathy Anderson for Defendants and Respondents.
11 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484667/ | Filed 11/17/22 P. v. Williams CA4/1
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
THE PEOPLE, D080566
Plaintiff and Respondent,
v. (Super. Ct. No. SCE197202)
ANTHONY M. WILLIAMS,
Defendant and Appellant.
APPEAL from an order of the Superior Court of San Diego County,
Selena D. Epley, Judge. Affirmed.
Anthony M. Williams, in pro. per.; and William Paul Melcher, under
appointment by the Court of Appeal, for Defendant and Appellant.
No appearance for Plaintiff and Respondent.
In December 2000, a jury convicted Anthony M. Williams of residential
burglary (Pen. Code,1 § 459) and unlawful taking and driving a vehicle (Veh.
Code, § 10851, subd. (a)). The jury found Williams had suffered two strike
1 All further statutory references are to the Penal Code unless otherwise
specified.
priors (§ 667, subds. (b)-(i)) and two serious felony priors (§ 667, subd. (a)(1)).
Williams was sentenced to an indeterminate term of 35 years to life based on
the strike priors and the serious felony priors. One of the serious
felony/strike priors came from a juvenile case No. JDA87281.
Williams appealed and this court affirmed the judgment as modified by
striking the five-year term for the juvenile serious felony true finding.
(People v. Williams (Jan. 24, 2003, D038572, D038600).)2
In December 2021, Williams filed a motion to be resentenced on the
theory his juvenile conviction should have been sealed and therefore
unavailable to qualify as a strike.
In April 2022, Williams filed a motion to seal his juvenile record and to
seek a transfer hearing under Proposition 57. Williams requested a hearing
pursuant to People v. Franklin (2016) 63 Cal.4th 261 (Franklin). He also
requested resentencing of his three strikes sentence based on the contention
the juvenile court finding of his prior serious felony should have been sealed.
The trial court denied the motion in a written order. The court stated
in pertinent part:
“On April 18, 2022, Defendant filed the present motion in
the Juvenile Division of the San Diego Superior Court
setting forth case number JDA 87281. The Defendant’s
juvenile case was adjudicated in 1995. As the juvenile case
is final, the juvenile division does not have jurisdiction to
consider and rule on the present motions filed by
Defendant. Further, the issue relating to the use of
Defendant’s juvenile adjudication is only relevant to his
adult conviction. Thus, the motion was transferred to the
East County Division where case number SCE 197202 was
adjudicated.
2 We granted Appellant’s request for judicial notice of our records in
these cases.
2
“In his motion, Defendant raises the same issue with
regard to his right to have a juvenile fitness hearing. This
issue has been raised multiple times through motions and
petitions for writ of habeas corpus. All motions and
petitions have been denied. As the court has fully
considered and ruled on the underlying issue relating to
Defendant’s right to a juvenile fitness hearing, the court
will not revisit the issue in the present motion.
“Additionally, Defendant contends that the juvenile court
erred in failing to seal his case pursuant to Welfare and
Institutions Code section 786, as he successfully completed
probation. In Defendant’s juvenile matter, the court made
a true finding that Defendant committed assault with the
personal use of a firearm in violation of Penal Code sections
245(a)(2) and 12022.5. [Welfare and Institutions Code3]
section 786(d) states that a court shall not seal a record if
the true finding was based on an offense listed in Section
707(b), which was committed when the juvenile was 14
years of age or older.
“Welfare and Institutions Code section 707(b) lists assault
with a firearm and an offense described in 12022.5 as
exclusions to the sealing of the juvenile court record.[4] As
Defendant’s juvenile adjudication in case number J87281
was based on these code sections, Defendant’s juvenile
record is not subject to sealing.
“Defendant further argues that he is entitled to a
resentencing hearing pursuant to Penal Code section
1170.126. This code section is not applicable to Defendant’s
case, as Defendant’s current sentence is based on a serious
felony conviction. (See Pen. Code, §§ 1170.126(c) and
1192.7(18).)
3 We acknowledge the court intended rather than the “Penal Code,” the
reference is to “Welfare & Institutions Code,” section 786, subdivision (d).
4 “See [Welfare and Institutions Code] subdivisions (b)(13) and (17),
respectively.”
3
“Defendant’s final claim is that he is entitled to a Franklin
Hearing to obtain additional information to be considered
at a youthful offender parole hearing. A youthful offender
parole hearing applies to Defendants sentenced up to 25
years to life. Here, Defendant was sentenced to 30 years to
life. In addition, Defendant was sentenced pursuant to the
Three Strikes law and, as such, is excluded from the
provisions of Penal Code section 3051. (See Pen. Code,
§ 3051 (h)). Thus, Penal Code section 3051 and the
Franklin case are not applicable to Defendant.
“Based on the foregoing, Defendant’s motions are
DENIED.”
Appellate counsel has filed a brief pursuant to People v. Wende (1979)
25 Cal.3d 436 (Wende), indicating counsel has not been able to identify any
arguable issues for reversal on appeal. Counsel asks the court to review the
record for error as mandated by Wende. We offered Williams the opportunity
to file his own brief on appeal. He has responded with a written submission
along with numerous exhibits. We will address his submission later in this
opinion.5
DISCUSSION
As we have noted, appellate counsel has filed a Wende brief and asks
the court to review the record for error. To assist the court in its review, and
in compliance with Anders v. California (1967) 386 U.S. 738 (Anders), counsel
has identified the following possible issues that were considered in evaluating
the potential merits of this appeal:
1. Whether Williams was entitled to a fitness and transfer hearing of
his juvenile serious felony prior under Proposition 57.
2. Whether the court erred in failing to seal his juvenile prior.
5 We discussed the facts of the offenses in our prior opinion. We will not
repeat that discussion here.
4
3. Whether Williams was entitled to a resentencing hearing under
Proposition 36.
4. Whether Williams was entitled to a hearing pursuant to Franklin,
supra, 63 Cal.4th 261.
In his supplemental brief, Williams focuses on his original trial and
some of his multiple challenges he has previously filed with the courts. The
difficulty with his supplemental brief is this appeal arises from the denial of
his “motion” for resentencing and related relief. Most of his submission and
numerous exhibits are not pertinent to the current appeal and its limited
record. We have examined the supplemental brief very carefully and find it
does not identify any arguable issues for reversal on this appeal.
We have reviewed the entire record as required by Wende and Anders.
We have not discovered any arguable issues for reversal of the order from
which this appeal arises. Competent counsel has represented Williams on
this appeal.
5
DISPOSITION
The order of May 27, 2022, denying Williams’s motion for resentencing
and related relief is affirmed.
HUFFMAN, Acting P. J.
WE CONCUR:
AARON, J.
DATO, J.
6 | 01-04-2023 | 11-17-2022 |
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